Wonga has recently announced that it will soon start offering short term loans to businesses as well as individual customers. However, given the bad press that these types of lenders have received, will any businesses consider using this as a cash flow solution? The initial results are not looking promising.
According to a survey conducted by BDRC Continental, only 6% of businesses would consider using a short term lender. The poor reputation of such lenders as well as the high cost of interest were the main factors that led 91% of businesses to entirely reject the possibility of using short term lenders.
Despite the harsh lending conditions that have lead many businesses to struggle with growth, finance and day to day running, it is clear that they do not want credit at any cost. According to BDRC, “In reality, there are signs that payday lenders may have misread both the appetite and need of SMEs for additional finance in any terms.”
Wonga business loans operate on interest rates of up to 108% annually, with higher rates for riskier businesses. Businesses have shown that they are unwilling to use such short term solutions to solve the long term problems their businesses were experiencing.
As the cost of debt rises, long term lending from the banks is becoming harder to secure. However, there are alternatives that do not require businesses to turn to payday lenders.
Invoice factoring is one solution that can help both in the long and short term. Businesses can free up cash flow tied up in unpaid invoices, getting access to 90% of their value within 24 hours. This can either be a one off solution or an ongoing answer, depending on company preferences. However, with the high interest rates often attached to lending, invoice finance is a refreshing alternative as it does not require taking on any new debt. It can alos help with cash flow and late payment problems.
Select Factoring has a range of solutions that could benefit your business today.