Will Wonga shake up business financing?
Posted: 8th May 2012
Payday lender Wonga, which offers loans to consumers at annual interest rates of more than 4,000%, is now turning its attention to small business-owners and entrepreneurs unable to secure loans from banks.
Wonga for Business says it is planning to "shake up business financing" by launching a unique, paperless service to SMEs, which can get them cash in just 15 minutes.
The service will operate in the same way as Wonga's consumer application and initially offer cash injections in increments of £50 for between £3,000 and £10,000, and for any term between one and 52 weeks.
Wonga for Business will initially be available to limited liability companies and limited liability partnerships that have been established for three years or more and have sales in excess of £20,000 per month - but there are plans to broaden the application criteria and the loan parameters over time, targeting more companies.
Commenting on the launch, founder and CEO Errol Damelin said: “We have already provided millions of flexible loans to individuals, while achieving unprecedented customer satisfaction ratings, and we now plan to disrupt the business loans market with the same technology.
"Young, entrepreneurial companies represent our best hope of a recovery, yet many are struggling because they can’t get quick access to the credit that they need to cope with everyday challenges, such as late payment by partners or customers.
"Others can use funds for great opportunities like getting a discount by paying cash, or buying in bulk, and then repaying early when the goods are sold. Having been involved in building a number of companies, I have first-hand experience of how important access to credit can be in staying afloat and growing.
"All our research and speaking to other entrepreneurs tells us that small business lending is broken and we intend to use our platform to offer a real alternative."
Payday lenders have been heavily criticised in the press, parliament and by consumer groups in recent times.
In September 2011, a Which? Money investigation claimed that it had uncovered "widespread poor practice in the payday loans market, including potential breaches of the Consumer Credit Act, poor privacy provisions and inflated APRs".
At the time, the most expensive payday loan Which? found was offered by Wonga.com, which quoted £36.72 for a 30-day loan of £100 - equivalent to an APR of 4,394%. The same amount borrowed through an authorised overdraft from Which? Recommended Provider Co-operative Bank would cost just £1.35, the report found.