There are various existing business opportunities out there if one only knows where to look, and certainly even more unique and brilliant ideas to those who have the capital to make them happen. Those who are looking into starting a service-oriented business, though, that can support other people financially while also making a profit would find starting a loan business like those owned by storefront lenders as the perfect opportunity.
Before you dive into the vast financial industry, though, you might want to learn about the most common types of lenders to determine which one suits you best.
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Online Lenders
There’s no question as to why online lending is the most popular lending options these days. It offers ease and convenience to its clients, being a financial company that performs most of its operations online.
This means that their clients, regardless of the time and place, can contact them and even file for an application. It also offers a variety of online payment methods, ensuring that you can still get your dues paid on time even amidst your hectic schedule.
Storefront Lenders
If there are online lenders, then there are storefront lenders too. These are financial institutions that have a physical or brick-and-mortar office that their clients can visit. Most of the people who prefer storefront lending over online lending do so because of the element of human interaction that this type of lending business offers.
After all, even the most advanced AI integration to business communications to date still can’t match an actual conversation shared with another person.
Microloan Lenders
Finally, there are microloan lenders. A microloan lending company is a financial institution that focuses on supporting financially strapped individuals and sometimes, even organizations. You see, the main objective of microlending is serving as an alternative lending platform for those who need to borrow money but for some reason or another, won’t get approved for one in the traditional method.
The Target Demographic
Each microlending company offers its loan programs to different target markets. There are those who focus on helping people from the minorities (particularly those who come from a third-world country), providing reliable financial assistance to the families in their community, struggling small business owners, and more.
Since microlending companies can be a storefront or online lending company (or both), they don’t really have a specific target age of borrowers. Anyone can get apply as long as they meet the criteria set.
Strictly online lending companies, however, are more popular with younger borrowers. First-timers might also appreciate the lack of human interaction and the possibility of getting interviewed.
Finally, storefront lenders remain the preferred method of older and more seasoned borrowers. Even in this digital age, we should keep in mind that there are still a lot of people out there who are not as proficient in using modern technology the way younger people are. As well as those who don’t appreciate chatting with a bot, or waiting for an email that might not even come.
How to Start Your Own Lending Business
In any case, once you have decided on what type of lending business that you are going to pursue, you can now move on to the steps on actually launching one.
Establishing a Legal Entity
One of the most crucial things that you should decide on is whether you’re going to establish your business as a legal entity or not. While it can prove to be an added investment given the formation costs and annual fees, not to mention all the extra tax forms you would have to prepare each filing season.
However, doing so will protect you from personal liability should you face legal problems in the future, an inherent risk if you don’t get the best staff to help you out.
Source Your Staff
This leads us to the next step. Get the right people. At the very least, you will probably need to hire a loan agent (or processor), a bookkeeper, and a collector.
You can always juggle all of these responsibilities yourself, especially if you’re starting with a small practice. However, being a one-man show in a financial business can make you more prone to make mistakes that are so costly they might land you in legal hot water.
Obtain the Needed Certificates and Permits
Speaking of legal issues, you can further avoid them by making sure that you have secured all the necessary documents such as certifications and permits from both state and federal government offices.
Since states vary in their laws and requirements, it’s best to perform your research beforehand.
In relation to this step, certification is actually one of the advantages that storefront lending companies have over online lenders. They have an air of legitimacy.
Decide on Your Location
Anyway, those who do decide to become a storefront lender should decide on the location of their headquarters. On the other hand, we suggest securing your chosen domain name as soon as possible if you’re taking the online route.
As mentioned, storefront lending companies can still have a website developed, while an online lender can extend its operations offline and rent an actual office for their clients to visit. Regardless, should you choose to put up a storefront, you want to make sure that your office gets situated in a place where you can expect a lot of traffic from your target demographic.
Meanwhile, online lenders can invest in SEO and social media marketing in order to get more clients.
Define Your Budget and Offered Loan Plans
With the right talent, the perfect location, and the needed documents in place, the next thing that you should do is to determine what’s left of your capital as well as coming up with the loan plans that you’re thinking of offering.
Keep your target demographic in mind. For instance, employees will prefer payday loan options while small business owners would probably need a more open line of credit.
Don’t forget to set aside a separate budget for your business too. Set up a different bank account for your business and never link it with your personal one, else risk to get cash flows mixed up and cause unnecessary distress when it’s time to file for your taxes.
Get Insured
Finally, if there’s one more step that can protect you from future issues aside from the ones we have already listed, it’s to get your business fully insured. Contact your preferred insurance company to learn more about the plans that fit your needs and preferences.
You can start by getting a General Liability insurance plan for your business. It wouldn’t hurt to secure your employees’ wellbeing by getting a Workers’ Compensation insurance plan as well.
To Sum Up
There are various factors that one must consider when looking into available loan business opportunities.
First, you’d have to determine the type of lender you want to be. You have a choice between being an online lender, storefront lender, or a microloan lender. There are certainly other types of loan businesses out there but these three are the most common.
Don’t forget to define your preferred target demographic as well as whether you’ll establish your business as a legal entity or not.
Prepare all the documents required to file for permits and certifications, and while you’re at it, why don’t you get your business insured too.
Lastly, by considering all these factors in mind and having what it takes to get into the challenging world of lending backed up with excellent staff, we hope that we have somehow offered assistance to those who are looking to start their own business regardless of the industry.
