Tuesday, 15 May 2012 15:50

Whats Wonga with this picture?

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Business loans have been making the headlines recently, but it's not all bad news - particularly for companies that have improved debt collection over the past year or so.

There's a perception in the media that businesses need loans in order to succeed. And in some cases, yes, that's true - an injection of cash can be useful for all kinds of reasons, from setting up a new firm to undergoing expansion or a change of direction.

But do you really need a business loan to cope with a short-term disruption to your cashflow?

We like to think that a thriving business, with a proactive approach to credit control, should be able to deal with temporary lulls without resorting to high-interest lending.

There's no great secret to this - simply make sure you only take on credit-worthy clients, keep a tight control over the invoicing process, and don't be afraid to chase any amounts that go unpaid.

Wealth and Wonga

Earlier this month, Wonga announced the launch of Wonga for Business, a service that promises to approve entrepreneurs for a loan within 15 minutes, without any paperwork at all.

Strangely, the process does not involve any human advisors - instead, "elements of artificial intelligence" at Wonga's end automatically bring together information from a range of data sources and decide, based on that and the customer's own application, whether to approve a loan.

Loans are anywhere from £3,000 to £10,000, and repayments can last up to a year. The shorter the loan period, the less the total cost, but it's interesting that the Wonga for Business website doesn't offer a typical APR for comparison, instead stating that the interest rate charged will depend on the details given in the application.

And perhaps least surprising of all, Wonga will source a full credit report on your business before approving any lending - proving that they, just like any good business, are concerned about making sure they'll get their money back.

Banks and Business Loans

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What inspired Wonga to start offering quick-approval business loans? In part, it's because of the lack of availability of similar funding from the banks.

Government efforts to encourage the banks to lend to businesses seem to have failed, based on Bank of England figures published this month.

In the first quarter of 2012, a net total of £11 billion was actually repaid by businesses, leading to an annual drop of 3.5% in the amount lent to businesses in the year leading to the end of March.

During March alone, the annualised fall in business lending, based on the previous three months, reached a hefty 9.4% - and could well hit double figures when April's figures become available.

Politics and Payments

Labour's Toby Perkins, shadow minister for small business, said:

"We need businesses to be able to spur growth and create new jobs but, without being able to access the finance they need to grow, this won't be possible."

That may be true, but sustainable business growth doesn't come from taking on excessive amounts of debt either. We'd actually quite like to see a climate of reduced business lending, as long as companies are able to generate the income they need from elsewhere.

And that's where improved collections come into play, ensuring that the funds that, remember, are rightfully yours, are available for investment and expansion in your business, rather than sitting in the account of a late paying customer.

Take a moment to add up your outstanding invoices, and ask yourself how much more available capital your business would have at its disposal, if all of your owed money were to arrive in your account today - you might find you don't need an outside loan from a bank or a private business at all.

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Image Payday Loans by Paul Sableman is licensed under CC BY 2.0