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Now Wonga wants business’ blood sweat and tears

CDFA’s Chief executive Ben Hughes

8.05.2012 – News that high-cost lender Wonga is launching business loans demonstrates just how huge gap in mainstream market is

Ben Hughes, chief executive of the Community Development Finance Association today said news that high-cost lender Wonga is starting to offer loans to businesses confirms CDFA analysis of just how large the gap in mainstream finance is – and shows that the Government needs to plough more support into community finance:

“This is a concerning development. Wonga’s rapid expansion into personal loans has come at a significant cost: trapping many vulnerable people in a cycle of spiralling debt due to the incredibly high interest rates they are charged.

“Now the enormous number of credit worthy businesses who are still financially excluded by mainstream finance are at risk from Wonga – when they could be better served by banks and by community finance providers.

“Wonga can clearly see just how big the gap between the availability of finance and demand from viable, credit-worthy business customers is. At least 370,000 businesses are ‘financially excluded; and small businesses and micro-enterprises in particular (95% of Britain’s businesses) increasingly struggle to secure credit. But these businesses would be far better served by community finance providers than by paying extortionate rates to high interest lenders.

“CDFA is proud of the track record of its members in working with small businesses – microenterprises currently have 4,666 loans from community finance providers outstanding totalling £41m, with an average loan size:  £11,300. But community finance providers – CDFIs – don’t exist in every community.  As CDFA has argued strongly this year, CDFIs need more support to grow and to serve more small businesses. With banks unable to lend adequately, and insufficient Government support for community finance and other forms of affordable credit, predatory lenders like Wonga will fill the gap – which is no good, in the long run, for vulnerable small businesses.”

Elsewhere, reaction has not been welcoming. Chuka Umunna, the Shadow Business Secretary, tweeted: “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.”

And the Daily Mail carried a quote from Lord Oakeshott: “This is the ultimate proof that British banks just won’t lend to small businesses. It is tragic that small firms are forced to go to Wonga by the “no-loan sharks” at the big banks.”

Ben Hughes, CDFA’s chief executive, is available for comment / interview. Contact 020 7430 0222 or 07904 272 200.

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