Building Britain’s Building Businesses
A recent analysis of Companies House figures has revealed some really interesting findings – the directors of small construction companies, including plumbing and electrical contractors, pump a large percentage of cash back into their businesses. In fact, the sums being reinvested into these construction sector SMEs have increased a significant 27% in the last three years due to a shortage of bank lending. The types of businesses included in the analysis includes specialist trades such as electricians, plasterers, plumbers, carpenters, decorators, scaffolders and roofing companies.
The slowdown in the property market here in the UK has made it difficult for sub-contractors to secure lending from banks, probably as a direct result of the banks which suffered losses on construction loans after the credit crunch and have consequently become more cautious about lending in what is still a challenging economic climate.
Banks are increasingly focusing on larger companies which they consider to have better security and repayment prospects following the tightening of banks’ capital adequacy rules in recent years. A wave of insolvencies hit the construction sector hard as major contracting groups delayed payments for longer periods in the wake of the financial crisis and this probably also influences decisions on lending to subcontractors.
When confronted with continuing constraints on borrowing and faced with long waits for payment, construction company directors have stepped into the breach to plug the ongoing funding gaps faced by their companies, ploughing significant amounts of their own money into their businesses to ensure they remain financially stable and able to face the future with confidence.
The very nature of construction work means that construction company owners have to make a significant upfront investment in materials and labour and this has a critical effect on the ability of many companies to manage their cash flow effectively and carry on trading. An increasing number of small businesses whose viability is being undermined by cash flow issues and borrowing challenges are coming to the conclusion that alternative financing options are an attractive solution.
Many companies turn to unlocking the value of their unpaid invoices through invoice finance but companies need to have good financial controls and assets to leverage in order to qualify for this. Another method of dealing with cash flow issues is to consider leasing equipment and machinery instead of buying it. For some construction companies, leasing makes far more financial sense than does buying and will suit the businesses better.
While the financial landscape here in the UK is particularly uncertain right now as the Brexit deal is being negotiated, business owners in many sectors are taking measures to make sure their business survives the Brexit divorce process. Staying in business is the name of the game right now as once the Brexit deal has been thrashed out, the housing crisis here in the UK means that we’re going to need our construction companies, not just to build new homes and other premises, but because they form the backbone of the British economy.