Wonga for Business is providing more than £500,000 in short-term loans a month. Directors increasingly are using alternative forms of finance to fund their companies.
A survey of 5,000 SMEs has revealed that 44 per cent used “non-core” finance in the second quarter, up from 39 per cent. The survey showed that instead of turning to traditional loans, credit cards and overdrafts, companies were taking other options, such as leasing, invoice discounting, grants and loans from directors. The use of short-term loans from companies such as Wonga for Business is also on the rise.
Wonga — the controversial payday lender that reported a 35 per cent rise in pre-tax profits this month to nearly £85 million — is trying to forge a separate path in business lending. WfB was launched in May last year and revealed in its annual report this month that it was providing more than £500,000 of funding to companies each month at rates of around 29.9% APR.
Like its payday sister, WfB gives instant online decisions, but businesses must have a two-year track record to apply. Russell Gould, the head of WfB, said that the publicity surrounding payday lending was “a double-edged sword”, because it meant there was confusion over Wonga’s business offer. “The consumer product is a 30-day product; the business product is 52 weeks,” he said. “The consumer pays back at the end, whereas businesses pay their loans back in weekly installments.”
Mr Gould said that Wonga was lending to companies including digital businesses, hairdressers, estate agents, accountants and plumbers. However, a separate survey showed that although short-term loans may be increasing, 94 per cent of directors said that they would never consider using a personal “payday” loan to help to finance their businesses. Respondents cited the high cost and poor reputation of payday credit, with 53% stating that these factors would stop them using the loans.
According to the Bank of England, traditional bank lending to SMEs tumbled by £900 million in July, more than reversing the previous month’s small increase of £200 million, despite signs of improvement in overall lending to the broader corporate world. Although it said last month that banks and building societies participating in its Funding for Lending Scheme had increased their net lending for the first time since the launch of the programme, concerns remain that much of the money is going to the mortgage market rather than the SME sector.
Although the recession has made more businesses aware of different types of funding it will be a long time before the ‘sexy’ elements such as crowd funding and WfB are of a size where they are competing with bank lending and asset based finance.
via Wonga for Business takes advantage of banks’ funding gap | The Times.
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