Resilience to recovery: The future of UK construction
Resilience to recovery: The future of UK construction
Fuelling growth
At the time of writing, a more settled landscape in terms of interest rates and inflation means that the UK debt funding market is in a more buoyant place than it was 12 months ago, although the return of confidence is gradual. Anecdotally, invoice finance providers we have spoken to have reported more funding applications from construction firms. But the sector may well find lenders take longer to return to the market, even as interest rates and the cost of capital start to fall. In some cases, funding options are likely to stay more limited, as we’ve seen some lenders looking to exit the sector altogether.
Indeed, when we asked firms how easy it was to obtain funding in 2023, compared with 2022, just over half (51%) said it was harder and only 31% said access had improved. 02 Funding challenges
Challenge responses
03
04
01
Financing options
Financial guarantees
Access to funding
Respondents who said it was harder to obtain funding cited a range of reasons for the funding challenges they faced, including the higher cost of capital (35%), which reflects an environment where interest rates are now at a 16-year high, as well as the withdrawal of Government funding support after the pandemic. Higher cost of capital
Construction firms are currently using a wide range of financing options, from business overdrafts (27%) and bank loans (25%) to asset-based finance (24%), private equity investment (23%), equity funding (22%), invoice finance (21%) and business credit cards (21%).
And around a quarter have provided corporate financial guarantees (27%) and personal guarantees from directors and / or board members (24%), which will no doubt be weighing heavily on these individuals, especially with reports of trade credit insurance being pulled.
A third (33%) of those that experienced more difficulty accessing funding flagged this lower risk of appetite from lenders. And similar proportions said they had experienced increased scrutiny of their projected (34%) and existing financial performance (33%) when seeking funding.
What steps, if any, will you take over the next 12 months to preserve or improve your cash position?
Andy Garton, Director of Groundwork Contractor, Corbyn:
“The main thing that developers and contractors want is cost certainty. That’s been hard to come by since COVID; the cost of money, the cost of land, the build cost, planning delays and changing regulations have all combined to create a bubble of uncertainty. As a result, we’ve seen a number of businesses, including long established ones with great trading histories, that have had to go into administration through very little fault of their own. “Activity is picking up again and that should continue to increase, though the tendering process is becoming more competitive, with firms softening their prices to grow their order books. The biggest challenge we now face as an industry is the knock-on effect from those collapses on the trade credit insurance markets. “Credit insurers have become particularly risk averse, which is understandable, but they seem to be applying a blanket policy to the sector, rather than looking at firms on a case-by-case basis. It’s a very difficult situation for firms to manage when they are trading on established terms and then suddenly need to find liquidity to support debt funding and support project delivery.”
17%
20% 20% 18% 23% 21%
Reduce investment in tendering
Re-negotiate existing contracts
Extend terms with suppliers/ lengthen payment times
17% 16% 16% 15%
Permanent reduction in headcount
Divest of assets (e.g. plant) in preference of leasing Change suppliers to cheaper alternatives Director/shareholder injection of funding
Increase pricing
Refinance or borrow money
Build price escalators into new contracts
*Respondents were asked to select all that applied.
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