Your business urgently needs to borrow £10,000 for 3 weeks. You need it within 24 hours. What do you do?
Maybe a big customer missed a payment, or you’ve got to cover an unusually large VAT bill.
You’ve maxed out on your bank overdraft, and you don’t have time to get your suit dry-cleaned, arrange an appointment with the bank manager, do the paperwork, wait 2 weeks for a decision… only for them to say no!
What do you do?
The real problem
This scenario is playing itself out all day everyday for small businesses everywhere. I’m not talking about firms that have mismanaged their cashflow or just aren’t viable for whatever reason.
I am talking about entrepreneurs & small business owners who are working their socks off to realise their dreams and doing their bit rebuild the economy in the bargain.
From time to time, these sort of companies just need a few thousand for a few weeks, to smooth out the bumps. It’s a reality of managing cashflow and doing business.
The best option for many would be to extend their bank overdraft but what if you’ve already done that.
The UK business banks are simply not fast or responsive enough to handle this situation. Even if you have the time (and time is money of course) they’re more and more likely to turn you down.
If you’re not in a rush and you need credit or invoice financing of between £1,000 and £1 million over 3 months to 10 years then I would advise checking out a lender who’s signed up with the Government’s Enterprise Finance Guarantee (EFG) scheme. Visit the EFG website to find out more and to see who those lenders are.
An innovative solution
But, if you can’t get it any other way, you need it now, and you need credit of between £3,000 & £10,000 over a few weeks then it’s worth taking a look at a new no-nonsense online credit service called Wonga for Business.
What you get
In a nutshell you get:
- A potential cash advance of between £3,000 & £10,000. And up to £25,000 if you build up a good track record with them.
- An online application & decision within 12 minutes.
- A positive decision comes with details of fees and a weekly interest rate.
- Interest you pay is from 0.3 to 2% per week depending on perceived risk.
- Fees are also risk-based but range from 1 to 5% of the loan.
- No paperwork, no meetings, no hanging on the phone.
- If you go ahead the money is credited to your business account between 15 minutes & 24 hours later.
- You can borrow the money for between 1 & 52 weeks.
What you need to qualify
To qualify for a loan:
- Your business needs to be a UK Limited or Limited Liability Partnership.
- Your business needs to have been trading for at least 3 years.
- Your business must have a turnover of at least £20,000 per month.
- Your business must have an online bank account with a linked debit card.
- Each director or partner must become a personal guarantor & provide details of a personal debit card.
- You & your business must pass credit checks.
- You & your business are risk assessed which determines whether you qualify & if so how much you pay.
More on those costs…
Depending on the results of credit checks & a range of other factors:
The rate of interest varies depending on your perceived risk to us and once we set the rate it is fixed for the duration of the loan. We also charge an application fee of a percentage (based on perceived risk) of the amount of credit provided.”
So, for every £1,000 you borrow, the fee will range from £10 to £50. And the interest will cost you between £3 & £20 per week. The lower risk you’re seen to be, the less you pay.
I asked what those risk factors were and was told:
Our data-based risk algorithm will determine the pricing and approval. We have used it to process millions of consumer applications and use 8,000 pieces of data per decision.”
I also asked if there was an upper limit to the APR and was told:
APR does not apply to business loans, whether it’s Wonga for Business or a bank loan. You can use AER (Annual Equivalent Rate), which is still inappropriate for a Wonga for Business loan as most of them will be a lot less than a year. That’s why we’ll calculate the weekly repayments and total amount to repay, really clearly, for any business who is approved – before they commit. AER on our loans will start from just under 17%.”
When NOT to use Wonga for Business
Wonga have received a very mixed press ever since they launched their consumer loan service in the UK four years ago. Despite turning down two thirds of all applications, they’ve made 4 million loans totalling more than £1 billion so far.
The negative reviews are based on the relatively very high interest rates for those consumer loans. The business interest rates however are a lot lower than the consumer rates.
Wonga last week claimed a Net Promoter Score of +73. According to CEO and co-founder Errol Damelin, “Most of the banks in the UK are negative. The Co-op has a score in the 20s while First Direct has one in the 40s — that’s a good number. Wonga, at 73%, is in Google and Apple territory, and most of the time we’re ahead of these guys.”
I would however, suggest a small business needing a loan of between £3,000 and £10,000 to first see if you can get it some other way say via a bank overdraft, or through invoice financing. Why? Because, if you can get it, and if you can get it in time, then you’ll pay less.
What I like about Wonga for Business is the speed, the transparency, that there is no paperwork, and no meetings.
If you need credit within 48 hours or so, it’s worth checking out Wonga for Business. But watch out for two things:
- Only take out a loan for a few weeks – keep costs down
- Don’t miss a repayment – you are personally liable!
Yes, the rates are relatively high but you need to balance that against the cost of getting a loan with lower rates. Why? Because it will almost certainly take longer and you risk not getting it at all. What are the costs of missing a VAT payment? What are the longer-term costs of missing out on critical training for you or your team?
It remains to be seen how successful this new small business service is but I suspect they’re addressing a real gap in the market and as such are worth checking out. After all, it only takes 12 minutes…
Have you tried Wonga for Business yet? If so, please share your experience in the comments below.
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