SMEs reject business payday loans

Small businesses are unwilling to use payday loans as a way of financing their business, according to market research company BDRC Continental.

Research found that the majority of businesses (91 per cent) would not turn to a payday lender to provide finance, citing cost and high interest rates as major deterring factors. Only six per cent said they were 'likely' to consider using one.

As well as cost, businesses said they would prefer to stick to traditional lenders and that they were put off by the 'poor' reputation of payday loans.

The report comes after the first payday loan provider entered the business lending market this month, offering, according to The Telegraph, short-term loans to SMEs with annual interest rates of up to 108 per cent.

James Dunleavy of BDRC said: "Despite the tough economic climate, it's clear that the UK's SMEs do not appear interested in using a short-term fix to the long-term challenge of financing their business.

"In reality, there are signs that payday lenders may have mis-read both the appetite and need of SMEs for additional finance on any terms. SMEs are telling us that they have reservations about using payday loans and a good proportion (31%) prefer to work with traditional suppliers."

The BDRC claims that the research is consistent with findings in their SME Finance Monitor report, which found the majority of SMEs that had applied for finance from lenders were successful. BDRC said this was an 'encouraging sign' for this sector of the economy.

However, last week's Agent's Summary of Business Conditions report by the Bank of England reported that some smaller firms were still facing continuing 'problems obtaining credit at any cost' and were seeing business overdrafts withdrawn.

Speaking to the Telegraph, shadow business secretary Chuka Umunna labelled the business payday loan launch 'a damning indictment' of both the banking system and the Government and their failure to get banks to lend to viable firms.