Construction is attractive, but being rejected….

Louise Hall from the SMH reports that the NSW economy continues to be the worst-performing in the nation and the government must urgently introduce initiatives to stimulate growth in construction, business investment and jobs.

Today’s state government is (literally) paying for the indolence of its predecessors. We are probably a decade behind most of the other states in upgrades to infrastructure and utilities deployment. That said, the government’s work could be made easier with some co-operation from the banking sector.

The disparity in interest rates between loans to consumers and small business is unfathomable. The state senate’s enquiry into this issue has been met with obfuscation by the major banks.

So, can anyone from a bank give me a straight answer as to why SME’s pay higher interest rates on loans than consumers? Who am I kidding? The banks are like the Corleone family at question time in the senate, why would they talk to me?

Commsec’s chief economist Craig James said: ‘New construction would create jobs not only in the building industry, but would have a knock-on effect in trades, real estate, finance and conveyancing.’

Interesting how this survey has been compiled while the banks are facing the senate. Nice, tacit diversionary tactics – gets the heat off their own backs. Moreover, stimulating construction is more than just releasing new tracks of land. As mooted above, infrastructure and construction are  joined at the hip. Furthermore, financing construction is complex. The landscape of the industry is one of droughts and floods.

Ask a small to medium-sized construction company what it takes to get a loan from a bank and you better be wearing a hard hat and ear plugs. The banks mantra is no assets, no loan. How does this stimulate growth? What happens when a building company has new works signed off under contract and needs some capital to grow- to buy materials to get the job started?

Debtor financiers can offer some respite by buying up accounts receivables, however most run a mile when they hear the word ‘construction,’ which is a pity because the model works well in the UK, Europe and the US.

This is probably because the international models offer bespoke financing for construction called progress payments funding. Well worth looking at if you’re in the game.