The UK construction industry has experienced a 45 per cent increase in ‘significant’ financial distress over the past 12 months, latest research has shown.

The figures come from the Begbies Traynor Red Flag Alert for Q1 2015 which monitors the financial health of UK companies and have revealed that the number of struggling businesses has increased from 14,337 to 20,770.

Julie Palmer, regional managing partner at Begbies Traynor, explained that in recent years small house builders, developers and construction firms had missed out on growth opportunities enjoyed by larger firms, and indeed 97 per cent of the sector’s struggling businesses are SMEs.  

 “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,” said Julie.

“The construction sector has always proved difficult to lend to as many elements of their contracts are complex, subject to dispute and suffer from lengthy payment terms, making them high risk investments for the cautious banks, which had their fingers burnt during the last financial crisis.

“Unfortunately, the Prompt Payment Code has had a negligible effect on late payments so far and under intensified financial regulations, the banks have become even more risk averse. With insufficient alternative lenders to plug the gap, construction SMEs are being left without the capital they need to move forward.

“Ultimately there needs to be more avenues for SMEs to access funding, and no sector needs it more than construction.”

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