If 2025 began with the hope that the caution of traditional banks towards small business lending would ease, the reality proved markedly different. Access to finance remains both critical and challenging for small firms as the pressure on cash flow continues to be acute.

The main factor behind the positioning of mainstream lenders has been a lack of meaningful economic growth, with the early year optimism fizzling out into near stagnation, and as the latest figures show, contraction. This has had a direct impact on spending power and investment sentiment, which has meant a continued squeeze on businesses.

What have been the pressures on small business cash flow?

Notably, one of the major factors linked to the recent economic decline is the hard time Jaguar Land Rover has had recovering from a serious cyber-attack in the summer. Small businesses were caught up in the fall out and, overall, these firms have only become more vulnerable over the last 12 months, with a shortfall in investment among the causes.

Recruitment and retention has been another key topic for small businesses throughout the year, not least in connection with the rise in employer national insurance contributions. The minimum wage has also increased and the new employment rights bills looks set to extend benefits for employees. Whatever your position on these reforms, they have an impact on small business cash flow.

In others areas, there has been plenty to talk about late payment, in particular with regard to new government measures to the tackle the problem. Whether they have the necessary teeth, and impact, remains to be seen, but the issue continues to weigh heavy on small firm finances.

Why has small businesses investment lagged in key areas?

Other areas where the need for greater investment has been highlighted have included sustainability development, although increasing high-level uncertainty around commitment to targets has only made small firms more caution about investment, including in net zero related system and infrastructure evolution, and education and training.

Staying with improving skills, the need to increase spending on training in a number of other areas has been evident during the year, most notably perhaps in relation to AI. Tellingly, recent reports have suggested that small firms are failing to maximise the benefits of new technology in part because of the costs involved in bringing staff up to speed on its use.

There has also been pressure to increase spending on workplace wellbeing – and it is not hard to see why stress levels may be rising both among employees, managers and owners at small businesses. Again, the costs involved are proving challenging for some firms.

How alternative finance can help with essential investment in 2026

All in all, it has been another tough year for small businesses, not least around accessing finance and the need to balance investment with safeguarding cash flow, with the cautious approach of traditional banks to small firm lending only adding to the pressure (almost 40% of firms find accessing affordable finance one of their biggest challenges).

This is why it has been another important 12 months for alternative finance. 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 stability and growth.

Small firm options for accessing finance in 2026

What does 2026 hold for small businesses? There’s still optimism, but it seems unlikely that there will be any significant movement around key macro factors in the short term. As such, pressure around facilitating investment and protecting cash flow look set to remain for small businesses well into the new year.

This is why it is safe to say that it will continue to be essential that key decision-makers at small firms are aware of all the available finance options, 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.