4,500 construction firms fall into significant financial distress

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In the last quarter, almost 4,500 construction businesses have fallen into significant financial distress, according to the latest Red Flag Alert research by Begbies Traynor

In Q3 2020, 4,500 construction businesses have fallen into significant distress, an increase of 11% to 72,402.

9% more commercial builders and 8% more housebuilders reported being in significant financial distress as the impact of Covid-19 continues to take hold of the industry.

The latest Red Flag Alert research for Q3 2020 has recorded 557,000 businesses in ‘significant distress’ after the largest quarterly leap in financially distressed companies since 2017.

‘A brutal reality check’

Ric Traynor, executive chairman of Begbies Traynor Group plc, said: “The government’s well-publicised support measures have saved thousands of businesses from certain insolvency in the short term, but the recently launched reduced version of the furlough scheme and the end to Government guaranteed loans will serve to give many businesses a brutal reality check.

“In fact, many of these businesses were debt-laden before the pandemic struck and had little prospect of a viable turnaround.

“They have seen their life prolonged by the sudden availability of soft loans and employee cost subsidies, as evidenced by the 30% + fall in insolvencies over the last six months.

“Inevitably their underlying lack of profitability and accumulated debt will catch up with them once the subsidies end and they face the harsh realities of the challenging economic environment.”

Traynor added: “What is uncertain is whether these same government schemes will be enough to shield the businesses which were viable pre-Covid and allow them to prosper once again when the “new normal” appears.

“With the UK’s service-based economy almost certain to experience permanent changes brought about by the coronavirus pandemic a comprehensive Government-backed retraining programme for those employees affected by these changes is needed as many people will be forced into career changes and require the appropriate skill sets for the post-pandemic world.”

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