There were more than 21,000 ‘significant’ financial alerts for construction SMEs in Q3 of this year, according to a financial distress report from insolvency specialists Begbies Traynor.
The report showed a 41 per cent jump in ‘significant’ SME financial red flags from 15,501 in Q2 to 21,831 in Q3.
The figure is in stark contrast to the statistics for larger companies, which show almost a 50 per cent fall in red flags in the same period to 504, compared with 967 in Q2.
Overall construction continues to suffer, with a 33 per cent quarterly increase in significant or critical red flags from 17,456 in Q2 to 23,190 in Q3.
In the South, red flags increased marginally less – by 32 per cent from 7,395 in Q2 to 9,777 in Q3.
In the rest of the UK there was a 34 per cent increase in red flags from 9,834 in Q2 to 13,168 in Q3.
Begbies Traynor attributed the quarter-on-quarter increase in ‘significant’ distress levels among SMEs across all sectors to the growing impact of “zombie businesses” – companies who are in debt and are only just generating sufficient cash to survive.
Begbies Traynor partner Julie Palmer said: “These figures demonstrate that an increasing number of SMEs are bearing the brunt of the current challenging credit and trading conditions.
“It is evident that larger businesses are exploiting their scale by enforcing lengthier payment terms on SMEs.
“This, together with the disproportionate impact of higher energy prices and the limited availability of funding support, is combining to form a perfect storm for the UK’s SME sector.”
In his first trade press interview, construction minister Michael Fallon threatened to “name and shame” banks that do not step up and lend to construction companies.
Ms Palmer added: “Unfortunately the outlook for many of these SMEs is poor.
“These zombie companies are only just generating sufficient cash to pay the interest on their debts and keep creditors at bay.
“While many of these SMEs may survive with the benefit of low interest rates and creditor forbearance, they are in no position to deal with unexpected costs, lost orders or bad debts or to fund increases in working capital and invest in growth.
“At a time when the hopes for a UK recovery are pinned on the private sector delivering growth and investment, it is clear that the government needs to act quickly to ensure credit conditions for SMEs are improved or risk choking off a recovery before it really gets started.”