Wonga will double size of small business loans to £30,000

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Wonga is to double the size of the loans that it offers small businesses as it attempts to bridge a growing finance gap for companies.

The online finance company, known for personal loans that carry high rates of annualised interest, will raise its maximum loan amount from £15,000 to £30,000.

The higher amount will be offered by Wonga in the coming weeks, although the maximum repayment term will still be fixed at 52 weeks.

The increase comes less than a year after Wonga started wongaforbusiness.com. The change is partly due to feedback from business customers who suggested that the £15,000 limit was not enough to solve short-term financing needs.

Errol Damelin, the chief executive of Wonga, said the initial loan size was set to allow the company to manage its risks.

Part of that approach means business customers must pay the amounts back in weekly instalments.

“Solving cash flow problems for small businesses is massively important for all of us,” said Mr Damelin.

“They’re the growth engine if we’re going to get out of a recession, and that market is currently being starved of capital.

“We started in a more limited way, but we’re feeling more comfortable now and the demand is there.”

Wonga has not disclosed the take-up of its business products but Mr Damelin said it was considering whether to do so at the end of the first year, in May.

The cash loans are offered at an annual interest rate of 26pc and the average length of a loan is understood to be seven months.

In November, The Sunday Telegraph reported that Wonga was considering whether to raise a £200m-plus bond to fund the fledgling business lending arm.

It has spoken to several banks about the debt issue, which would be its first foray into the debt markets.

News (NasdaqGS: NWS - news) of Wonga’s larger offer to small businesses comes after it emerged that net lending fell by £2.4bn in the final quarter of 2012 compared with the previous three months.

The fall came despite the introduction of the Bank of England’s Funding for Lending Scheme, designed to revive lending.

The British Bankers’ Association said lending to 4m small and medium-sized businesses fell by £382m in the last quarter of 2012.

The attempt to increase Wonga’s diversification into business loans comes a week after a critical report by the Office of Fair Trading (OFT) into the UK’s largest 50 payday lenders.

The report told industry members to change its business practices or risk losing their licences .

Wonga, which charges individuals an annual percentage rate of 4,214pc, said it recognised the OFT’s concerns and agreed there was a need for tighter control across the industry.

It said that Wonga makes stringent checks on all applicants and had not received specific information from the OFT on how to improve its business.