How to offer finance to customers in the construction industry

Why finance at point of sale matters in construction

Offering finance is no longer a nice-to-have for UK construction businesses. With output edging up 1-2% in early 2025 and the Bank Rate trimmed to 4.5%, financing costs have stabilised and project viability is improving. Yet lenders remain cautious, particularly on larger schemes, and construction insolvencies still run high. That mix is reshaping how firms win work, price risk, and help customers fund projects.

Understanding APR is not just about percentages - it is about the pounds and pence your customer will actually pay over the life of the loan.

Tender prices remain elevated. Forecasts point to 2-4% inflation for buildings and 4-6% for infrastructure through 2025, driven by labour costs and capacity constraints rather than materials. Add the 15-20% rise in core inputs since 2020 and it is clear why budgets stretch and cash flows tighten. Clients need options that smooth payments. Contractors need finance that funds deposits, progress milestones, and modern methods of construction without overexposing balance sheets.

At the same time, the market is innovating. Alternative capital - from institutional and patient investors, often with government support - is gaining traction, particularly in affordable housing and sustainability-led projects. Public infrastructure pipelines in power, water, and transport are expected to grow steadily, offering demand for firms who can demonstrate robust financial controls and credible delivery plans. Housing starts are recovering, helped by mortgage rate cuts, but affordability pressures persist, meaning tailored finance can unlock stalled demand.

For UK builders, fit-out specialists, and trades, the opportunity is to embed credible finance at the point of quote. That could be regulated consumer credit for homeowners, asset finance for equipment, staged commercial facilities for SMEs, or partnerships that channel alternative capital into eligible projects. The key is matching the product to the contract type, verifying affordability, and presenting costs transparently.

Two themes define 2025: resilience and proof. Lenders and clients are tightening checks, requiring stronger security, more evidence of financial health, and earlier contractor involvement to de-risk programmes. If you can show cost control, realistic programme allowances, and compliance with sustainability mandates, you are better placed to secure funding on fair terms and convert more customers.

Headline figures: tender price inflation 2-4% for buildings and 4-6% for infrastructure in 2025.

Who should read this

This guide is for UK construction businesses that want to offer finance to their customers without tripping regulatory wires or taking on unmanageable risk. It suits main contractors, specialist trades, home improvement firms, modular and retrofit providers, and developers seeking sales uplift through structured finance. It will also help finance managers who must justify terms to cautious lenders and clients, and company owners who need to balance growth with cash flow discipline. If your customers include homeowners, landlords, SMEs, or public-sector clients - and your projects are affected by labour shortages, sustainability requirements, or contract risk - the insights here will help you design offers that stand up to scrutiny.

Jargon decoded

• APR: The annual percentage rate includes interest and certain fees, giving a comparable cost of credit. Customers use it to judge affordability across offers.

• Fixed vs variable rate: Fixed rates keep repayments steady. Variable rates track market movements, which can lower or raise instalments over time.

• Unsecured vs secured: Unsecured credit relies on creditworthiness. Secured lending uses assets or property as security, often at lower rates but with higher stakes.

• Stage payments: Drawdowns linked to milestones or valuations. Common in construction to match cash inflow to site progress.

• Retentions and contingencies: Contract mechanisms that hold back funds or budget for risk. They influence how much finance is needed and when.

• Green finance: Preferential terms for energy-efficient or low-carbon improvements, reflecting policy incentives and investor appetite.

• Credit assessment: Affordability checks, income verification, and risk scoring. Heightened in construction due to elevated insolvency rates.

• Early contractor involvement: Engaging delivery partners during design to de-risk cost and programme, improving financeability and lender confidence.

Ways to structure customer finance

1. Regulated point-of-sale credit for homeowners: Offer unsecured instalment loans with clear APRs and fixed terms for kitchens, extensions, roofing, and retrofit. Useful where affordability is tight and speed matters.

2. Interest-free or low-rate promotional plans: Time-limited subsidies funded via margin or manufacturer support to accelerate decisions on standardised packages such as heat pumps or windows.

3. Stage-drawn customer loans: Facilities aligned to milestones or valuations, limiting interest costs and aligning repayments with build progress.

4. Secured homeowner loans: Second-charge or remortgage-backed options for larger renovations. Lower rates but additional legal steps and customer suitability checks are essential.

5. SME asset finance and leasing: Spread the cost of plant, modular units, or digital tools. Supports productivity where labour constraints bite and improves working capital.

6. Development or bridging support for small builders: Short-term facilities to acquire plots, cover prelims, or bridge to sales, often with stronger security and more scrutiny.

7. Green-labelled finance: Preferential terms for energy efficiency, low-carbon materials, or certifications aligned to UK sustainability standards and grants.

What it costs and what you gain

Can your firm qualify?

Eligibility depends on the product and regulator expectations. For consumer credit, you may need Financial Conduct Authority permissions or an appointed representative arrangement through a regulated broker such as Kandoo. Lenders will assess your trading history, director backgrounds, and customer outcomes, testing that you explain APRs, fees, and cooling-off rights clearly. For SME and development facilities, expect deeper diligence: management accounts, cash flow forecasts, cost plans that reflect 2025 labour-led inflation, and evidence of risk allowances for materials that have risen 15-20% since 2020. Given construction accounted for a significant share of UK insolvencies in 2024, lenders increasingly seek security, performance history, and proof of early contractor involvement to reduce cost uncertainty. Firms pursuing green finance should show compliance with UK regulations and credible sustainability metrics. Across the board, transparent contracts and a clear route to repayment are essential.

From enquiry to funds - the journey

1. Scope the project and confirm contract model and milestones.

2. Pre-qualify the customer and test affordability assumptions.

3. Select a finance product aligned to risk profile.

4. Present total cost, APR, and repayment schedule transparently.

5. Submit application with proofs, forecasts, and programme details.

6. Lender conducts diligence, valuations, and security checks.

7. Finalise documents and cooling-off or disclosure requirements.

8. Draw down in stages and monitor performance against plan.

Upsides and watchouts

Due diligence before you commit

Before you add finance to your offer, stress-test your pipeline against current UK conditions. Check labour availability on key trades and factor realistic productivity into programmes. Validate cost baselines using current tender price indices to avoid underestimating budgets, and model scenarios where materials or subcontractor rates move within forecast ranges. Lenders are prioritising strong governance, so tighten invoicing, retention handling, and change control. Ensure your customer journeys meet FCA standards where relevant, including clear pre-contract information and fair presentation of promotional rates. If pursuing alternative capital, map project eligibility against government-backed schemes and long-term return expectations. Finally, align finance with contract risk - fixed-price agreements look attractive but may need contingencies or risk-sharing provisions to remain financeable.

Alternative paths to funding

1. Institutional or patient capital partnerships targeting affordable housing and retrofit, with longer tenors and government support.

2. Framework-backed public sector projects offering steady demand and clearer payment security under established procurement routes.

3. Collaborative contracts with risk-sharing mechanisms that reduce cost volatility and improve funding terms.

4. Supplier finance and pay-later options on materials to smooth working capital during early phases.

5. Grants and green incentives that stack with commercial finance to cut net costs of energy-efficient upgrades.

Frequently asked

Q: Do lower Bank of England rates mean cheaper loans for my customers? A: Rate cuts to 4.5% have eased financing costs, but lender caution remains. Pricing depends on risk, security, and product type, so improvements vary by case.

Q: How do we protect margins when offering promotional finance? A: Cap subsidy costs, limit offer duration, and focus on standardised packages with reliable install times. Track conversion uplift to ensure return outweighs any discount.

Q: Are lenders really stricter with construction firms? A: Yes. With construction insolvencies elevated, expect deeper affordability checks, stronger security, and more evidence of risk management and delivery capability.

Q: What makes a project more financeable in 2025? A: Early contractor involvement, robust cost plans reflecting labour-led inflation, clear milestones for drawdowns, and sustainability credentials that qualify for green terms.

Q: Can small builders access alternative capital? A: Often via partnerships or specific programmes, especially in affordable housing and retrofit. You will need disciplined reporting and alignment to scheme criteria.

Q: Is fixed-price still acceptable to lenders? A: Yes, but where risk is high, risk-sharing models or contingencies can improve terms. Demonstrating supply chain stability also helps.

What to do next

Map your top three services to finance products that fit their risk and customer profile. Pilot with a regulated broker, refine disclosures, and measure conversion, margin, and cash flow impact. Prioritise projects that align with public infrastructure demand or green criteria to access more resilient funding and potential incentives. Keep cost data current and revisit affordability as rates and labour dynamics evolve.

Important information

Kandoo is a UK-based retail finance broker. This article provides general information only and is not financial advice. Products are subject to eligibility, status, and lender criteria. Always consider regulatory obligations and seek professional guidance where appropriate.