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8 ways finance can help in the Construction Sector

Finance options for construction

In June this year Britain’s construction industry recorded its worst month in a decade, as construction firms blamed Brexit for a lack of new commissions. Construction firms of all types warned that a “wait-and-see” approach to commissioning projects across both the public and private sectors had hit the industry.

As Tier 2 construction firms continue to suffer from late payments from main contractors, the Government launched the Late Payments Initiative on 1st September in a bid to put pressure on the main contractors to pay sub-contractors more quickly.

The initial proposal was that 95% of invoice should be paid within 60 days, however, when the initiative came into force this had been reduced to 75%.

Given the level of uncertainty that surrounds Brexit and the likely impact on cashflow, understanding your options in accessing finance is key. It’s important to remember however, is that there are several options are available to help your business navigate this such as those listed below.

1. VAT

Whilst all construction businesses aim to keep enough aside to cover the cost of tax and vat bills, this isn’t always possible, and when working capital volumes don’t permit, businesses need to look at alternative sources to fulfil these costs. Business loans are one such way of funding this expense and are becoming increasingly popular amongst businesses.

At White Oak UK, we continue to see year on year increases in the number of businesses choosing a short-term loan to finance VAT payments.

Customers can choose whether they wish for payments to be made directly to HMRC on their behalf, or to their account, but ultimately a VAT loan frees up capital for other business requirements, by spreading the cost over 3 months and offering a quarterly facility to meet these ongoing costs.

2. Reverse Charge VAT

This October, the government was planning to introduce changes to how VAT is paid in an attempt to reduce VAT fraud. Reverse charge VAT will mean that customers will pay tax directly to HM Revenue and Customs (HMRC) rather than to the supplier.

But thanks to lobbying by industry bodies in September, HMRC announced they would delay the launch of reverse charge VAT for 12 months, until October 2020.

However, when the changes to come into force next year, finance will be able to help construction companies manage their cash flow.

3. Asset Finance

If you’re looking to invest in new or used equipment for your business, then asset finance can help make it more affordable. Asset finance is a type of business finance that enables you to confidently acquire the business assets you need to grow and operate both efficiently and effectively within your sector, by spreading the cost of purchase.

It applies to equipment, machinery and vehicles and can also be used to release cash that may be tied up in assets already owned, by means of refinance.

Wholly or largely secured on the assets being financed, business asset finance gives you the flexibility to fund your equipment purchases while also avoiding paying out a lump sum.

This means you can spread the cost over a period of time to protect your cash flow and free up working capital for other areas of your business and with the government announcing last year an increase in the Annual Investment Allowance (AIA), asset finance can help your business get the equipment you need, when you need it.

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4. Indemnity Insurance

Renewing Professional Indemnity insurance (PII) cover is becoming more difficult for construction professionals and firms alike post Grenfell, with many experiencing rising premiums and exclusions and legacy projects now seen as high-risk by insurers. Affordable cover is now a serious budget consideration, especially for companies involved in projects involving combustible cladding.

Professional Indemnity Insurance has always been a considerable annual cost to; however, the sensitivities around insuring practices involved with cladding projects could see significant increases in the cost of cover moving forward.

PII finance helps you spread the cost over a 6 to 24-month period, providing a flexible payment facility that gives peace of mind that key costs are covered.

5. Corporation Tax

Almost half of UK small businesses say  they struggle with paying their tax bills, according to a survey by UK insurer RSA. Most businesses handle their tax liabilities using cash flow, but there are other approaches which can be more efficient.

By paying Corporation Tax bills with a loan that can be paid back over a 12-month period you can spread the cost of the tax owed, leaving funds free to be funnelled back into the most profitable areas of the business and ultimately increasing your bottom line over the year.

6. Working Capital

Every business will experience periods where their working capital is less than they require to fulfil a contract, complete a project or even compete for larger contracts.

short-term business loan can help you boost your working capital over a period of 3-12 months and enable you to compete on new projects that can take your business to the next level.

7. Aggregates Levy

Introduced in the UK in 2002, the Aggregates Levy is an environmental tax designed to encourage the recycling of aggregate, such as rock, sand and gravel, from construction and quarrying projects.

We understand that this can have a big impact on some businesses, so our specific Aggregates Levy Loan can help you spread the cost over 3-12 months, smoothing cash flow and freeing up capital for investment in other areas of your business.

8. Trade Finance

Do you have a large capital expenditure or are you required to fund large purchase orders? Trade finance can help by funding those purchase orders, allowing your business to free up its working capital to focus on expanding your business in confidence.

As a result of better cash flow management, your business can fulfil larger orders that previously may not have been possible and will help increase investment in other areas of your business. Our trade finance products also allows you up to 120 days to repay and can finance the logistics, VAT and duty as well as the purchase order.

Talk to us today

As you can see from the range of solutions outlined above, White Oak IE have developed an extensive offering designed to directly support the Construction industry, built on the back of more than 30 years’ experience in supporting the specific needs of the sector.

To find out more about any of these products call us on +44 (0)1245 904066 or +353 (1) 5634130.

Alternatively you can arrange a call back here to talk through your options with our team.

This blog first appear on our White Oak UK site here.