Research into construction funding deals claims the current lending system by High Street banking giants is “the real killer in the construction industry”.
Alternative lender Nucleus Commercial Finance found that healthy construction firms desperate for cash to invest and grow were being turned away from their banks or offered loans at unacceptably high interest rates.
At the same time, companies lent money in the past were being artificially kept afloat when they were technically insolvent.
Nucleus said that of the last 50 construction finance deals it reviewed – 12 of them were now zombie companies.
Chirag Shah, Managing Director of Nucleus Commercial Finance, said: “For every one company that is a zombie, there are another three that are healthy companies looking for cash.
“The Government is long on talk but short on action.
“On the one hand it talks about the need to encourage alternative lenders such as Nucleus to step up to the plate; on the other, all of its actions are focused around the dominant High Street lenders who are the ones responsible for the current mess.
“SMEs, and especially SMEs in the construction sector, require a different kind of capital that requires different thinking and a different approach.
“They are being turned away from the High Street because of the folly of previous lending decisions and are paying the price for other people’s mistakes.”
Nucleus recently launched Construction Finance – a dedicated cashflow-funding product that accommodates the specific challenges of construction contracts.
Shah added: “The main lenders have failed the construction SMEs because they have failed to understand the unique challenges that such firms face.
“It is time for the Government to give the alternative lending community greater recognition and support.”