Do you want to develop a sustainable project but need financing? Discover what green loans are and get the money you need to reform your home with energy, buy an electric car or purchase ecological appliances.
The fight against climate change is one of the great challenges of the 21st century . Despite skeptics, it is becoming increasingly clear that global warming is a life-threatening reality as we know it. Floods, hurricanes, glaciers that break and detach, endless heat waves and devastating fires such as those that occurred this summer in Greece, California or Siberia: the Earth is dying under the effects of this climate crisis that puts the future of many nations in jeopardy. species and ecosystems and that could cause the disappearance of entire countries throughout the entire planet.
Faced with this emergency situation, several banks and banking entities have decided to start offering green loans, a type of ecological financing designed to develop environmentally sustainable projects and which both individuals and companies can take advantage of.
What are green loans?
Green loans, also known as green credits or sustainable loans, are a financial product designed to subsidize the development of projects and initiatives with a positive impact on the environment . It is a type of credit with a function and characteristics similar to those of traditional loans , but with the exception that the borrowed money can only be used in sustainable activities , such as the energy reform of a home, the acquisition of a sustainable vehicle or the purchase of ecological appliances.
For a loan to be considered a green loan, it must be qualified as such by an external body , that is, by an environmental body that certifies that it meets ESG (Environmental, Social and Governance) criteria, which include environmental factors. , social and governmental , and with the principles of green bonds (Green Bond Principles), which refer to the use and management of funds, the evaluation process of the projects to be financed and the publication of reports on these products.
These types of loans are booming and, currently, more than 45% of banks and private credit institutions in Spain offer them.
What can green loans be used for?
Green credits are designed to finance, exclusively, projects with an ecological purpose . This includes various actions, such as the purchase of energy-efficient household appliances, the acquisition of a sustainable vehicle, such as electric or hybrid models, or the energy reform of a home . In addition, these credits can also be used to develop projects related to ecotourism , as well as to manage waste or install renewable energy.
What advantages do green credits have?
The main advantage of green loans is that they promote the development of sustainable projects , therefore they play a role in the important fight against climate change that we are suffering. But, in addition, this type of credit also usually offers more favorable conditions for users than traditional loans to promote their hiring.
Specifically, green loans have lower interest rates than those used for other purposes , with an average TIN (nominal interest rate) of between 4% and 5% and an APR (equivalent annual rate) average between 4.20% and 5.1%, approximately. As a general rule, in addition, they do not apply commissions , except for the opening one, which is usually 1%, and they allow obtaining financing for a maximum value of more than 65,000 euros . The repayment terms, in turn, are also usually longer than those of traditional credits, generally being between five and ten years.
However, since this type of loan can only be granted to sustainable projects, the management process is usually broader than that of traditional credits , since the qualification and ecological justification of the project must be requested.
How many types of green loans are there?
When it comes to talking about sustainable credits, we can establish four different types : bilateral loans, syndicated loans, credit lines and credits to finance projects.
- Bilateral loans : are those in which the contract is signed between the debtor and the borrower . They must have a formalized corporate guarantee, which can be the project itself, between the bank and the client.
- Syndicated loans : are those in which the loan contract is signed between a debtor and several borrowers . Despite the fact that in this type of loan the agreement is established between several banks, only one of them acts as an environmental agent , managing all the corresponding documentation with the external rating agency. This type of credit is usually offered to companies that request large amounts of money.
- Lines of credit : these loans are characterized by applying interests that vary depending on the environmental qualification obtained by external organizations, which are in charge of verifying whether or not the project complies with the ESG criteria. The higher this rating, the less interest we will pay , and vice versa. They are also often granted to companies.
- Credits to finance projects : they are those that are granted based on the sustainable qualification and the long-term viability of the project. In this type of credit, interest and commissions will vary depending on the solvency of the company , which will be valued based on long-term cash flows. In addition, the project’s own guarantees are used as a guarantee.
What requirements must I meet to apply for a green loan?
For a bank to grant us green credits, we need to demonstrate that the initiative we want to develop is sustainable , either with proof of purpose or with an invoice or budget for the project. In addition, we must meet the basic requirements of traditional credits, that is, we have to prove that we are of legal age, that we have a residence in Spain and that we have a stable income that will allow us to return the money within the established repayment period.
