We’ve all been caught short of bunce occasionally, but one company taking full advantage of those times is Wonga.com, the high-cost online lender that has been criticised for lending to individuals at an APR of 4,214%. But now it plans to lend to businesses at the much more modest APR of 17%.
The new service will allow businesses with cash-flow problems to borrow between £3,000 and £10,000 for between one week and a whole year, with funds made available within 15 minutes of an application being approved. The timing couldn’t be better: companies are struggling more than ever to get funding or credit, and research by the Federation of Small Businesses last year showed that more than half the UK’s companies suffer late payments from their debtors, running amok with their own finances.
The company sees itself as plugging a gap in the market, for companies which ‘have cash coming in every week, rather than two or three times a year.’ It will initially be keeping things manageable: only limited companies with sales in excess of £20,000 per calendar month will be eligible for its loans, but the plan is eventually to offer larger loans for a wider range of company types.
Critics point to Wonga.com’s entry into the business market as an example of the failure of banks to resume lending, even to successful SMEs with good credit records. The tougher terms for failure to repay with Wonga.com will obviously repel a lot of would-be borrowers, but those more desperate to keep an ailing company afloat could easily fall foul of the repayment terms, which often include fees and charges as well as interest accrual whilst any dispute or difficulty is ongoing.
Definitely a good bit of entrepreneurship from Wonga.com, but any business looking to borrow money from it needs to make sure its in a strong position to pay it back fairly promptly…