Starting Your Own Money Lending Business

Hard money lending requires due diligence, knowledge of the industry and focus. Your business structure dictates the types of lending you prefer.

 Private money brokerage is lucrative and slightly challenging. You need to decide the business model, area of specialization and source of funds.

The funds could be through a pool of investors or private funds. You also have to determine the recipients of these loans.

Are you going to provide loans for small, medium or large companies? Are the loans accessible to private individuals? 

What about the spread and how far does it apply such as national or local. Finally you company should determine the financial sector of interest and industry to service.

Here are Some Answers

It is better to play local rather than national or international. Try to build a strong local presence and deliver loans within a certain area.

Choosing the right niche market is very important to reduce incidences of bad loans. This prevents bad deals due to poor knowledge of other sectors.

 Focus on a narrow niche and build capacity by understanding what is obtainable in that market.  Finally provide low to mid range loans rather than huge loans.

It is easier and more profitable to provide smaller loans with higher interest rates than large loans. The payback time on such small loans are faster than huge loans.

Another reason small loans are better is less difficulty and danger in getting your money back with interest. A major reason behind lending hard cash is to discover investment opportunities.

 Lenders have realized that they discover good investment opportunities if they do due diligence and get the right clients. Never lend money out of sentiment or undetermined reasons that are not covered by your legal framework.

Best Practices

Give out low or mid range loans

Specialize in a niche sector

Provide loans only to local community

Build a brand name of reliability and efficiency.

Imbibe transparency

Refer deals that are outside your niche market.

You need to have an investment range

Outline the Legal Framework

One of the most important things to do when starting a money lending business is outlining the legal framework. The legal framework gives a clear picture of proposed recipients of the loans.

They should meet very strict criteria and meet certain conditions. Hire a qualified lawyer with years of experience to drafting your documents. Make sure the legality covers fund recovery, collateral and interest.

Marketing

The best marketing plan is to focus on specific niches. Provide predetermined benchmark on the amount of money to loan.

Let your marketing plan remain local and cover a specified area. Use available marketing tools such as newspaper publications, banners and billboards.

Small business owners need money and will find your establishment easily. Other marketing platforms are radio jingles and television advertisement.

Transparency

Lenders need to be transparent in their dealings. Many money lenders do sharp practices especially pertaining to interests on loans.

Make sure the recipient of a loan fully understands the conditions attached to the loan. Provide proof of consistency, business structure, corporate branding and company profile.

Who to Lend your Money

Don’t lending your money to private individuals looking to solve personal or private issues. Don’t lend money to sole proprietorship businesses.

 The best groups are companies with a limited liability structure. Make sure the company has proof of competence and adequate collateral.

Many people can present impressive documents however not many can show evidence of completion.

Starting your own Money Lending Business

Incorporate the lending business as a limited liability company. You need a good corporate address and a dedicated phone number.

Write a hard cash business plan and carry out a feasibility study of your operational area. Understand your competitors and how they operate.

Develop a good legal framework for disbursement and recouping loans. You can network with experts in the niche area of operation for advice and insight into each application.

Commercial lending is tough business so investigate the claims of loan seekers before giving them your hard cash.

Hire Experienced Staff

You need very experienced staff in risk management. Hire qualified accountants and staff with experience in loan disbursement.

Professionals in the finance and banking sector are good candidates for employment. Makes sure you have a comprehensive risk management and underwritten program. Proper experience and credibility including a strong legal team will cover litigation and related matters.

Conclusion

Make sure your private lending business focuses on the local community. Decide on a maximum benchmark amount your company is willing to lend.

 Try to strive for transparency and accountability. You can refer deals to other lenders in fields other than your area of choice.

Understand the business of money lending through mentor-ship, apprentice programs, books and practical knowledge. Make sure your source of funding is on the same page. Other things to do are incorporate the business, hire qualified lawyer to draft your legal framework.