Loans of up to £10,000 will be available for up to a year but critics say costly borrowing for small firms is ‘irresponsible’

Wonga is entering the business loan market at a time when firms are struggling to raise funding. Photograph: David Levene for the Guardian The high-cost lender Wonga is launching a business loans service, promising to make funds available within 15 minutes of an application. Wonga was reluctant to quote a typical annual percentage rate, or APR, for loans, saying the measure was inappropriate as they could be taken out for as little as a week. The firm has been heavily criticised for lending to individuals at an APR of 4,214%, but claims business loans will be at rates starting at 17% APR. Loans of £3,000 to £10,000 will be available for terms of between one and 52 weeks. The cost, including a variable application fee and interest, starts at 0.3% a week and the loans must be repaid in weekly instalments. Wonga is entering the business loan market at a time when firms are struggling to raise funding. Research in November by the Federation of Small Businesses showed that 57% of firms suffered late payment by clients but between 2007 and 2010 there was a 24% fall in successful loan applications.

More than half of small firms that applied for an overdraft and 43% applying for a loan for the first time last year were rejected. The shadow business secretary, Chuka Umunna, criticised the government for failing to get banks to lend more to small- and medium-sized enterprises (SMEs). “That SMEs are being driven into the hands of Wonga is a damning indictment of the government’s failure to get finance to successful SMEs,” he said.

Anil Stocker, founder of the online financing firm MarketInvoice, expressed dismay at Wonga’s entry into the market. “We were shocked when figures from the Small Business Finance Monitor appeared suggesting as many as 26% of businesses were funding their working-capital needs from credit cards. Turning to Wonga-style, extremely expensive loans would be even more irresponsible,” he said. In contrast, Funding Circle provides monthly repayment loans ranging from £5,000 to £250,000 “in a matter of days, not months” and charges from 6.4% annually. The loans, which are funded directly by investors rather than through a bank, are repayable over one, three or five years.

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