How Construction finance can help you battle rising costs

Thank you to Bibby Financial Services for writing this guest post as part of their sponsorship for our Construction event: Margins, Margins, Margins. 

As we enter the final months of the year, it’s clear that 2023 has been another tough and turbulent period for the UK economy. The lingering impacts of the pandemic together with stubborn inflation, the highest interest rates in 15 years and a cost-of-living crisis make for a uniquely complicated landscape.

There’s no doubt that this environment has made life challenging for businesses of all sizes and sectors – not least, for SMEs in the construction industry. September PMI data showed the steepest decline in construction activity since May 2020, with business expectations the weakest recorded in 2023 so far.

Our recent research of 500 small and medium sized enterprises highlights some of the key challenges they are facing.

1. Inflation and rising costs 

It’s unsurprising that, along with other sectors, inflation and rising costs remain the most pressing issue for construction SMEs, with more than half of respondents citing this as their key business challenge.

2. Customers taking longer to pay

Many businesses are also having to contend with slower payments, with a staggering 76% of construction SMEs reporting that it’s taking customers longer to pay their invoices compared to six months ago.

3. Insolvencies and supply chain disruption

Insolvencies in the UK are at record levels, with the construction sector one of the most significant contributors. Businesses are facing the ripple effect of this throughout supply chains, which is driving an uplift in bad debt. Over the last six months, 51% of construction SMES say at least one of their suppliers has become insolvent. As insolvencies are expected to continue to rise, the situation may well further worsen in the coming months.

4. Securing finance to operate and grow 

With the significant challenges businesses are facing, the pressure on cashflow has never been greater. It’s no surprise they are requiring more financial support in order to grow, or even continue operating. 43% of construction SMEs report that their need for external finance has increased compared to six months ago, with nearly a third using external funding already and a further 21% planning to so in the next six months.

While demand for funding seems to be on the rise, worryingly access to finance is proving tricky. 57% of construction SMEs say it’s harder to access external finance now compared to six months ago, and 67% believe banks are less likely to lend to them today. Of those using external finance sources, 47% say incumbent lenders have reduced funding availability between March and September this year.

Introducing Construction finance… 

Gone are the days when banks need to be the first and only port of call for construction businesses looking for funding to thrive and grow.

The staged payment, partial payment and long payment terms used in the construction industry can make securing finance even more difficult for these businesses. Traditional lenders are often unable to support the sector adequately, and there are fewer specialist lenders in this space.

Construction Finance gives businesses access to funding while waiting for their application for payments to be certified and their outstanding invoices to be paid. This helps them manage their cashflow effectively, so they have the working capital to complete their existing contracts as well as the confidence to tender for new projects.

How does Construction finance work?

• Once our client completes a phase of work, they upload their uncertified and certified applications for payment and invoices to our client online portal.
• Then, we fund them a pre-agreed percentage of their application for payment and invoices which is available to use within 24 hours.
• We act as our client’s credit control department and collect payments from their customers on their behalf. We can do this confidentially, meaning that their customers would never know they are using our facility.
• Once their customer pays us, we deduct what our client owes including any pre-agreed fees. They then receive the remaining amount.

Why work with us? 

At Bibby Financial Services, we’re committed to playing our part in supporting the UK construction sector.

As the first funder to offer finance to the construction sector nearly two decades ago, we have an unparalleled understanding of the market with experience in over 80 trades. We’ve supported thousands of construction businesses and, unlike many funders, we’ll fund against uncertified payment applications. And, with the current uplift we’re seeing in bad debt, we can also protect up to 90% of our client’s bad debts with Bad Debt Protection.

We have a specialist Construction Finance team and each of our clients has a dedicated relationship manager so you know who in the team to call, not just a number. Rated Excellent on Trustpilot, you can be confident you are working with an experienced and reliable funding partner who really cares.

To find out more about how we can help, or to get in touch, please visit our website.