More calls for government action
Directors plugging gap left by banks and late payers
Small construction firms are receiving loans from their own directors to plug a funding gap left by banks and major contractors delaying payments.
Directors lent their companies £38 million in 2015/16, a sharp rise on the £29.7m in 2013/14, according to a survey of trade businesses such as electricians, plumbers and plasterers.
Banks are setting tighter lending criteria and focusing on larger clients, leaving smaller firms to find short-term finance from other sources. In some cases they are drawing on their own resources to avoid insolvency, the analysis found.
Conrad Ford, CEO of online finance market Funding Options, said: “Confronted by continued borrowing constraints and often faced by long waits for payment, they (directors) are ploughing significant amounts of their own money into their businesses to ensure they remain on a firm financial footing.
“But it is questionable whether taking such drastic personal measures is sustainable for much longer.”
Analysts have noted that Carillion owes £800m to clients and suppliers, 75% higher than the sector average.
More than £1 billion of cash is held back by Britain’s top construction companies from their small- and medium-sized contractors, according to the Specialist Engineering Contractors group which represents 60,000 companies.
It has written to the government requesting the creation of project bank accounts, effectively ring-fencing payments on running construction projects.
Scots businessman Ken Lewandowski was instrumental in the introduction of project bank accounts for public sector contracts in Scotland.
It aims to stop the process whereby a main contractor is paid by the government but holds back paying sub-contractors. The money instead goes into the PBA and everyone is paid at the same time.
He wants to see similar action taken to speed up payments in private deals.