I read recently that a survey had found that around 20% of small businesses had applied for a payday loan in the last year. Now I don’t want to get into the rights and wrongs of companies like Wonga and QuickQuid (we’ll save that debate for another time), but surely this reflects badly on the state of lending to small businesses in the UK. These firms are never going to be the cheapest way of obtaining finance to run a business – in fact with the interest rates they charge they are going to be considerably more expensive than other sources of finance. So why are such a high number of businesses turning to these pay day lenders?
We think the problem is twofold.
Firstly, (and we have touched in this in our previous blogs), the banks just don’t treat small business correctly, and therefore small businesses don’t approach them for finance.
Additionally, we think that small businesses sometimes just don’t know where to turn. They no longer have a bank manager to approach, and in desperation can sometimes turn to a payday lender as these are the advertisements which they see. However, there are many different ways of businesses raising finance, which could, and usually are, more beneficial than a high-interest loan. Businesses can look at invoice financing, factoring, arranging an overdraft facility, or asset finance, all of which could be better suited to that business at that time.
So, (if you would forgive us for the self-promotion) speaking to an experienced broker like ASC Finance would mean that a small business owner or entrepreneur can talk through the many options available, and find the finance which is right for them – and not have to resort to expensive payday loans. We arranged £100,000,000 of loans for SME’s in the past 12 months and not one was with a short term pay day lender – there are simply better options available.