The number of construction firms experiencing ‘significant’ financial distress has risen by 45 per cent over the past 12 months, new research has revealed.
Begbies Traynor’s Red Flag Alert revealed that 20,163 companies were classed as being under significant financial strain in Q1 2015, up 45 per cent from 13,727 back in Q1 2014.
Of the firms under significant strain, 97 per cent were SMEs, according to the latest data.
The ‘significant’ financial distress rating is defined as companies that have seen sustained or marked deterioration in key financial ratios, which include retained profits, net worth and working capital.
It also includes companies that have minor county court judgements of less than £5,000 filed against them.
In contrast, the number of large businesses experiencing financial difficulties was largely flat, falling from 610 firms to 607 over the same period.
The research argued that the Prompt Payment Code has had a “negligible” effect on late payments so far, while alternative lending has been “insufficient” to provide capital to construction SMEs.
Begbies Traynor partner and property expert Julie Palmer said small housebuilders, developers and construction firms contribute a “huge amount” to the UK’s housing and construction output, but have declined in number and “missed out on growth opportunities their larger peers have enjoyed” in recent years.
She said: “At the heart of the problem is a general reluctance to lend to this important group, which is seriously obstructing their growth and contributing to the rising levels of financial distress that we are seeing today.”
Ms Palmer added that while political policies in the run-up to the general election have been largely positive for the construction industry, they do not go far enough to support smaller construction firms.
“Ultimately there need to be more avenues for SMEs to access funding, and no sector needs it more than construction,” she said.
The research comes as a number of contractors have cited financial problems over recent months.
Most recently PC Harrington Contractors, one of the UK’s largest concrete contracting firms, went into administration citing cost overruns on two major contracts.