Wonga Borrows £25m To Fund Urgent Revival

The embattled payday lender is taking on new debt to fund the growth of its loan-book after a torrid two years.The embattled payday lender is taking on new debt to fund the growth of its loan-book after a torrid two years.

The payday lender Wonga is taking a dose of its own medicine by adding nearly £25m of debt to its balance sheet as it tries to accelerate the turnaround of its business.

Sky News understands that Britain’s biggest short-term loans provider secured the new funding from one of its existing shareholders in recent days.

It comes as many of Wonga’s smaller rivals are being forced to cease trading or sell assets following the recent introduction of a new regulatory framework for the payday lending sector.

The new capital will be used to fund new loans and provide additional working capital, sources said on Friday.

The company, which is in the final year of a deal to sponsor relegation-threatened Newcastle United, is attempting to repair its image and return to profitability after a series of crises triggered the departure of several top executives and millions of pounds in compensation to customers.

In a statement issued to Sky News, a Wonga spokesman said: "We said when we announced our full-year results last year that we might look to raise debt funding in 2016 as part of our normal capital management and to support the growth of our loan book.

"Following positive talks with a number of parties, we have successfully secured a €30m (£24.2m) debt facility."

The new debt facility, which a source close to the company described as "another tick in the box for management", comes nearly three months after Wonga became the first payday lender to be authorised by the Financial Conduct Authority (FCA).

It is now seeking to diversify its business away from the short-term lending model that made it a lightning rod for political and public anger over the sector's rapid growth.

A 90-day instalment loan product, which was trialled late last year, has now become a permanent fixture of Wonga’s offering, enabling customers greater flexibility to spread repayments over a longer period.

It was the first extension of the Wonga brand to be unveiled since the company announced that it had made a loss of more than £37m in 2014.

Its slump into the red followed a string of regulatory settlements, customer redress and restructuring costs triggered by the loss of more than 300 jobs.

Last year, it was forced by the FCA to pay more than £2.5m in compensation to 45,000 customers who were sent letters purporting to be from law firms but which in fact did not exist.

Its shareholders, which include some of the technology industry’s best-known investors, installed the respected City figure Andy Haste as the company’s chairman in an effort to rebuild relations with regulators and customers.

Once tipped to seek a public listing in New York at a lofty valuation, Wonga faces an arduous return to profitability as it contends with the imposition of a limit on the amount that payday lenders can charge in interest.

The FCA has estimated that the vast majority of the roughly 400 payday lenders operating in Britain will go out of business following the introduction of a price cap on loan and repayment charges.