Funding flop is crippling construction

Published:  13 March, 2013

A quarter of SME building firms have missed out on contracts because they can’t secure vital funding, with many claiming banks and building societies are “actively discriminating” against construction companies, the Federation of Master Builders (FMB) has warned.

The latest figures show the Government’s Funding for Lending scheme is failing to support construction, as lending fell significantly in the last three months of 2012. The FMB has urged ministers to act, citing the results of its own major survey of more than 1,000 member firms, which clearly show the ongoing restriction of finance to SME construction businesses.

More than 40 percent of construction SMEs surveyed said they had found it harder to gain access to finance in the past two years, while 43 percent reported that credit is more expensive than two years ago and 25 percent were subject to increased charges for credit facilities.

The survey also confirmed widespread fears that banks are actively discriminating against construction firms, with 25 percent of respondents reporting they had lost work as a result, and 16 percent saying they had been refused requests for credit by a bank that had previously considered them trustworthy – explicitly because they work in the construction industry.

Of those surveyed, a quarter reported they had lost business or had to abandon plans for growth or investment because they were unable to raise the necessary funds, and 18 percent said that the number of staff they were able to employ had fallen as a direct result.

The FMB has now written to Michael Fallon, the business and enterprise minister, calling on him to end this discrimination against construction firms and boost the beleaguered sector.

Brian Berry, the FMB’s chief executive, said: “What we are seeing is that otherwise viable and successful firms cannot access suitable finance for business operations, including buying new equipment and plant. This is having a serious knock-on effect on jobs and growth in the sector.

“The fall in net lending by banks under the Government's Funding for Lending scheme comes as no surprise. SMEs and the construction industry are continually touted as the drivers of economic recovery but, without access to finance, the sector will continue to decline.

“The Government needs to prevail upon banks not to discriminate against viable and successful firms just because they work in the construction industry. If the Funding for Lending figures don't improve significantly in the first quarter of 2013, the Government needs to urgently explore alternative vehicles to improve the flow of finance to construction SMEs.”

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