A new business lending service from online loans specialist Wonga is not what struggling enterprises need, according to business recovery experts.
Wonga, which began lending to individuals in 2007, announced on 7 May that it was extending its service to offer “a new way for UK firms to smooth out financial bumps”, providing decisions in minutes on loans of between £3,000 and £10,000 for any term between one and 52 weeks.
Its new service will initially be available to limited liability companies and limited liability partnerships, established for three years or more and with sales in excess of £20,000 per month. Businesses will be charged a variable application fee and interest, with weekly rates starting from 0.3 per cent.
The company has attracted criticism over high interest rates but it said that applicants would receive a clear calculation of repayment costs to help them decide whether to go ahead.
Wonga founder and chief executive officer Errol Damelin said: “Young, entrepreneurial companies represent our best hope of a recovery, yet many are struggling because they can’t get quick access to the credit that they need to cope with everyday challenges, such as late payment by partners or customers. Others can use funds for great opportunities like getting a discount by paying cash, or buying in bulk, and then repaying early when the goods are sold.”
But R3, the Association of Business Recovery Professionals, said: “Talk of ‘smoothing out financial bumps’ simply does not apply to a business scenario – a short-term fix is not what a struggling business needs.
“The focus must be on survival in the medium and long term. Businesses should be able to navigate a period of short term difficulty on their own by negotiating with suppliers for example, without resorting to high interest loans.”
R3 said it would caution company directors from signing personal guarantees without first seeking independent legal advice and added: “We would urge any business that is worried about its long term viability to consider all of their options or seek the advice of a regulated restructuring professional.”