Running a loans company can be one of the most exciting businesses. As banks become more strict with lending over the years, there has been a huge increase in demand for alternative lenders, allowing new startups and lenders to emerge. This guide explains the essentials for how to start a loans company.
Decide what loans and services you want to provide
Examine gaps in the market that show strong growth. For instance, the payday loan sector has lately seen huge increases in regulation and has recently had its adverts banned by Google, so this might be a bad time to enter.
However, peer to peer lending shows huge signs of growth, in addition to tax incentives on earnings, so this might be a better market to go into.
Is the market very saturated? If there are too many competitors, maybe you should create a comparison website for customers to find the most affordable products. Conducting research is key to finding the right loan or service for your company to offer.
USPs and criteria
You have the option of starting a traditional brick and mortar or an online loans company. The visuals of your store or website will make a big impact on the people you target.
Consider your USP (unique selling proposition) and what makes you different from everyone else. Will you offer lower rates? Do customers need security (such as a car) to be approved, or do they require someone to guarantee their loan?
Every loan product has a criterion such as age, residential and employment status, so thinking about the people you want to target might help you decide what loan to provide.
If you are lender with a store, you may generate interest from passers-by and in-store promotions. If you are going the online route, consider using SEO and PPC to generate leads. Traditional advertising can generate interest through newspapers, radio and TV.
Surprisingly, loan companies are not always made up of many people. Someone in the customer services department can handle basic inquiries by phone or email and do basic underwriting, as well. Professional underwriters are a bit more analytical and make the final decision on whether the loan is funded.
A collections team is dedicated to following up on missed repayments, and is a task that can be shared with the customer service team.
Website development and marketing can be outsourced and you have to option to build you own loans engine technology or pay a licensing fee to use specific software.
Usually a large reserve of funds is required because a company that lends out too much will go bankrupt unless they have sufficient money to lend out. Lenders need to balance the amount of payments coming in and the amount they lend out again.
Having the terms and conditions as a lender or broker is vital, especially when it comes to being transparent about your fees and the repayment terms. Be aware that the process of gaining authorization can take up to a year and can be very costly.