What’s next for SMEs in the construction sector?
John Carter, managing director for commercial real estate at Aldermore, explores how construction SMEs should be considering how they can best capitalise on the easing of restrictions and the bounce in business confidence
The UK construction sector has been one of the more fortunate industries. Although the pandemic caused supply chain disruption and knocked business confidence, building sites only had to close for a limited time during the first lockdown last year.
As we enter the second quarter of this year, the UK vaccination roll-out is providing hope that the pandemic will be brought under control.
The Covid-19 shock on SMEs
Analysis by the Bank of England indicated the pandemic has had a bigger impact on SMEs in comparison to larger companies as they are more likely to operate in sectors which have been hardest hit by the pandemic such as hospitality and the arts industry.
While Covid-19’s repercussions on the construction sector have been less severe in relative terms, many SMEs within the sector have still faced threats to the viability of their businesses. Aldermore’s research found that one fifth (17%) of construction SMEs have seen a reduction in business income since the start of the pandemic.
Despite the reduction in business income last year, ONS data shows construction output is continuing to recover from the 40.1% decline in April 2020. Following the decline in April 2020, there were seven consecutive months of growth and although there was a small decline in December 2020, there was a return to growth in the new year with output growing by 0.9% in January.
Figures from the IHS Markit/Cips construction activity index also show growing positivity in the sector. The index registered 61.7 in March 2021, up from 53.3 in February and well above the 50 level that marks whether the sector is expanding or contracting. The latest reading signalled the strongest rate of output growth since September 2014.
Investment in the future
With the easing of restrictions and an expected economic boom on the horizon, many businesses are beginning to consider ways in which to grow their business and effectively recover from the pandemic. Aldermore’s research reveals that the top three investments construction SMEs are planning include: new equipment (26%), an online presence (20%) and new technology (17%). Beyond Covid-19, as priorities slowly begin to shift to business as usual, a fifth (17%) of businesses are also looking to expand their customer bases and enhance their sustainability practices.
Government support vital for SMEs
Government support for construction SMEs will likely have a key role in providing buoyancy to the predicted economic bounce. While there has been disappointment in the decision to scrap the UK’s industrial strategy in favour of a more ad hoc approach as well as the challenges faced from the now defunct Green Homes Grant, the Chancellor’s Spring Budget unveiled some promising incentives to encourage an economic recovery and stimulate growth in the construction sector.
The £12bn infrastructure bank headquartered in Leeds and the commitment of a “Help to Grow Scheme”, supporting the professional development of SMEs are both encouraging.
The extension of the Help to Buy scheme and the stamp duty holiday will also stimulate buyer demand in the first half of the year. The new Recovery Loan Scheme, which Aldermore is an accredited provider of for asset finance, will also be vital in helping businesses trade out of the pandemic.
Construction has a key role to play in the post Covid-19 recovery. At Aldermore, we’re committed to backing the industry through good times and bad and have a range of finance solutions specifically developed for construction SMEs. Last year, we launched our ‘Small But Mighty’ campaign to share real stories of SMEs who were tackling the challenges of the Covid-19 pandemic and provided a range of guides to support businesses.
One year on, as SMEs look beyond surviving, we’re producing more content and guidance linked to the campaign to continue backing SMEs recovering from the pandemic and help them future-proof their businesses against unexpected shocks and invest in their business’ long term strategy.
Author: John Carter, Commercial director, Aldermore
Source: pbc today