The commitment of SMEs to decarbonisation is wavering, with firms struggling to prioritise net zero-led investment, despite having previously displayed an appetite to do so. What is holding back SMEs and how can they balance spending with safeguarding cash flow?

Why are SMEs no longer prioritising investment in decarbonisation?

According to new research from the UK Business Climate Hub, only 35% of SMEs still consider net zero to be a strategic priority, compared to a much larger 79% for large businesses.

This comes despite the growing importance of decarbonisation in the value chain: the study shows that 20% of small businesses have received requests from clients for carbon data as part of tender applications in the last 12 months. And this type of demand is only likely to increase in the short term, in particular for firms developing business outside of the UK.

What is stopping SMEs from putting decarbonisation at the top of the agenda? Political uncertainty and backsliding is a main factor, with key figures casting doubt on established targets and schemes. Notably, for SMEs, the question of how this sentiment will affect regulatory development is particularly pertinent.

The other major factor is cost. Changing systems and structures and spending in areas such as green skills training is no small undertaking and given the current headwinds SMEs are facing, justifying significant investment is hard to do. It is no surprise that a lack of finance and grants is the third most common barrier for SMEs in terms of spending on net zero-led development in the UK Business Climate Hub study.

How alternative finance can help SME manage net zero spending

Despite the findings of the UK Business Climate Hub research, there is still appetite for investing in net zero in the SME sector and while reluctance to spend is understandable, it is becoming increasingly critical to find a way to make such investment.

How can firms manage this spending while protecting cash flow? This is where alternative finance can help.

Small business lending from traditional sources remains subdued in Q4 2025, with almost 40% of firms finding accessing affordable finance one of their biggest challenges. Against this backdrop, 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.

Finance options for SME net zero investment

It hardly a surprise that SME commitment to decarbonisation appears to be on the wane. Yet, the importance of investing in net zero-led development is only growing, both in terms of the impact on markets of climate change and the increasing demand for carbon data in the value chain.

In short, SMEs have to find a way to invest, despite the headwinds that are making such steps highly challenging. This is why it is important that key decisions 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 Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.