Construction Finance
If your construction firm doesn’t qualify for some of Mr Osborne’s autumn handout there are alternative funding options
The announcement of the largest house building programme since the 1970’s has no doubt got the hard hat and hi-vis fraternity sharpening their trowels. However, it might be pencils that need sharpening when it comes to working out how to pay for it.
If you go back a few years and consider the speed at which most finance companies ran away from funding anything linked to the construction industry you wonder how anything ever got built. The hiatus that evolved from the demise of the local bank manager taking an informed and hands on approach was a worrying time for smaller construction businesses when staff needed paying and material had to be paid for.
Thrown in the skip
The words JCT Contract, DOM Contract and Applications for Payment used to get funders reaching for the ‘Declined’ stamp before they had read much more of the proposal. The problem was of course that funders aren’t builders, and a lack of understanding the tricks of the trade saw fingers burnt and the shutters come down.
Luckily, some members of the alternative finance industry decided it was time to actually get to understand the small print of these documents in order to find a solution to a problem, rather than decline a perceived problem altogether and, as a result, have developed construction finance.
Strong foundations
These days, with the involvement of experienced quantity surveyors in a lot of cases, an expert review of the contracts involved can result in a level of cash being released that is both comfortable for the lender and adequate for the needs of the guys on site.
For obvious reasons the levels of funding are not in the high 80% – 95% range associated with other types of receivables finance, however, one clear advantage is that cash can be generated from uncertified applications for payment; a real boon when those Friday afternoon brown envelopes need filling.
Avoid a concrete wall
On top of the many other building projects up and down the country there are now 400,000 affordable homes, 135,000 shared ownership homes and around 8,000 specialist homes for older residents and people with disabilities going up by 2021.
Any business looking for a piece of the action will need to do the cashflow groundwork in good time and try to avoid talking to people who don’t know their adze from their earth rammer.
A chat with us can help you do just that; we can put you in touch with the companies doing their bit to make the construction finance playing field just a little more (spirit) level.
by Steve Leeves
Finance Professional