How to Start a Loan Company

Business by Industry Print Edit Send fan mail to authors. To open a loan company, you need to define the types of loans you want to offer and obtain the correct licensing for them. Most lenders check borrowers' credit reports with reputable credit agencies before offering them financing. How can i go about it? Run background checks to ensure prospects are not lying on their application and have not been convicted of financial crimes that could harm your business.

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Sep 22,  · Start off by properly registering your business with the state. Your business entity, whether a limited liability company or a corporation, is registered with the secretary of state. Pay the registration fees, which vary from state to state, and then get a tax identification number from the IRS website using Form SS How to Start a Loan Company by Joseph DeBenedetti - Updated September 26, Those looking to start an installment loan, payday loan or mortgage company can earn favorable returns. Are you wondering how this kind of company operates and how to open one? Read from our guide the basics of starting your own loan store. Facebook; Tweet; Google Share; LinkedIn; Pinterest; Email; You can open a loan business outright, start it with your existing business or get a franchise. You can potentially make your money grow .


All of this information is designed to help the state protect the integrity of the lending industry. Lending institutions need capital to provide consumers loans, making it necessary to deposit funds into a designated bank account at the beginning of operations. Capital can come from crowd-funding sites, angel investors, private equity firms and other sources of capital investment.

Depositing funds can only be done after a business has received its state and city licenses. This is because banks require business licenses, fictitious name statements and other entity-specific documentation to open a checking or savings account. Banks normally require the signatures of company owners or those that will be authorized to draw on the accounts. Lending standards are a critical component to the success of loan companies, and there are a number of factors that must be considered before consumers are approved for financing.

Income, FICO scores and the debt-to-income ratio are among the variables that can be used as lending criteria. Most lenders check borrowers' credit reports with reputable credit agencies before offering them financing. The terms offered are based on how risky consumers are considered to be. Interest rates are benchmarked against other companies in the lending industry and are influenced by market conditions and a company's desired rate of return.

New lending companies often offer low interest rates to grow their clientele quickly. Would-be lenders also need to meet with a lawyer to develop contracts and truth-in-lending documents to offer to customers.

The types of documents needed depend on the financial instruments being offered to the public. Having contracts in place is key to getting a loan business off the ground, but it's also important for borrowers to provide information, such as copies of W-2s and pay stubs, that can be kept with lenders' customer files.

Explain the nature of the business, your intended market, and the market needs your lending business will satisfy.

You should explain the size and distinguishing characteristics of your target market. You would then explain how few lenders have tapped into that market. Also identify your competitors and describe their strength or weakness in the market.

Describe the loans you want to make. Discuss your overall sales strategy, including your plans for growth. For example, you may hope to grow geographically, offering your loans to a larger community. Or you might hope to grow by offering additional types of loans to your current market.

Based on your market analysis, you should forecast your projected finances for five-years out. Another component of a business plan is funding. However, this element is so critical to a money lending business that you should spend extra time considering how you will fund the loans that you extend to borrowers.

Some money lenders have dipped into their retirement accounts, such as their IRAs and k accounts, to fund their loans. Experts encourage money lenders who do this to understand the risks that they are taking. For example, loans might not be repaid, in which case you could lose a large percentage of the loan amount.

State and federal laws tightly regulate how you advertise securities to potential investors. Your lawyer will need to be experienced in securities regulation. A successful money lending business does not lend to anyone who walks in the door.

You need to evaluate each applicant according to a set of criteria. This is called underwriting. You will need to draft your criteria before you begin making loans.

For example, you would want to look at their income, FICO score, and other debt load. You will need coaching and advice from people who have started successful money lending businesses themselves. Accordingly, you should find seminars and national conferences to attend where you can network and rub shoulders with experts in the business. Meet with a lawyer. A lawyer will be an invaluable asset, so you should certainly hire one.

He or she will research and answer any questions you have. Also, an attorney can help you incorporate and fill out other required paperwork. You can research any attorney by visiting his or her website. Look for experience with business formation, as well as banking or lending experience. If you are starting a lending business for real estate, then look for an attorney who has real estate experience as well. Buy your domain name. The amount of marketing you want to engage in will be determined by the scope of your market.

You can purchase your domain name from various registrars. The first order of business is to incorporate. There are many corporate forms: To incorporate, you will have to file articles of incorporation with your state.

Your attorney should be able to get them, or you can get them yourself from your Secretary of State. Apply for necessary licenses. You will also need permission from your state in order to legally start a money lending business. You will get that permission by obtaining a license for money lending. Your attorney can get the form for you. In addition to state licenses, you may need municipal or local licenses. You must contact your state business licenses office and search for applicable licenses or permits.

Register your business name. If you choose as a business name anything other than your own personal name, you will need to register it with the necessary authorities. You will need to register with either your local government or a state agency—or both. If your money lending business has investors, then you may need to file with the appropriate securities commission.

If you make a public offering of the securities, then your lawyer will have to register you with the SEC. You should check with your attorney whether or not you need to register the securities and which agency you need to register with. Get a business tax identification number. Unless your money lending business is a sole proprietorship, you will need a tax identification number, also called an EIN.

You can apply for an EIN online. This is the preferred method. You can also apply by mail or fax by printing off Form SS-4 available at http: To find out where to mail or fax your form, you should visit the IRS website at https: Know debt collection laws. Lending businesses most often get into trouble when they are trying to collect money from their customers. Before going into the lending business, be sure you understand what you can and cannot do to collect money owed to you.

Under federal law, specifically the Fair Debt Collection Practices Act, you are prohibited from harassing or abusing the customer that owes you money. For example, in Iowa, you are prohibited from making illegal threats or from coercing or attempting to coerce a customer into paying a debt.