‘Payday loans’ threat to firms (From Bradford Telegraph and Argus)

‘Payday loans’ threat to firms

7:00am Friday 11th May 2012 in News By Dolores Cowburn, Bradford Chief Reporter

Cash-strapped businesses are being urged to shop around for the best deal by Bradford’s Chamber of Trade after a loan company known to charge staggering rates of interest for personal finance announced it was branching into business loans.

High-cost lender Wonga has started a business loans service, promising to make funds available between 15 minutes to 24 hours of an application, with an Annual Equivalent Interest Rate of between 15 to 104 per cent.

Wonga has said that the new loans will fill a gap in the funding market because many companies cannot get quick access to credit they need to cope with everyday challenges, such as late payment by partners or customers.

But the chamber and Bradford and Airedale Citizens’ Advice Bureau is urging businesses to be cautious and said the introduction of Wonga, which charges more than 4,200 APR for personal loans, highlighted the lack of affordable alternative lending options for businesses within a period of recession.

Loans of £3,000 to £10,000 will be available for periods of between one and 52 weeks.

Alex Bohdanowicz, the specialist services manager at Bradford Citizens’ Advice Bureau, said it would be concerned about payday loans entering the business market, at a time that they are being investigated by the Office of Fair Trading (OFT) under irresponsible lending regulations.

“Our experience is that the lack of checks about affordability and the high interest rates often charged by payday lenders, make this type of loan particularly risky, and may target businesses already in financial difficulties, causing some to move into crisis,” she said.

“The rise of this type of lending should send a stark warning to the Government and mainstream lending institutions about the lack of affordable alternative lending options for businesses.”

Small businesses could get free independent advice by contacting the Business Debt Line on 0800 197 6026.

Bradford chamber president, Stephen Wright, said: “Wonga has said it’s filling a gap but we would advise businesses to shop around for the best deal.”

A Wonga spokesman told the Telegraph & Argus its loans were designed to be short-term. He said: “Wonga uses algorithms and technology to assess businesses to lend to using 8,000 pieces of publicly available information and it doesn’t make much sense to lend to businesses that can’t pay back.

“We welcome the OFT review. If OFT is calling for transparency and responsible lending that is what Wonga stands for.”