2020 has been unexpectedly one of the hardest years for business whether it be a new start-up or a well-established business. There may be increasing glimmers of hope with the approval of a new vaccine in the UK, but nobody knows when the pandemic will end. One thing that is for sure, is that it will end, and businesses will still be there and will still need the funding to continue and, in some cases, expand. One of the hardest hit industries has been the construction industry, where demand for dedicated commercial finance is at an all-time high.
Impact of COVID-19 on the Construction Industry
Construction online conducted a survey of over 4,000 of its members to assess the impact of the Covid-19 pandemic on their business. Over 85% of respondents reported an affect. Despite the government urging construction to continue working throughout the first UK wide lockdown, that took place from 23rd March 2020 and began easing in May 2020, over 60% of respondents reported shutdowns of sites. From construction workers being placed onto the governments job retention scheme to delayed completion dates, the effect of this was wide ranging, and is still being felt by many businesses in the industry. Top reasons cited for shutting down sites include the following:
- Projects placed on hold and even cancelled
- Unable to work safely while implementing social distancing
- Health and safety of workforce
- Supply issues
- Staff shortages
- Cash flow difficulties
Government Support for Construction Businesses During COVID-19
Unprecedented levels of support have been offered to businesses across all industries throughout the pandemic, with the aim of minimising both the number of businesses that cease trading and staff redundancies. One of the flagship schemes is known as the Job Retention Scheme (JRS); where at the height of the pandemic businesses, including those in the construction industry, could place their staff on furlough and claim 80% of their salary, up to a maximum of £2,500 per month. This lifeline meant that businesses did not have to fund wage bills while their workforce could stay at home, stay safe and receive 80% of their normal salary.
According to the Construction Online survey, over 70% off businesses in the construction industry intended to make use of the Job Retention Scheme. Unfortunately, the use of this scheme did not prevent any redundancies taking place, with some of the hardest hit companies having to undergo massive restructuring. A survey undertaken on behalf of Build UK, reports that over 40% of the construction businesses surveyed are likely to make redundancies due to the impact of Coronavirus on the viability of their business.
In addition to the JRS, small to medium size businesses were also entitled to apply for the Coronavirus Business Interruption Loan Scheme (CBILS). The CBILS scheme allowed SME’s to apply for loans to the value of between £50,001 – £5m to help support them through the pandemic. There was also the Bounce Back Loan Scheme (BBL), also aimed at small and medium sizes enterprises. The BBL scheme enable companies to apply for a loan of up to £50,000 with a government-back guarantee to help them manage cash-flow and other expenses during the pandemic.
The Benefits of Construction Finance
Due to the more recent November 2020 lockdown and subsequent tier-based restrictions the JRS has been extended to March 2021, and both the CBILS and BBL schemes have been extended to 31st January 2021. For some businesses these government schemes were the lifeline they needed. However, for other businesses, some of those based in the construction sector, they were either unable to take advantage of the CBILS or BBL scheme, or it simply wasn’t enough given the turnover and amount of disruption.
As construction businesses continue to come back to trade, and the orders are coming in thick and fast, however, that doesn’t signal a complete end to the problems. Supplier invoices and wage bills are a relentless drain on resources resulting in cashflow becoming tight. Even with the economy picking up, your business can find itself either on the back foot or even worse heading down the closure route. Construction finance can assist with either starting out, growth or to put a bit of money back into the business which is no longer there.
How does it work I hear you ask?
It links into Invoice Finance facility but in the market, there are specialist lenders specific to the construction industry which understand the do’s and don’ts of the world.
- JCT Contracts – a range of specific building contracts setting out terms and conditions, obligations, costs and more.
- Application for Payments – a specific construction document outlining exactly how a contractor will be paid.
- Retentions – a percentage included within the contract that the client will deduct from the sum and retain in order to under the contract is completed satisfactorily.
- Staged Invoicing – payments due on a staged basis e.g. 25% prior upon placing an order, 30% prior to commencement, balance upon completion.
For more information on any of the above construction commercial finance strategies, and how we can help you partner with a construction specialist lender to meet the needs of your business contact us today.
Understanding your business and where you want to go with it is one of the most important things to us. The more we know the more we can help.
Some of the main points that you will benefit from by using MC Commercial Finance as your construction finance broker are:
- Payment of Invoices/Applications within 24 hours of being raised
- Up to 60% of the total invoice value
- Bad Debt Protection to cover you should the customer go bust
- An experienced team to handle your account
- Online Portal so you can be kept up to date 24/7
And much more……..
Why MC Commercial Finance?
At MC Commercial we take the personal approach and put ourselves in the business owner’s shoes, listening goes a long way to get the right solution for the client not to try and give the client a facility that will not work.
Since leaving school I have been involved in commercial finance and this is where MC Commercial was made as I wanted to help and assist businesses when they need it most. Having access to a large panel of lenders allows me to get the best outcome for the client will little interruption.
For further advice on the product please feel free to drop us a line and start the process to take the unwanted headaches away.