Payday loans are intended as a last-resort solution to cash flow crises, tiding individuals over until their next pay cheque arrives and they can pay back the borrowing with interest.
Because they are only ever intended for such short-term use, they typically carry high interest rates, which can reach into the thousands of percent in annualised APR terms.
So it could come as alarming reading to discover that a quarter of business start-ups are now part-funded using payday loans, while the majority of SMEs would not even approach their bank if they needed to borrow.
Amigo Loans carried out a fairly small survey of 200 managers in small companies, with up to ten employees, and report a widespread lack of confidence in banks.
Some 54% of those surveyed said they would not ask their bank if they needed to borrow money.
A quarter (25%) said payday loans formed some or all of their start-up money, while 22% used payday loans as growth funds in 2013.
James Benamor, founder of Amigo Loans, said: “Banks have turned their backs on the people who need them most.
“Small businesses have now lost faith and the lifeblood of our economy … are turning to dangerous payday loans.”
Of course, we would always advise a focus on your basic cash flow as the first step towards unleashing more funds for business growth.
By invoicing correctly and chasing overdue invoices promptly, you can make sure you minimise your credit risk – because an unpaid invoice is fundamentally the same as a loan owed to your company.
Make sure you act to bring payments in on time, and you can raise your business bank account balance, and help to avoid having to find potentially costly alternative lending options to fund your growth.