Despite the government’s pledges to invest in the industry, cashflow and funding are still providing major challenges for SMEs, says Peter Vinden, and the chancellor should have done more.
- SMEs need specific, shovel-ready projects
- Cashflow and funding is still a problem
- SMEs need help on non-payment
The chancellor’s spending review on the 26th June presented further cuts across local government, as £7bn of cutbacks were announced.
For the construction sector, the outlook appeared to be not quite as bleak, with £50bn promised to unlock infrastructure projects over the next year, and £300bn secured for the rest of the decade.
SMEs need specific, shovel-ready projects
However, this was not the first time that the chancellor has promised a boost to infrastructure spending, but shovel-ready projects are still few and far between, and the construction sector has been struggling to increase its pipeline for a number of years.
Despite pledging the £50bn to “roads to railways, bridges to broadband, science to schools”, there was still no mention of when and where specifically. HS2 was given the green light but again, this is something that is still in the distant future.
“The sad reality is that high street banks do not want to lend to construction firms”
What we need to know is when the projects will get off the ground, and how we can start to tender for such work.
SMEs are increasingly getting left behind as larger construction companies secure the briefs for the major projects available, as confidence in the sector is low.
Cashflow and funding is still a problem
This is not necessarily surprising as many are facing the challenge of balancing an irregular cashflow as contractors take longer and longer to pay for completed work.
The sad reality is that high street banks do not want to lend to construction firms. Major contractors recognise this and have been forced to take extended credit to cover issues originating from their own lack of funding.
“The construction industry has faced hard times, and this new investment could be too little too late”
This is putting tremendous pressure on subcontractors that are sometimes waiting up 90 days or more for invoices to be settled.
SMEs need help on non-payment
Mr Osborne should have announced the creation of low-interest loans and grants for businesses that are falling victim to non-payment.
While a £50bn investment in infrastructure will certainly help the UK to up its game, it is no help to companies that are unable to compete due to funding limitations and issues with accessing finance.
While £300bn in funding for infrastructure is not to be discounted, the fear is that these projects may not materialise in time to help some of the companies that are struggling to keep their heads above water.
The construction industry has faced hard times, and this new investment could be too little too late.
Peter Vinden is managing director of The Vinden Partnership