Construction SMEs weather stormy business landscape

UK construction SMEs are ambitious to grow, but are held back by the impact of inflation, supply chain challenges and reduced access to capital. That’s according to Bibby Financial Services’ (BFS) SME Confidence Tracker, based on a survey of 1,000 UK SME owners and decision makers, including over 200 in the construction industry. 

The survey found that construction SME leaders are confident in their prospects, with 58% of construction SMEs saying they are optimistic that orders will increase in 2025. 

While the uncertain economic environment is causing many businesses across sectors to press pause on investment, construction SMEs are most inclined to spend. Only 38% of construction companies are waiting to invest until after the General Election, a figure much lower than the average of 46% across all other sectors.

Inflation and supply chain pressures have hit construction hard, with the high cost of materials identified as a key challenge by 65% of construction SMEs. The survey also found that one-third (34%) of construction SMEs have suffered bad debt in the last year.

Inflation has had a severe impact on construction firms – 56% of construction SMEs identified it as a key challenge they face, compared to an average of only 48% of SMEs across other sectors surveyed. 

Supply chain disruption has been particularly painful for construction SME owners, as 4 in 10 (42%) cite it as a top factor impacting their business; this number nearly halves among other sectors (27%).  

Despite confidence among business owners and leaders, the survey found that access to external finance remains a hurdle, as 53% of construction SMEs said it is more difficult to access external finance than it was six months prior to February 2024. A further 43% said their need for external finance increased over the same period. 

59% of leaders at construction SMEs reported that banks are less willing to lend to small businesses compared to the previous six months.

Commenting on the survey findings, Derek Ryan, UK Managing Director of Bibby Financial Services said: “In many respects, the construction sector is the bellwether for the economy, and it’s clear that many of the sector’s SMEs owners are seeing an increase in work volumes, which will undoubtedly act as a positive multiplier effect for adjacent sectors, such as manufacturing and transport.

“Despite this optimism, the high cost of materials and shipping, and pressure on supply chains triggered by geopolitical factors in Europe and the Middle East continue to hamper the growth of many construction firms as many businesses price-in this risk, exacerbating the issue throughout supply chains.

“Add to this the increased susceptibility to bad debt and the ongoing challenges faced by construction firms in accessing the finance they need to fulfil existing orders and take on new work, the remainder of 2024 could be a pivotal time for the sector, and the wider economy. It’s vital that whichever political party takes power after the General Election keeps the interests of the sector front and centre of their policies.”