Interested in small loan business ideas? If YES, here is how to open a loan company with no money and no experience. How much does it cost to start up?
How to Start a Loan Business
Do you want to start a loan company? Loan companies procure funds to companies who need financial aid for their businesses. Clients maybe small business owners or larger business owners.
Before you can start a loan company, you must decide on your target customers and the type of loans you want to provide. Loan companies also get compensated with a percentage of the funds lent out.
I will be sharing with you in this article how you can start a successful loan company of your own and become a Chief Executive Officer of your company.
Choose a Company Name
The first thing you have to do before you can start a loan company or any company of your choice is to first choose a company name. Your company name should be unique. It is advisable you first check with your state’s business registration organization to ensure the name you choose or want to choose hasn’t been taken.
Write a Business Plan
Writing a business plan is very crucial when you are planning to start a loan company. A plan would persuade investors to finance your business, aside that, a business plan gives you a clear overview of your loan company. A basic business plan should contain the following;
- Executive Summary
Your executive summary should explain your goals and success plan. It should pinpoint why starting a loan company would excel.
- Company Description
This section answers questions like; what type of loan company do you want to start? Do you want to just meet the needs of small company or larger companies? Also, explain what market requirements your loan company would satisfy.
- Market Research
Describe the attributes of your target market, in starting up a loan company you must research on your competitor’s strengths and weaknesses.
- Operations and Management
Setting up a team of operators is important when you want to start a loan company as they will keep track and records of financial transactions of the business.
- Source of Finance
This section of a business plan is very vital. Funding is the most important part when planning to start any business. You should spend a lot of time drafting out plans to acquire funds as loans to you give out to customers.
If you want to seek financing from other investors, you should formulate a prospectus to present to investors or get a properly qualified and experienced lawyer to help you with that as state and federal laws may regulate how you advertise to investors.
Criteria for Service
You must write some criteria for granting loans, you cannot just give loan to anybody who requests for it, you need to access each petitioner based on a set of rules. Collect information on each petitioner such as income, previous debts and sources of income.
You will need web visibility to successfully get clients for your loan company. The internet and social media are very good sources of publicity in starting up a loan company, purchase your domain name from a registrars or a company that offers this service.
A Limited Liability Company
A Limited Liability Company is a hybrid company structure consisting of the security of personal liability of a corporation and the tax advantages of a sole proprietorship. A Limited Liability Company is a very good business structure for a loan company, but it’s also advisable to employ the services of a lawyer to choose the best structure suitable for your loan company as there are other options such as partnership, sole proprietorship or a corporation.
To start a loan company, it is required that you get a license or permit for your business. You can easily get an attorney to take care of that or seek help from your secretary of state in order not to have any legal issues while starting up your loan company.
When starting up a loan company, its advisable to get a reimbursement insurance to protect yourself and employees if someone should bring legal charges against you.
Loan companies should purchase a reimbursement insurance called Errors and Omissions (E&O) insurance. This protects the company from customer’s affirmations about the company being inefficient.
Your company should be financed in compliance to your laid down business plan. Original startup costing for your loan company should include building up and renting space, and funds to be lent out to customers.
Some investors will request equity in the company in exchange for their financing. These investors become shareholders in the company and have the right to a percentage of the company’s profit.
The government and financial lending institutions are also good sources of funds for starting up a loan company, but you will have to pay back the borrowed money after a period of time with interest.
A financial problem of starting up a loan company is that loan companies usually require a large startup capital. They also have to deal with a few challenges such as fraud before they become successful. Most loan companies fall out in this process.
Starting up a loan company is a profitable choice if you follow all the necessary procedures and ensure proper planning.