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John Rozenbroek is CFO/COO at Capify in this feature, he takes a look at the financial support which has been given to UK construction companies, and if it has been good enough to help them through the COVID-19 pandemic.

The construction sector is one of the largest in the UK economy, but it has also been amongst the hardest hit by the impact of this pandemic.

Over the past year the industry has faced trade restrictions, supply chain disruptions, shortages of goods, services and workers and was even forced to put a stop to all work earlier in 2020. And although the UK economy is beginning to reopen, the construction industry is still very much recovering.

In fact, the number of people employed in the construction industry hit a seven-year low in the third quarter of 2020 according to data from the Office for National Statistics (ONS), representing around 2.1m people, which is about nine per cent of the UK’s workforce.

Construction companies have always played a crucial role in shaping the success of the economy, and will no doubt be vital in our economic recovery, but has there been enough financial support throughout this pandemic to help them get back on their feet?

We recently completed a survey of SME owners – many of which are in the construction sector – and 43 per cent of businesses believed the support offered by the government throughout the pandemic has not been good enough.

On top of that, our survey showed that more than 80% were still looking for finance to support them, despite the many different support schemes that have been introduced.

As lockdown restrictions continue to ease and the country starts to reopen, do construction company owners really have everything they need to get going again at pace?

The cost of government support so far

The statistics show that the government’s Bounce Back Loan Scheme (BBLS) lent almost £45bn to more than 1.4m businesses. In construction, a report from the British Business Bank last summer revealed it had received the highest proportion of loans (17 per cent) of any sector in the UK.

This also follows figures that showed how another government-backed scheme – the Coronavirus Business Interruption Loan Scheme (CBILS) – had lent almost £20bn to more than 80,000 businesses. The construction sector came second in this list with 14 per cent of all the total lent by the government.

The figures are huge, and although it was announced earlier this year that the new ‘Pay as You Grow’ scheme would give businesses with a Bounce Back Loan more time to repay their loans if they need it, the problem is much bigger than that.

Businesses we speak to have either accessed the schemes already and now need a second injection of capital, or they were not able to access the scheme in the first place, so are facing the challenge of determining what they can do now.

For many businesses that did access the schemes, we know that money has already been used to help them through what was a hugely challenging period, so very little if any has been carried forward to look at future growth or investment.

Boosting cashflow was the top priority for 57% of businesses in our survey, followed by expansion and funding for new equipment, so we know that there is still huge demand for working capital. For construction companies, the priorities are closely aligned to these things but having working capital to ensure stock can be brought in when needed and contractors can get started on projects is absolutely key. Cash in the bank is a necessity.

On top of all of this, the construction sector is also facing a number of challenges relating to resources and skills. The findings of a survey by the HomeServe Foundation found that more than 1.25 million extra construction trades workers are needed by 2030; whilst also highlighting a growing skills gap that is struggling to keep up with ambitious government targets related to things like new homes, decarbonisation and key infrastructure projects.

We know that there’s a huge amount of resilience and determination amongst the UK’s small businesses, which really are the backbone of the UK economy.

it’s clear that SMEs are still in desperate need of finance this year despite the huge amounts of money that have been lent through the BBLS and CBILS. The Pay as You Grow scheme will provide some welcome relief for many businesses, but it does not address the fundamental issue, which is that SMEs still need finance.

The positive news is that there is clearly still plenty of optimism in the business community, with ambitions to expand or invest. And with the nation-wide vaccine rollout continuing at pace and confidence beginning to return, there are encouraging signs that recovery is on the horizon.

The role of traditional banks

Traditional banks continue to make it difficult for SMEs to get the finance they so desperately need to get back on their feet properly, which I believe means that alternative lenders like ourselves will have a crucial role to play in the months that lie ahead. We’re seeing increasing demand from SMEs across the construction sector, where we have a strong customer base already, as well as lots of other industries, which is linked to the £50m Small Business Fund we created to help businesses get moving again.

The majority of the UK’s ‘big banks’ are much happier lending to larger businesses with a long track record of profitability. But that doesn’t help SMEs and the impacts of the pandemic will have damaged the chances of many smaller businesses getting finance from a big bank.

That’s where I think the fintech industry will need to step up more than ever before to help companies bridge the gap. There’s already been huge growth with more and more business owners looking to get finance more quickly; with a simpler approach and with more flexibility. For these reasons, I expect 2021 will be a big year for alternative lenders with the support for the construction sector set to be at the very top of the agenda for getting our economy moving again.

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