WRAP has always been a supporter of new business models. We have been an enabler by developing the evidence which encourages entrepreneurs to invest. Once developed, we help by providing funding products to get new business models into the market.
We did it for plastic bottles with a capital grant when bottles were not perceived by the market as economic to reprocess. Closed Loop Recycling, supported by one of our capital grants opened the UK’s first PET plastic bottle factory in Dagenham 2009, providing more than 100 local green jobs. Today, it processes 875 million plastic soft drinks and milk bottles each year and recycles them into food-grade plastic.
Since then more efficient collections and infrastructure have grown too – partly as a result of Closed Loop Recycling, but also the increasing recognition that waste is actually a resource. A total of 93% of UK local authorities in 2011/12 provided plastic bottle recycling services for more than 24 million households and an additional four plastics reprocessing plants in the UK are now producing food-grade recycled plastic from drinks bottles.
When providing grants to businesses, we were usually in the early stages of market development. There was a need to prove to investors and entrepreneurs that a profitable enterprise can be built out of recycling plastic bottles. The appropriate tool for this stage in a market’s development is a grant as the reduced financial risks encourage an entrepreneur to make a leap of faith into a new area where technology and markets have yet to be proven. If the venture fails, the grant does not get repaid, but we (WRAP and entrepreneur alike) can say we tried and learn from the experience.
Where a business model has indicated a commercial upside, but there is insufficient cash forthcoming from traditional lenders to fully fund a new business, WRAP has introduced loans as a tool. It’s a great use of government funds as loans to successful businesses can be recycled into new ventures once they are repaid.
The downside is that some businesses might be unsuccessful and loans may not get repaid, but this is the risk of being at the forefront of market development. However, many of the principles we use when assessing a loan application are the same as with a bank loan and we have seen some excellent examples of success….
ECO Plastics was the first company to benefit from the WRAP Mixed Plastics Loan Fund, which boosted the UK’s capability to recycle plastic packaging. Coca-Cola’s joint venture with ECO Plastics allowed more than 10.5 million clear plastic bottles from all the London Olympics 2012 venues to be recycled.
The total investment in Eco Plastics exceeds £20m, the WRAP loan contributed just over £1m. This was a significant sum of public money to be invested into one facility. And therein lies the reason why WRAP offered the loan, it’s not about a single facility or company – providing a loan enables WRAP to reclaim the money and invest it in further mixed plastics projects.
An increase in UK capacity to reprocess mixed plastics is one of the factors which has helped enable more local authorities to add non-bottle plastics packaging to their collections, with 46% doing so in 2011/12. This is great for householders who we know want to be able to recycle more materials at the kersbide. There is further funding available from the Mixed Plastics Loan Fund and WRAP is keen to work with other organisations that have innovative new business models in this area.
From experience we recognise that to continue to deliver UK innovation and advancement in the resource management sector, businesses need to consider taking a holistic approach to solving a problem with a business model. The criteria for success involves not just innovation but having a great management team; ensuring you have the right material feedstock properly secured, knowing about and using the right technology, assessing if there’s an end market for the product. Finance is just one crucial element in the mix. It’s never easy, but if your business can tick all or most of the other boxes in the mix, the money is likely to follow in one form or another.
Even in the current economic climate, our sector was one of the fastest growing in the economy. In the eight years from 2003 to 2011, the UK waste industry has more than tripled its sales from £7bn to £21.9bn and increased jobs from 70,000 to 120,000. A rising global population and an expected increase of three billion joining the middle classes by 2030 means there is significant opportunity to grow further.
If you have a compelling business case which focuses on resource efficiency, there is a chance WRAP can help with finance if not all of it can be raised from traditional sources. A growing part of WRAP’s work is to assist businesses and communities leverage finance or provide loans to help remove the barriers to innovation.
Loans are provided, normally on commercial terms for up to £1m and for up to five years. We provide funding products, which help finance energy projects in rural communities, mixed plastics recycling plant development with funds in both Scotland and England, a residual value guarantee leasing scheme to encourage the finance of recycling machinery, and a fund for supporting new anaerobic digestion (AD) capacity in England.
Talking about AD, the AD Loan Fund was introduced in June 2011 and launched by the then minister, Lord Taylor. At that time, there was little other funding available for AD in England and the £10m fund was probably one of the first products available specifically in this area. Late last year with just two loans behind us we took stock of where the market was.
Tamar Energy now has a fund of £97m in the AD space. UK Green Investment Bank has £50m earmarked for AD. We had discussions with several private equity funds who were showing a willingness to invest in AD. So, what to do with the AD Loan Fund? With our funders, our answer was to focus on an area that we perceived needs further assistance and so we have dedicated part of the AD fund to farms. Announced this month by Defra was the On Farm AD Fund, developed to help farmers in England access financial support to build small-scale AD plants on their farms. It has been designed to both attract funding into the sector, and provide support and materials for farmers to help them access finance in the future.
The On Farm AD loan fund is a £3m pot that will provide two types of support for farmers who want to invest in small-scale AD using predominately farm waste as feedstock. The fund comprises two parts: the first is a grant of up to £10,000 per farm to cover the cost of the initial business development plans capturing both commercial and environmental benefits. This is a fundamental part of the process that clearly proves to us and the farmer the commercial viability of the venture and the financial outlay required to achieve it.
The second part is in the form of a loan. While the two parts of the fund can work independently the business development plan will include most of the information required to apply for a loan. Depending on the business development plan some projects will be able to secure funding from traditional lenders. The projects which struggle to attract 100% funding will be able to apply to WRAP for consideration. Successful applicants will be eligible for loans up to £400,000 or a maximum of 50% of the capital costs.
With banks’ ability to lend constrained by regulators, they are naturally supporting businesses to whom the money will flow more easily – ie those that are less risky. WRAP is in a different space, working at the forefront of developing infrastructure that encourages resource efficiency and circular economic business models. Firstly, by developing evidence to support a business model and funding showcases and secondly, funding further projects to build momentum in the market. Unlike a bank, within reason, WRAP will fund new business models that don’t have momentum in the market. Without WRAP’s finance, entrepreneurs may be unable to build such showcases and thus a Catch-22 is formed.
So, if you’re a business facing a financial Catch 22, what is your best course of action?
- First, create a great management team with the capability to write a plan demonstrating how you’re going to solve a problem
- Second, evidence the fact that you have been to different funders and although you have raised some of the capital needed, you’ve not been able to raise it all.
- Have a look at WRAP’s funding page www.wrap.org.uk/category/what-we-offer/funding.The eligibility criteria are clearly stated against each fund; see if you think you may be eligible for any of the funding products
- Then, if you think you could be, contact us at WRAP and discuss whether the problem you’re seeking to solve with your business is one that can be funded through one of WRAP’s loan funds
Rural Community Energy Fund http://www.wrap.org.uk/node/14587
Mixed plastics loan fund http://www.wrap.org.uk/content/mixed-plastics-loan-fund
Waste Prevention Loan Fund http://www.wrap.org.uk/content/wplf
Scottish Plastics Loan Fund www.zerowastescotland.org.uk/plasticsloanfund
Anaerobic Digestion (AD) Loan Fund http://www.wrap.org.uk/content/ad-loan-fund
On Farm AD Fund http://www.wrap.org.uk/content/farm-ad-fund