The Builders Merchants Federation (BMF) has initiated a Trade Credit Enterprise Finance Guarantee Scheme, which will enable merchants to offer credit to trade customers that fall outside their normal risk profile, or have reached their credit limit.
The scheme will be restricted to BMF members and is designed to help them attract additional business, as well as providing a welcome financial boost for SME tradesmen by enabling them to bypass bank-lending in order to secure additional credit.
The BMF is the first trade association to launch an initiative using the government’s Enterprise Finance Guarantee Scheme. It is negotiating £50m of funding for a nine-month pilot that will run from July 2013. If it proves successful, it is hoped that government funding will continue into the next financial year.
The BMF Scheme will support credit offered to sole traders, partnerships and limited companies with an annual turnover of up to £41m. It will not replace merchants’ existing credit insurance arrangements but will guarantee up to 75% of the additional credit offered to each customer, subject to an overall cap of 15% of the merchant’s additional credit portfolio.
Merchants will pay a monthly premium equivalent to 2% per annum, which they can choose to absorb or pass on to customers in full or in part. The premium can be based either on the credit level agreed or, if details of the debt or balance are submitted each month, on the credit level used. For either option, premiums are only paid for the period the credit limit is required.
The BMF Scheme is similar to a commercial pilot, announced in the Budget, which the government is running with the Kingfisher Group. Speaking at the recent Construction Summit, Business & Enterprise Minister Michael Fallon said that the government was keen that smaller independent builders merchants are able to participate, which the BMF’s collective model will facilitate.
BMF managing director John Newcomb said: “When we heard of the Kingfisher scheme, we recognised that this was an initiative that would also benefit our members. The merchant’s role is effectively that of banker to the construction industry already. If normal banks aren’t prepared to lend to our customers, the arrangement we have made with government means that merchants can be more flexible with customers who don’t have a long trading history or sufficient credit rating and help them to get their business moving again. Expanding the government support scheme through a wider cross-section of builders’ merchants nationally and locally should make a real difference to businesses at the grassroots of the building industry.”
The BMF scheme has been welcomed by the Federation of Master Builders (FMB), which represents the interests of small- and medium-sized building firms.
FMB chief executive Brian Berry said: “The cost of building materials is a significant part of a small company’s turnover, so an initiative that unlocks credit for hard-pressed building firms has to be a good thing.”
BMF members are invited to apply to join the scheme and request the level of cover required. Applications will be accepted on a first-come, first-served basis. For more information contact peter.matthews@bmf.org.uk.
