Sustainability-led development is increasingly integral to business planning but smaller firms are proving slower on the uptake thanks to the costs involved. In the current climate, how can they invest while safeguarding cash flow?

How big is the cost barrier to sustainability spending?

The importance of businesses adopting greener practices and using greener resources is rarely out of the news, but there is growing evidence that small firms aren’t prioritizing such development, largely because of the costs involved. According to new research from tem., over a third of business leaders believe that switching to green energy would increase their energy bills.

Given the long-term austerity that firms have had to manage, and the impact on performance and profitability, such reluctance is hardly surprising. Going greener involves investment in not only new infrastructure and systems but also education and training. Notably, the study from tem. also shows that almost 40% of small business leaders don’t know where their energy comes from.

Another new survey, this time from Energy UK, reiterates how costs are delaying small business sustainability-led development. According to the research, the cost of electricity compared to that of gas is a primary disincentive to switch to greener energy.

The report goes on to say that small businesses should get more support with regard to going greener, including free audits to suggest ways to reduce their energy use and easier access to capital to finance such development.

Funding decarbonisation and how alternative finance can help

Tellingly, the situation regarding small firm investment in sustainable practices mirrors that in a range of other areas (cyber-security, workplace digital tech, workplace wellbeing, etc.) – investment offers potentially significant benefits but finding the capital, while safeguarding cash flow, is highly challenging.

This is where alternative finance can help.

While there was some improvement in the second half of 2024, coming into 2025 small business lending from traditional sources remains subdued, with 65% more SMEs experiencing difficulty in accessing finance from high-street banks. As a result, alternative lenders have become increasingly embedded in the small business finance landscape.

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. 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.

Notably, the Growth Guarantee Scheme is providing a wide range of finance facilities to smaller firms, including asset finance, invoice finance and asset-based lending. This is further proof that alternative lenders are increasing filling the small business funding gap.

Small firm finance options for funding carbon-cutting plans

It isn’t a shock that small businesses are stalling over investing in greener practices, such as switching to green energy, because of the costs involved. For all the talking up of the country’s economic prospects, market conditions remain very challenging.

But firms have to find a way to develop infrastructure and systems, not least because getting left behind is bad for business. This is why it is vital that key decision-makers are 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.