A new business loans service provided by one of the most controversial payday lenders has received thousands of applications from cash-hungry small companies in its first two days.
Errol Damelin, the chief executive of Wonga.com, said small companies with cashflow problems were flocking to his business as the mainstream banks withdrew or reduced overdraft limits or insisted on time-consuming processes and paperwork.
Wonga has been criticised by MPs and some debt support groups for its high interest charges. The Office of Fair Trading began an investigation into the entire payday lending industry after it found evidence that vulnerable customers were being unfairly treated.
However, Mr Damelin attacked Wonga’s critics and their “obsession” with the cost of its loans, which could charge consumers the equivalent of an annual percentage rate of 4,200 per cent. “There’s been a nuclear arms race to the bottom on pricing [of loans],” he said. This, he believes, had ultimately led to scandals such as the mis-selling of payment protection insurance as banks resorted to add-on products to make money. “You can’t make money on a 6 per cent loan,” he said.
Borrowers wanted speed, convenience and transparency, he said. “It’s important to stop obsessing only on price.”
Mr Damelin also argued that APR was not a suitable way of looking at loans taken out for just a few days. Wonga’s average loan term was only 16 days for consumers, though businesses are being offered terms of between a week and a year.
Wonga’s new business loans service is offering loans of between £3,000 and £10,000 at an interest rate of between 0.3 per cent and 2 per cent per week. There are additional fees.Wonga, sponsors of Blackpool FC, is backed by the Wellcome Trust and Oak Investment Partners. It grew its revenues last year by 360 per cent. “We’re growing as fast as Amazon and Google grew in their first few years,” Mr Damelin said. “We’re building a global champion here.”