Pay Day Loans are not just for Consumers
They are just as painful for small businesses
Our research shows that it isn’t just the consumer who is seduced by the lure of quick and easy money to push forward plans to keep the business going.
The problem occurs when this “quick and easy” money has been spent and there is no additional revenue to cover the cost of high interest rates.
Here are some shocking statistics from the OFT report
- Around a third of the loans are repaid late or not at all
- 28% of loans are rolled over or refinanced at least once. This provides 50% of the lenders revenue
- 19% of revenue comes from 5% of loans which are rolled over or refinanced 4-5 times
- Debt advisors reported that borrowers seeking help with payday loan debt had on average rolled over 4 to 5 times and had 6 separate payday loans
Couple this with the rising numbers of Zombie businesses. R3 reported there has been an increase of 14,000 in just a few months. Before long, more may be following after gaining a pay day type business loan.
This trend may also show a lack of understanding of how to gain finance when the banks refuse to lend. After all, many small and micro business owners are experts in their own fields and not necessarily finance. They may be enticed by the marketing of the payday loans.
With many small and micro business owners taking their consumer finance knowledge and behaviour into their business, what is the prognosis of them joining the ranks of the Zombies or worse?