Banks have taken vital overdraft facilities from nearly half of the UK’s largest property and construction firms, thus cutting their liquidity, says research from Roland Berger Strategy Consultants.
The Credit – Where it’s Due? survey quizzed finance managers at the UK’s top 1000 companies by turnover and showed that 34% of unused credit lines had been withdrawn from affected property and construction firms.
The survey says that, without access to these credit lines, 70% of companies have been hit by poor liquidity and 30% have suffered downgraded credit ratings.
Roland Berger said unused credit lines were key to the effective running of businesses with 72% of construction firms earmarking the cash as a safety buffer against a worsening economy.
Klaus Kremers, restructuring and turnaround partner at Roland Berger, said: “The tightening credit situation within property and construction is well documented, but these findings reveal the severity of the shortage at the highest levels of the sector.
“Credit can be the vital lifeblood of a firm’s operations, but is being progressively eroded as the credit crisis persists.
“Construction companies are being deserted by banks on the one hand and by customers on the other. This is diverting the focus of many perfectly viable firms away from improving sales and profits, and onto avoiding insolvency.”
The survey says 66% of property and construction firms believe the current lack of liquidity will force them to cut jobs.
Also, nearly half are feeling pressure to spend unused credit facilities unnecessarily to avoid them being withdrawn.
