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Lending to SME construction businesses drops 26% as Coronavirus crisis bites

Our research shows that bank lending to SME construction companies dropped 26% in April 2020 compared to April 2019, as they struggle to obtain loans under the Government’s Coronavirus Business Interruption Loan scheme.

Banks wrote £423m in new loans to small and medium construction businesses in April 2020, down 16% from £506m in March 2020, and 26% from £573m in April 2019. Conversely, there was an 83% increase in new business loans written to SMEs in the hospitality industry, which rose from £207m in April 2019 to £379m in April 2020. Transport and storage also saw a 62% increase in new loans, from £329m to £532m.

Banks have traditionally been reluctant to lend to construction companies when there is uncertainty in the economy and relatively high levels of insolvency in the sector. Factors contributing  to the uncertainty include the slowing of construction activity in the run up to Brexit, Coronavirus, property valuations  and the high-profile collapses of construction companies such as Carillion in recent years.

Delays in accessing funds under the CBIL scheme, has compounded the problem for construction companies. Requests for historical information missing from Banks’ files have held up processing of loan applications for days and even weeks. Smaller companies are finding it more difficult to get their loans approved, with banks considering many as being a high risk of defaulting on payments. The smaller Bounce Back Loan Scheme with 100% Government guarantees did not benefit the sector until after April.

The construction industry was badly hit following the 2008 Financial Crisis, experiencing double digit contraction in output in 2009, as projects stalled and new orders failed to materialise. This was particularly evident in the residential property market, which suffered a sharp drop in property values.

Michael Fitch, partner at our Belfast office says: “Banks have always been wary about lending to smaller construction businesses when the economy is looking shaky. The coronavirus crisis could push more construction businesses over the edge.”

“Construction companies have had some support with the Job Retention Scheme and Bounce Back Loan Scheme but the financial benefit of these will have only gone a short way to mitigate the impact that lockdown has had on their bottom line.”


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