Image copyright British Steel Image caption British Steel's Scunthorpe plant

British Steel has secured a £100m loan from the government to pay its EU carbon bill, a source close to the company has said.

The money means the private equity-owned firm will avoid a steep EU fine.

The firm said earlier this month it needed the funds to settle its 2018 pollution bill due at the end of April.

Sky News said the government money was used to pay for the company's carbon credits - and that British Steel would repay the money on commercial terms.

The firm has been hit by a European Union decision to suspend UK firms' access to free carbon permits until a Brexit withdrawal deal is ratified.

The EU's emissions trading system's rules allow industrial polluters to use carbon credits to pay for the previous year's emissions, or trade them to raise money.

Each free permit gives a firm the right to emit a ton (1,000kg) of carbon dioxide (CO2).

'Responsive and supportive'

The Department for Business, Energy and Industrial Strategy (Beis) declined to comment on British Steel specifically, but said it was in "regular conversation with a wide range of companies".

Beis is expected to make a formal announcement on Wednesday.

British Steel has previously said ministers and officials from the Department for Business, Energy and Industrial Strategy had "been responsive and supportive".

Private equity firm Greybull Capital rescued Tata Steel's long products business - which makes steel for the rail and construction sectors - during the depths of the steel crisis in 2016, saving more than 4,000 jobs.

It paid a nominal £1 fee for the assets, but pledged to plough up to £400m into the business which it rebranded British Steel.

Workers had to take pay cuts and reductions in their pensions in return, but the company has since returned to profit.

The company employs 4,000 people at its Scunthorpe plant and has sites in Teesside, Cumbria and North Yorkshire.