We’ve been funding SMEs in the construction sector for over 10 years and, in that time, we’ve seen the funding landscape change significantly. Historically, it has been difficult for SMEs to source funding as upfront labour and material costs often need to be paid before a job is completed. This requires traditional lenders to take on a lot of risk. At the same time, subcontractors may also have day-to-day business costs to meet during the delivery of a project. 

Pressures like this can mean that many traditional lenders find it difficult to fund the sector adequately. Our 2019 Subcontracting Growth report shows that these challenges may be impacting the funding options available to subcontractors. 

Bank overdrafts remain the key source of funding for one in three (33%), followed by nearly one in five (17%) who are reliant on personal savings or loans from friends and family, which has almost doubled since last year (9%). This is particularly concerning when a similar number of subcontractors are using credit cards or traditional bank loans (16%) to fund their business. 

All of the above forms of funding are unsecured, which means they are only supported by the borrower’s creditworthiness. Funding in this manner may provide some stability for growth but is often inflexible and can leave subcontractors with insufficient cashflow to meet the needs of running their businesses.

In fact, nearly half (48%) of the subcontractors we spoke to are writing off an average of £10,641 in bad debt from unpaid work. Undoubtedly, this is leaving many with a funding shortfall at a time when they need to be investing in themselves or funding larger contract work. In such instances, bad debt protection allows a business to pass on the risk of non-paying customers. This gives business owners the peace of mind that they will not be left out of pocket for the work they complete.

Overcoming these challenges requires firms to take advantage of the funding options available to them. Some subcontractors may be missing out completely, as nearly half (47%) aren’t using any form of funding at all.  

Funding shouldn’t be a solely defensive or protective measure. Business owners can, and should, use their funding to unlock new sources of growth. This could take the form of hiring additional employees with new skills, purchasing specialist equipment or branching into a new sector.

Whatever the future holds, ambitious subcontractors should look to use different forms of funding to help them reach new goals and achieve bigger and better things for their business.