Wonga.com, the successful but controversial payday loans provider, is extending its credit service to small businesses in the UK. The move is a smart one given the current economic climate. Banks have been lambasted for not lending to small businesses – Wonga is simply going to try and fill in the gap – and take advantage. Needless to say this could end up being a huge business for Wonga.
Despite attracting the ire of financial journalists – including the Daily Telegraph, which prevented it from winning its Startup 100 awards – Wonga has made as many as 4 million short-term loans to consumers since its launch in 2007.
The new scheme means it will be offering SMEs loans of £3,000 to £10,000 pounds for between one and 52 weeks depending on the application. Interest rates will be fixed at between 0.3 and 2 percent per week, with the risk attached to the loan.
Under the new service, business will have to provide information about their company and its directors, who personally guarantee the loan, as with normal Wonga loans. Wonga says the application takes about 12 minutes, and money can be transferred to the business in around half an hour.
Wonga has a sophisticated automated risk-processing algorithm to quickly tell an applicant if they can have a loan or not. It turns down about two-thirds of applications. This simple application process it being extended to small businesses.
Chief Executive Errol Damelin said: “We wanted it to have all the characteristics that people positively associate with Wonga in terms of transparency, simplicity, ease of use, speed … and we wanted to bring that to small business.”
Wonga has been criticized for charging just under 1 percent per day interest, something which can appeal to vulnerable people. However the company insists it takes these people out of the black hole of dealing with often violent loan sharks on the street, and also mainly appeals to white-collar workers who can usually afford the payments at the end of the month
Wonga does not take deposits and operates under a consumer-credit license, so it is not subject to the capital requirements that banks are. That means it is more free to lend than banks.
Wonga operates in Britain but is looking at Canada and South Africa. The company is backed by Accel Partners, Balderton Capital, Dawn Capital, Greylock Partners, Oak Investment Partners and the Wellcome Trust. The company raised £73 million in new capital a year ago.