BUSINESS leaders have given a mixed response to short-term lender Wonga’s new loans for business service.
Blackpool Football Club sponsor Wonga launched Wonga for Business in direct response to concerns over access to credit for small businesses.
Debuting on Bank Holiday Monday to highlight when the major banks are closed, the service is expected to sit alongside business overdrafts and bank loans, providing an alternative for companies in need of an instant cash flow solution.
The SME Finance Monitor report recently revealed 55 per cent of small businesses which applied for an overdraft for the first time last year were turned down, and 43 per cent which applied for a loan for the first time were rejected. A further 57 per cent of small businesses suffer from clients paying late, harming business’ cash flow.
Steve Pye, chairman of the Fylde coast branch of the Federation of Small Businesses, said: “The mainstream banks have said they will never return to the free-lending days of four years ago which got us into this mess.
“But now they’ll only lend you an umbrella when the sun is shining – as soon as it starts raining again, they want that brolly back.
“This looks like a way of temporarily increasing your cash flow in the short term – so long as people are aware of what they will have to pay back before signing, remembering Wonga is a short-term lender.
“It looks like Wonga’s filling a gap in the market to help small businesses. But checks have to be put in place.”
Robert Downes, policy officer for the Forum of Private Business, was less enthusiastic.
He said: “This service is not going to be a game changer in terms of freeing up huge amounts of credit for small business. What’s being offered will only suit relatively small numbers of businesses for very short loan periods.
“The real issue of course is that relationship banking between traditional high street lenders and SMEs has broken down and urgently needs fixing.”
Errol Damelin, founder and CEO of Wonga.com, added: “We are now ‘open for business’ and offering companies a fast, flexible and short-term alternative 24/7.
“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.
“All our research tells us small business lending is broken and we intend to offer a real alternative.”