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Achieving net zero: how small firms can afford to invest

In the run-up to the general election, renewed calls from the small business sector for more support in helping to implement sustainable initiatives underlined the challenges firms face in this area. How can businesses overcome them and put in place greener policies?

What help with sustainability initiatives are small firms calling for?

The importance of small businesses to achieving net zero goals is well known – they account for around half of national greenhouse gas emissions – as is the reality that many firms are struggling to put in place the systems and strategies need to make progress.

Notably, over a third of small businesses have been lobbying for a green tax system that rewards the adoption of green policies and programmes, and hands out fines for those that don’t. In addition, firms are calling for a reform of business rates that lowers payments for those that use renewable energy. There have also been calls for direct support, in terms of larger grants for the costs of switching to greener energy use.

What is behind small firm reticence over green investment?

The nature of these requests is telling because the major barrier and development for small businesses is cost. According to research from NatWest, while over a third of the SMEs consider sustainability action a priority, two thirds said rising costs were a primary restraint on investment.

The need for greater education on adopting sustainability measures was also flagged, in particular in terms of understanding information around the topic, measuring and reporting emissions and carbon footprints and getting a clearer picture of government regulations.

Funding net zero transition and how alternative lenders can help

That there is a notable gap between small firm sentiment and action on sustainability-led development should come as little surprise given the economic headwinds and market conditions that businesses have had to endure in recent years. However, it is imperative that firms overcome these challenges and get themselves in a position to increase investment.

And this where alternative finance can help.

Services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in the current funding climate (with 65% more SMEs experiencing difficulty in accessing finance from high-street banks). These alternative finance facilities, which offer a more easily accessible, affordable and personalised approach to lending, are helping small businesses survive and target recovery, stability and growth.

This profile has helped cement the reputation of alternative finance in the business sector. According to the British Business Bank, it is alternative lenders that are increasing filling the small business funding gap, with asset finance alone rising by 7% to £23.5 billion in 2023. At the same time, a 2024 study shows that more and more SMEs are turning to alternative lenders to access larger-scale finance packages.

Small firm finance options for green strategy investment

There is a clear appetite among small businesses to further embrace sustainability-led development and increase their contribution to achieving net zero targets, but it is equally as clear that cost is the overriding barrier to progress.

It remains to be seen if businesses can get the support that they are calling for, but regardless of what lies ahead in terms of government policy, firms needs to invest. Access to finance is integral to achieving this and this is why firms needs to aware of all the finance options available to them, including the services of alternative lenders.

To find out more about A&T Business Associates services, contact Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.

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