Posted: 9th May 2012
Lee Manning of insolvency trade body R3 on Wonga's launch of its business loans service.
Talk of "smoothing out financial bumps" simply does not apply to a business scenario - a short term fix is not what a struggling business needs.
The focus must be on survival in the medium and long term. Businesses should be able to navigate a period of short term difficulty on their own by negotiating with suppliers for example, without resorting to high interest loans.
R3's research found a nearly a third (30%) of businesses admit to regularly using their maximum overdraft facility already.
Lower consumer discretionary spend and high utility costs are creating many highly leveraged businesses, only able to service the interest on their debt.
A high-interest loan would therefore seem inadvisable and we would certainly caution company directors from signing personal guarantees, without first seeking independent legal advice.
We saw evidence in the personal insolvency market of customers going for more than one payday loan a year or rolling them over and this could be replicated by struggling businesses.
We would urge any business that is worried about its long term viability to consider all of their options or seek the advice of a regulated restructuring professional.