BMF offers credit lifeline to builders in time for 'Help to Buy' scheme
Published: 21 October, 2013
A new scheme launched by the Builders Merchants Federation (BMF) will provide a welcome credit lifeline to smaller companies in the building trade by enabling them to secure additional credit from their local builders’ merchant and bypass the need for bank lending.
The timing of the BMF’s participation in the government’s Trade Credit Enterprise Finance Guarantee pilot scheme will enable builders to take full advantage of increased refurbishment activity stemming from the second phase of the government’s Help to Buy scheme, as well as supporting those building new homes.
The BMF is the first trade association to launch an initiative using the government-backed pilot scheme, which allows potentially higher credit limits to be offered by independent builders’ merchants to their customers. It has negotiated up to £50m of guarantees for a six-month pilot that goes live this autumn. Additional credit terms agreed during that period can be made available for up to nine months.
Under the scheme, participating builders’ merchants will be able to extend credit to customers that fall outside their normal risk profile, or have reached their credit limit. The risk is shared as the government 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.
The additional credit can be used to support sole traders, partnerships and limited companies with an annual turnover of up to £41m. Merchants will pay a monthly premium for the period the credit limit is required, which they can choose to absorb or pass on to customers in full or in part.
Matt Hancock, enterprise minister, said: “The level of interest in our pilot scheme from the construction sector has been impressive, and the addition of the BMF will make it easier for more builders to secure credit.
“Expanding the trade credit pilot with the BMF through a wider cross section of builders’ merchants across the whole country has the potential to make a very significant difference. The building industry is not only important in itself, but also has wider benefits for the rest of the economy.
“Access to finance remains a major issue for builders and small businesses, and that is why we are developing innovative schemes like this, alongside setting up the Business Bank.”
John Newcomb, BMF managing director, said: “The merchant’s role is effectively that of banker to the construction industry already. If traditional banks aren’t prepared to lend to their customers, the arrangement we have made with government means BMF 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. This is particularly helpful at a time when the government is making it easier for people to get on the housing ladder or to trade up. Moving home is one of the key triggers for the building refurbishment and extension work that is the mainstay of many smaller builders.”
The BMF scheme has been welcomed by the Federation of Master Builders, which represents the interests of small and medium sized building firms.
Brian Berry, CEO of FMB, 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.”