The free childcare entitlement in Scotland for three- and four-year-olds, as well as two-year-olds living with families in receipt of benefits, is due to be almost doubled from the current offer of 600 hours over the next two years.
But National Day Nurseries Association (NDNA) Scotland's 2018 annual survey of more than 200 providers has found that just 30 per cent of private nurseries indicated that they are likely to take part.
This is a reduction on the half of settings (51 per cent) that said they would be willing to offer the full 1,140 hours entitlement in the 2017 survey.
Concern over funding is a key reason cited by providers. Four out of five (81 per cent) of nurseries said that a better funding rate would persuade them to offer the extended entitlement.
NDNA Scotland said that providers already face an average annual funding shortfall per child of £1,188.
"NDNA has uncovered the true predicament that nurseries in Scotland find themselves in and it has reached a crisis point," said NDNA chief executive Purnima Tanuku.
"Private nurseries just don't feel confident that sufficient funding will be passed onto providers by local authorities to make it worthwhile for them to deliver the full 1,140 hours provision. This would drastically reduce childcare choices for parents.
"These figures make grim reading, with the average nursery having to absorb £1,188 for each child during the course of a year. Many are small businesses, which just can't continue with this level of debt.
She added: "We need action now with an urgent injection of cash to improve current funding rates, otherwise many nurseries will not even be open by 2020."
Among the top challenges in 2018 cited by providers is rising staff wages, including a requirement for providers to pay staff the real living wage, which is currently £8.75 an hour.
Recruitment and retention of staff and the ability to make a profit to guarantee sustainability are also mentioned as tough challenges this year.
Half of nurseries (51 per cent) in Scotland plan to increase their fees by more than last year (5.8 per cent compared with 4.2 per cent in 2017) and just 38 per cent predict they will make a profit or surplus, compared with 46 per cent in 2017.
NDNA is calling on the Scottish government to increase the funding rates for the current 600-hour offer and ensure nurseries receive sustainable funding rates for the full 1,140 offer.
Other recommendations are for increased funding to help providers support staff training and development and bringing in a "childcare passport" to simplify the early years funding process for families. This would contain all information around childcare vouchers, tax credits, universal credit and early years entitlements.