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In Focus Commercial Credit

Building a future for the construction sector

The property sector has seen significant growth over the last period, but can new lenders help to continue this development?

Chirag Shah Chief executive, Nucleus Commercial Finance

There was some joy at the end of 2015 reported in the national newspapers that the construction industry was, and I quote, ‘in a party mood’. It followed a recovery in the house-building sector, according to the UK Purchasing Managers’ Index, and better news too from the commercial building market. Prospects for 2016, it suggested, looked promising.

A diverse sector Surveys, like navigation, are inclined to reveal more about where we have been as opposed to where we are, and, from our experience, there are many within the construction industry who are suffering, especially further down the supply chain. The Christmas and New Year period is

often a difficult one: customers fail to pay on time and pressure on cashflow increases. Companies that are starved of cash, even in the best of times, can find themselves squeezed to the point of collapse. The evidence is there for those who

choose to see it. At the start of 2015 there were a number of notable insolvencies within the construction sector, remarkable for the diverse nature and regionality of the trades involved: Stockport-based concrete specialists SCC; Midlands-based construction labour supplier Worldwide Trading Services; Shopfitters New Store Europe UK; Scottish demolition contractor George Hunter. Electrical contractors pre-fabrication businesses, and scaffolding services providers also suffered. While there is a tendency to watch the

performance of the main contractors as a barometer of good health, the problems often lie deeper. Cashflow, however, impacts all.


New products have been developed

One of the biggest issues is that the nature of the business presents a seemingly impossible challenge for ‘traditional lenders’

The challenge One of the biggest issues is that the nature of the business presents a seemingly impossible challenge for ‘traditional lenders’, meaning the high-street banks. This has given rise to alternative lenders with alternative thinking, and alternative products tailored to meet a particular need. Working directly in partnership with a

team of experienced quantity surveyors who understand the intricacies of construction contracts, and using a fixed rather than variable fee model, it is possible to remove the uncertainty for construction businesses associated with the costs of ‘traditional’ lending products that is their main downfall.

based on a traditional factoring approach, with cash advanced at an agreed percentage of the outstanding invoice or application value, but taking into account the longer contract terms typical within the construction sector. Such products provide pre-payments against applications, stage payments and other key milestones. The latest products also provide built-in

bad debt protection, such as credit insurance, thus offering suppliers two levels of support: cash when they need it most to invest and grow, and protection against the threat of late payment or, worse, the collapse of a key customer higher up the chain.

Conclusion The future of the construction industry may indeed be rosy, but that does not mean that we should take our eye off the ball. We need to continue to explore new funding solutions that are both practical and sustainable, and that enable all firms to maximise the finance available to support their growth ambitions. CCR

February 2016

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