The news that Wonga will soon start offering payday loans to businesses this week was almost drowned out by the sound of tuts.

Labour MPs attacked Tory policies for reducing the amount of credit available to businesses through the high street banks; MPs of both parties attacked the payday sector in general and business groups drew in their breath.

But, given that we've spent the past five years or so complaining about crunched credit to the extent that, as Wonga Founder Errol Damelin put it, "businesses... are crying out for short-term capital", are instant loans for SMEs really as bad as they're being painted?

Yes, they are. Here are three reasons why.

1. They'll appeal to the most over-indebted

If we've learnt anything from the consumer payday loans market, it's that the really worrying thing about many of those borrowing short term is that they're not borrowing short term.

A significant minority of those using payday loans do so to deal with the demands of other debts.

In 2011, Citizen's Advice said that people coming to them after taking out a payday loan had an average of eight debts in total, compared to five debts among those without a short term loan.

We already know that those with businesses are particularly vulnerable to falling into unmanageable debt.

The Consumer Credit Counselling Service (CCCS) told The Independent earlier this year that their clients who were small business owners or self-employed were about £10,500 further in debt, on average, than the charity's clients without businesses.

Business owners primarily owed money in the form of credit cards and personal loans, CCCS said, and often had multiple debts.

Even those without acknowledged debt problems are at risk. According to R3, 30% of small businesses regularly use their whole overdraft limit. It's a short jump from there to short term credit.

2. They'll appeal to the least experienced business owners

A PricewaterhouseCooper (PwC) report released last year pointed out that smaller online lenders are more likely to appeal to young people and when we're thinking about business owners that will also mean those least experienced in their sectors.

Again, this is highly characteristic of the consumer payday loan market and it could be a trend that continues into business loans.

Consumer Focus' qualitative research found of those that take out payday loans many chose short term credit over other options out of a fear of falling into debt by having an 'open line' of credit from a mainstream lender or because they would rather be self reliant rather than asking for credit elsewhere.

Those two views are highly likely to be found among young entrepreneurs.

3. It'll open the door to other 'payday for business' lenders

Despite several investigations into the payday market over the past few years and the huge amount of flack Wonga gets from MPs, the business hasn't actually ever been sanctioned by the Office of Fair Trading (OFT) and is fairly transparent about its operations.

The worst they've got is a few slaps on the wrist for a TV advert because, alongside other problems, "a character that... had half a beard gave the general impression that the service offered was a trivial one".

However, that makes Wonga very much the exception in their sector.

Payday lending's market worth grew by over 200% - from £500 million to £1.7 billion - between 2007 and 2010 and its customers have borne the brunt of its growing pains.

Predatory lending and debt collection practices are widespread and the OFT have taken action against several firms found to be operating without a consumer credit licence.

Even Wonga requires their loan users to consent to personal data being passed on to third parties, although the firm has been quick to point out that, unlike most other similar companies, it doesn't actually sell on the information at present.

From next year, payday lenders will have to undergo more rigorous regulation - they'll face large fines for misbehaving, for example - when the Financial Conduct Authority (FCA) takes control of overseeing the market.

In the mean time, however, and pending reforms such as a cap on the total cost of credit that MPs like Stella Creasy are currently pushing in parliament, expansion into business loans could well mean an expansion of the poor practices that have caused so much consumer detriment.

Overall, these three problems won't stop businesses from taking, and benefiting from, short term, high interest credit. Some businesses.

As the payday sector, through the Consumer Finance Association, has pointed out in recent weeks, many people that take out such loans are very happy with the service they receive and satisfied with the fees they pay, however many noughts are on the APR.

But that's not to say that the short term loan sector is functioning well. It's not functioning in the interest of consumers who can't pay back immediately, who are encouraged to roll their borrowing over a number of months and who are permitted to borrow from a number of lenders.

Perhaps that'll change when Wonga lend to businesses - and their APRs run from 17% to 180% rather than 500% to 4,000% - but it seems unlikely.

Julia Kukiewicz is Editor of Choose, a consumer focused online publication covering rights issues, market research and debate into personal loans. She's been covering the payday loan story since 2010 and has written a number of consumer guides on the problems and alternatives to this type of borrowing.

Choose also covers similar issues in more broader personal finance and home media markets. Follow them on facebook and twitter.

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