Payday loans for businesses - a new loan product

The PayDay loan firm Wonga is now offering businesses loans of £3,000-£10,000 available within 30 minutes and repayable over 1 to 52 weeks. Interest rates start at 0.3% per week (approx 17% APR) and go as high as 2% per week (approx 300% APR) while loans will be repaid in weekly instalments. There will also be a variable application fee. To qualify for one of these loans currently, a business must be either a limited liability company or a limited liability partnership, be at least 3 years old and have sales of at least £20,000 per month. Wonga do say however that they hope to broaden these criteria over time. As part of their PayDay Loan business Wonga have developed a complex algorithm that allows them assess the risk of an applicant in a matter of minutes. Now they have extended this procedure to cover businesses business. For individual PayDay loan applicants they say they reject about two-thirds of enquiries so it will be interesting to see how these statistics evolve with these new "payday loans for businesses". Of course, mention PayDay Loans or Wonga and there is likely to be some quite extreme reactions. This industry, and in particularly this company, have been vilified in the press for the high APR associated with their PayDay Loans. They respond saying that APR is not necessarily a fair yardstick for such short term loans and that they are meeting a demand that is clearly evidenced by popularity of such loans. Indeed, they also point out that were there not a PayDay loan option, many people would be forced into the hands on underground Money Lenders which, as a completely unregulated business, is a far worse option. It is also worth noting that in independent customer surveys, over 80% of their customers say they would recommend them. From our perspective we've always held the same view: any extra option of finance to individuals or businesses is always welcome. As with all things though, one needs to make an informed and measured decision. Even those forms of finance perceived as much more benign, such as mortgages or personal loans, can be destructive if utilised imprudently or rashly. This loan product, like others, is suitable for certain borrowers in certain situations and a careful assessment of all finance options is required as it won't be suitable for everyone. There are, of course, other options. For example, via our connection with Funding Circle, we at Choice Loans can offer businesses with 2 years' trading history unsecured loans of up to £100,000 over 5 years with no ERCs (Early Repayment Charges). For newer businesses in the B2B space we can arrange factoring deals and for those looking to purchase plant, vehicles or equipment we can also arrange asset finance or lease finance. To discuss any of these options just give one of our Advisers a call on 0845 1260350.