Relationship Lending in Financing Small and Medium Sized Energy Management Companies

Fostering the growth of energy management companies (EMC) has proven to be an effective market-based solution for improving energy efficiency in the Chinese economy. However, lack of financing remains the most significant barrier to the full development of small and medium sized EMCs. Thus, developing a new financing mechanism with local banks for energy efficiency projects is an essential strategy to promote the development of EMCs. This paper tackled this task by applying relationship lending in financing small and medium sized EMCs. Firstly, the applicability of relationship lending in EMC financing was examined and verified using two-period extensive Game Theory. Secondly, based on relationship lending, a long-term lending pattern was designed taking into account EMCs´ characteristics and investment risks, which provides an effective solution to the removal of financing barrier for small and medium sized EMCs in China.