Payday lending company Wonga.com has caused a commotion by launching a service that offers short term loans to British businesses. The payday lender that charges 4,200% APR for its payday loans will now has now allowed UK businesses to borrow up to £10,000, and have it within 15 minutes.
In a time of second recession where an average of 70 UK businesses collapse every day, many firms will be tempted to take out a loan to save their company from bankruptcy in the short term. The interest rates are high but to many companies it is the only option available. A high risk business borrowing £7,500 for a year could pay an extra £7,800 in interest. Companies could be caught in a spiral of debt struggling to repay the loans but many will take the chance to save their businesses when the banks have turned their backs and looked the other way.
Shadow Business Secretary Chuka Umunna said: ‘This is a damning indictment of our banks, and their failure to serve our businesses. It is deeply worrying that our small and medium-sized businesses are driven into the hands of a company like Wonga to get access to the finance that they need.’
Lord Oakeshott, a Lib Dem peer said Wonga’s move reflects badly on the banks stating that: ‘This is the ultimate proof that British banks just won’t lend to small businesses.’
‘It is tragic that small firms are forced to go to Wonga by the “no-loan sharks” at the big banks.’
Wonga CEO Errol Damelin said: ‘All our research and speaking to other entrepreneurs tells us that small business lending is broken. We intend to use our platform to offer a real alternative.’
Wonga are taking steps to be responsible in their business lending, their new loans are only available to businesses that have been trading for 3 years or longer that have monthly sales of more than £20,000. Companies must also be limited liability companies or limited liability partnerships.