Banks ignore SME contractors' plight

Banks are unlikely to respond to government pressure to extend credit to ailing small building contractors, industry experts have warned.

The news comes after the collapse of four builders into administration over the past two weeks: £50m-turnover Pettifer Construction, £45m-turnover York House Construction, £18.5m-turnover Linpave and two parts of the Robin Ellis Group, which have a combined £19m turnover.

One senior financial source told Building magazine that many more companies are also likely to fold. He said: ‘There are a lot of crisis talks taking place at the moment.’

Meanwhile, Richard Kelly, financial partner at financial services group BDO Stoy Hayward, said banks were unlikely to comply with government requests for more flexibility: ‘The banks are not charities and will not be riding to the rescue of the construction sector next year.’

Jan Crosby, head of construction at KPMG Corporate Finance agreed, saying: ‘Most banks view contracting, and particularly housebuilding, as almost toxic sectors and finding new money is difficult. At the very least, it will be much more expensive. Government drives to increase lending to SMEs do not yet seem to be having any effect here or elsewhere.’

Struggling firms are furious they are with banks for exacerbating their economic problems, reports Contract Journal. Alan Jarvis, managing director of Kent builder AC Jarvis, said: ‘The banks are not helping anybody at the moment. We are having to operate without an overdraft facility.

‘Our bank has told us to ask for half the cash up front when we are bidding for a job, which is ridiculous in the current market.’

Another added: ‘We are a successful business yet the bank doesn’t want to know. It’s like your history counts for nothing – they are just refusing all credit whatever the circumstances.’

The comments came after the first meeting of the Small Business Finance Forum at Downing Street last month, where business secretary Peter Mandelson said the new body was committed to: ‘making progress on resolving the credit issues faced by small businesses.’