In Focus Risk
Building a case for alternative finance in construction
Success in lending to the building industry requires agility and a flexibility of approach
Chirag Shah Chief executive, Nucleus Commercial Finance
chirag.shah@
nucleus-cf.co.uk
The UK’s construction sector has suffered during the past few years, a situation not helped by the current levels of economic turbulence in the country. Sub-contractors have been hardest hit.
These smaller companies often suffer from cashflow issues caused by penalty clauses and contract disputes. In fact, an estimated £3.1bn of bad debt is written off by these sub-contractors in the industry each year. The need for financing is driven by two
factors. For some construction companies, their very survival is at risk and they need funds urgently to boost their cash reserves. Other firms are in relatively good financial shape, but need additional funds to complete a big deal. Traditional bank loans are increasingly
harder to come by, as financial institutions, across the board, tighten their belts in the face of ongoing economic uncertainty. Often lacking the specialist expertise to understand the intricacies of the construction industry, banks are largely unwilling to look at non- standard ventures with complex payment
Banks turned them down repeatedly. The
For some construction companies, their very survival is at risk and they need funds urgently to boost their cash reserves
structures that require a different approach to finance. The risks associated with the volatility of
the sector also contribute to banks avoiding such deals, putting large and specialist firms at risk of not being able to fulfil their contracts. But they are not without options.
Hinkley Point C A specialist construction firm came to us to secure funds to complete its work at the recently approved £18bn Hinkley Point C nuclear power station. The firm, involved in a critical part of the project, required a significant funding line of just under £4m.
deal was too much of a challenge; profit was possible but the long-term nature of the contracts called for an agile and flexible form of finance. The solution was a multi-million-pound
combination deal comprised of £1.8m in property finance combined with £2m in invoice finance. Time to understand the business and project allows for bespoke funding solutions for non-standard deals. There is no one-size-fits-all checklist that can reliably determine a company’s unique position and need for financial assistance. This agile approach gives alternative lenders the upper hand in the construction market.
Building blocks The right financial assistance lays the foundation for many business successes. Alternative finance is no longer ‘the back- up plan’. Smaller, specialist construction firms, are well-placed to take advantage of all it can offer. They can secure the funding they need, confident in the knowledge that it is tailored to their specific business, all the while protecting their cashflow. Alternative finance plays an increasingly
important role in funding businesses in sectors that are beset by cashflow challenges and are vulnerable to a fluctuating economy. Alternate lenders are applying their agility to deliver more tailored solutions at a faster rate than traditional lenders. The completion of the high-stakes Hinkley
Point C deal sends a message to the wider British business community: the alternative- finance market is growing and is providing stable, yet flexible, solutions to support the UK’s economic development. CCR
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www.CCRMagazine.co.uk April 2017
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