Your guide on how to start a money lending business.
Everyone has battled through challenging economic conditions because of the global pandemic. As a result, many businesses had to shut down due to a lack of demand, leading to unemployment. In addition, economic uncertainty coupled with financial instability led to increasing consumer borrowing. As a result, people took substantial personal and business loans to make ends meet.
As a result, the lending industry experienced a rapid boom, opening doors to new business opportunities. That is right! Aspiring entrepreneurs can step into the lending business since it is one of the most profitable industries. Besides a high demand for financing, global interest rates are also skyrocketing, allowing lenders to maximize returns.
You are wondering how to start a money lending business and attract customers. First, you will need a few tools, such as a lending platform, a money lender license, and, most importantly, substantial funds to lend. In addition, you must hire a team of experts to maintain accurate and complete records of every case. Let us show you the ropes if you are wondering where to begin.
1. Conduct Thorough Market Research
Before digging into the details, analyze the industry size and growth trends. In 2021, the US installment loan industry was $6.7 billion, projected to grow over the next five years.
As the industry demonstrates potential, you must identify market opportunities. You can research a competitor in your area to examine their products and services. Look into their customer reviews and price points to find market gaps to fill. Your rivals might be offering micro-lending services; you can offer an additional benefit by providing a credit line.
Further, identify your market niche. For example, your target market will be people with low credit scores who need financing. You can use social media forums to look for prospects and determine if sufficient demand for your services exists. A vast idea of your market will allow you to plan your business.
2. Create a Business Plan
After successful market research, entrepreneurs wonder how to start a money-lending business. Now, it is time to create a business plan. It will act as a guidebook to take your startup through the launch process and establish goals. It will also enable investors to see the potential and understand your company’s vision. Here is what you can include in your business plan.
- An executive summary will have a brief overview of the entire business plan.
- Overview of the business, corporate goals, mission, and vision.
- Assess the market trends and conduct a SWOT analysis.
- Describe your service offerings in detail.
- Give an overview of the management team, explaining their roles and job descriptions.
3. Build a Team
When starting a lending business, you will need a team of experts to help you run operations. First, you must hire a few loan processors to handle all the paperwork. From documentation to application verification, they will manage everything.
Likewise, bring a few loan originators on board. They will take loan applications and get all data related to informational documents. Again, it will help you with giving approvals, ensuring the customer doesn’t run into default.
Moreover, a few general and marketing managers can make a difference in your business. General managers will manage all finances – cash inflows and outflows. They will devise social media and SEO strategies, creating awareness in the digital landscape. Likewise, a marketing lead will help spread the word about your business.
4. Define a Business Structure
Every business is a different entity, having its pros and cons. The legal structure you choose for your business will build the foundation for taxes, personal liability, and registration requirements. Therefore, you must select the business structure wisely. Here are a few of your options.
- Sole Proprietor: The most common business structure has no legal distinction between the company and its owner. The business owner is liable to pay all losses and debts; likewise, all incomes go to the owner.
- General Partnership: Like sole proprietorship, it involves two or more people. All owners are liable for losses and share profits equally.
- Limited Liability Company (LLC): It comprises the characteristics of corporations with partnership and sole proprietorship. However, the owners aren’t liable for debts.
5. Apply for License & Permits
The last step is obtaining licenses and permits from local and state governments. For this, you must follow state regulations on lending practices, such as following the indexed interest rate. You must also meet the requirements to be a money lender in your state.
Further, you must acquire copyrights, patents, and other intellectual property licenses and permits. Some money-lending businesses also need state-level county licenses and permits. How to obtain these licenses vary from every state; hence, check your state’s website.
You can also check the small business administration guide for your state requirements. It has all the forms you need for your business, ensuring you remain fully compliant.
Frequently Asked Questions: Money Lending Business
Q1. What is needed as a money lender?
A money lending company must obtain a money lending certificate and license from every state where they wish to operate.
Q2. Is money lending a good business?
Money lending is a lucrative industry, offering 6%-9% monthly interest earnings. You can even earn more when the market interest rates are skyrocketing.
Q3. How much money do I need to start a money-lending business?
Money lending business owners have to spend $500-$600 on registration and handling the legalities. Rest, it is up to you how much capital you wish to invest in the business.
Q4. How to start a money lending business and earn profits?
By completing the paperwork, you must draft a business plan and obtain the necessary licenses. In addition, select a business structure wisely to get necessary tax exemptions.
Q5. How do I succeed in the money lending business?
Find your market niche and target the right audience. Focus on providing solutions and excellent customers to excel in the industry. Likewise, keep your doors open to innovation to be helpful to every prospect.
Starting a business lending business can be a different endeavor since the business model is unique. In addition, you will provide funds to other companies and individuals in the service sector. Therefore, the procedures and protocols may also vary.
You must acquire different licenses and permits to operate as a lender. Likewise, understand your audience to determine whether they rely on debt. These few things will give you an edge in the market, making your venture a success.