I count myself lucky that I’ve never had to consider taking out a payday loan. If I were in the position where I needed to borrow £400 for a month from Wonga it’d cost me over £100 or a staggering 1,509% APR, that’s not to mention the fees and penalties I’d be hit with if I missed a payment. Even with that kind of rate Wonga still made a loss in 2015 albeit in a difficult market. Lending to those with cloudy or weak credit rating is clearly a more costly and complicated affair than the other end of the market.
Welendus has recently started a campaign on Seedrs, they’re pitching themselves as a cheaper (172% APR apparently), more ethical alternative to the big payday lenders sourcing the money they lend from the crowd and offering them a guaranteed 9% – 15% annual return. The offering is for equity in the underlying business.
In their video and pitch they make about opening up the market to millions of people, inferring that people not currently using payday lenders will turn to them because they’re cheaper and fairer. I don’t buy this; if you’re prepared to pay 172% APR then your credit rating is already pretty bad, even supposed ‘poor credit’ credit cards have an APR under 50%.
With little talk of how bad debts will be managed and recovered it is difficult to determine how much money the business will really make. The numbers suggest they could be as much as 40% (on invested funds) but that relies on money being continuously lent and a low/negligible number of bad debtors.
I also have qualms around the lack of FCA approval, the pitch assures potential investors that approval is imminent, this is no guarantee. I can’t help but think their valuation is built largely around this being a sure thing but it’s been dragging on for over a year. The FCA have the power to delay launch or even halt this company in its tracks. Something valued at £3.5m shouldn’t have this risk hanging over its head.
With a low target of just £100k this campaign looks likely to fund, although there are a lot of big investors from Woking! They make up £70k of the £78,875 raised so far (Sunday 26th Feb), you can’t help but wonder why the campaign has even bothered listing in the first place. I might stick in a tenner just for entertainment value.
Now, does anyone know a cheap way to reach out to people interested in crowdfunding?
The Crowd Punter.