One major instant cash loan provider in the UK has recently announced it is launching a new lending service specifically designed to provide credit to small businesses, remarking that the gap left by traditional lenders needed to be filled in order to foster the kind of economic growth that has been absent since high street lenders have scaled back their access to credit.
Wonga, a payday advance lender that has been in operation since 2007, has made 4 million short term loans to consumers in that time. Now, the short term loans specialist will be offering business loans to small firms for as little as £3,000 to as much as £10,000.
The loans, which will run from one week to 52 weeks, will have fixed interest rates anywhere between 0.3 per cent and 2 per cent a week, dependent on the risk inherent in each loan. This is a far cry from the interest rates Wonga charges to its personal loan customers, where charges and fees are typically close to 1 per cent a day.
Errol Damelin, co-founder and chief executive of Wonga, said that while the small business loans will be unsecured in the same way that its short term loans are, the lender will be using more restrictive criteria before agreeing to a loan. Mr Damelin attributed the different approach to the differences businesses have from one another, which are wider and more varied than those experienced by individuals.
Wonga uses an automatic risk-processing algorithm in order to provide nearly instantaneous application answers online, leading to only one out of every three applicants actually being granted, the lender says.