Directors up loan payments to support UK’s ailing small construction firms
Small construction firms are increasingly reliant on their directors to plug funding gaps in the wake of stricter bank lending criteria, according to new research.
Data from Funding Options also revealed that many major contractors have delayed payments, placing further pressure on smaller firms down the supply chain.
Around £38 million was lent to construction firms by directors in 2015-2016, a significant increase on the £29.7 million lend in 2013-2014.
Carpenters, decorators, roofing firms, scaffolders, electricians, plumbers and plasterers were among those to take part in the survey.
Many suggested that a slowdown in the property market has caused banks to be cautious, while more scrutiny from regulators has also limited funding opportunities.
These borrowing constraints and late payments mean directors have taken steps to ensure cash flow by ploughing their own money into their businesses.
However, this is not without risk, and Funding Options Chief Executive Conrad Ford adds that it is ‘questionable’ as to whether such ‘drastic personal measures’ are sustainable in the long term.
The construction sector is prone to such issues, as upfront payments are often required to cover aspects such as materials and labour.
The recent example of building firm Carillion highlights the issues sub-contractors can face – the company issued a profit warning in July and booked an £845 million write-down, with analysts suggesting that £800 million is owned to clients and suppliers, 75% above the sector average.
Meanwhile, the Specialist Engineering Contractors’ Group has suggested that more than £1 billion of finance is held back by the UK’s top construction firms from their smaller contractors.
Industry body SEC – which represents around 60,000 construction firms – has asked the government to create ring-fenced accounts to protect payments for construction projects to provide an element of financial security.
By Phil Smith