This article, written by Jamie Lindsay, appeared in Project Scot, October 2022 issue
Economic uncertainty and the domino effect on the UK Construction sector
Wouldn’t it be encouraging to have a period of stability? However, the current economic outlook isn’t optimistic. Once again the resilience, skill and entrepreneurial spirit of UK SMEs will be required to push through these challenging times.
The construction industry is among the fastest growing in the world – set to grow by 47% between 2020-2030. In the UK alone, the sector is growing at a rapid annual pace of 3.7% but this sector faces more volatility than most.
Sub contractors, main contractors and the wide ranging ancillary services which support the construction sector have faced extremely challenging times over the last few years – from Brexit to COVID, the ensuing supply chain crises and labour challenges – all of which has caused varying degrees of disruption.
And with inflation rising to its highest level in 30 years, alongside weak growth, the UK economy is expected to shrink for more than a year.
Critical challenges are the labour shortages that have been triggered by Brexit and COVID. In particular, the agricultural and transport sectors, where HGV drivers remain in high demand.
Although UK unemployment is currently low, the overall workforce has shrunk since the pandemic, with many workers choosing to change career paths. The result? Businesses are being forced to grant higher wages for skilled staff to continue operating. This increases prices and puts further pressure on global supply chains.
Since demand is already high in those supply chains, there is an upwards trend of higher average prices, perpetuating a cycle of economic uncertainty.
The domino effect
The construction sector is heavily influenced by domestic economic cycles, macroeconomics, commodity prices and a whole host of other factors outside the control of the sector.
These factors make lending to construction firms relatively risky for mainstream institutions like banks, especially if those firms have taken advantage of government backed funding support which can be viewed as some firms being over exposed to debt, resulting in a reluctance from mainstream funders to offer any further funding support.
Many companies are also experiencing pressure from HMRC for legacy and current obligations, and whilst we are seeing HMRC willing to negotiate Time To Pay arrangements, the burden of keeping on top of these agreements puts further pressure on the firm’s cashflow, which are often held to ransom of onerous payment terms from principles.
Help is available
The good news is that there are many funding options available to construction businesses to help restructure existing debt, raise capital, reduce monthly outgoings and provide suitable working capital infrastructure to accommodate growth or stability.
We recently supported a construction firm to help clear legacy HMRC debt while releasing significant working capital into the business by restructuring existing debts and lowering current monthly finance obligations to free up headroom in their ongoing cashflow.
Securing mainstream finance for the construction industry was never a simple task, and it’s not getting any easier.
Lenders’ credit appetite and risk assessment criteria has intensified over recent years, making it more difficult and more time-consuming than ever for construction firms – even those with a healthy order book and a history of sound financial conduct – to secure the finance they need to grow.
How a finance broker can help
When searching for funding options, it’s crucial to work collaboratively with brokers.
Quite simply, brokers play a valuable role in helping SMEs source the right financial support for their business and can present varying options available.
Most business owners are so busy running their business that they simply don’t have the time to research and assess potential funding options and often aren’t aware of all the available options. A broker can provide immediate value.
With years (or decades in our case) of experience in the market, and quick access to decision makers within lenders, brokers such as Breadalbane can quickly help businesses identify suitable lenders and debt structuring options.
The professional input helps save business owners precious time and money by offering a cradle to grave service, not only sourcing options for the right funding structure, but helping with paperwork, negotiating conditions and negotiating rate.
Not only do brokers have access to a variety of lenders, they can also tell which options are the most suitable for your requirements. Most reputable brokers, like Breadalbane, won’t charge you for this service – instead, they are paid by the funder for introducing you. In a nutshell, it costs you nothing to use a broker service.
To find out more about how our range of construction finance options can help protect your cashflow, call us on 0131 281 5343 or email email@example.com