How to Start a Loan Business: 5 Tips to Get Started

If you’re considering starting a loan business, it’s never too early to begin learning where to start.

The Small Business Association reports that over $50 million in loans guaranteed by the SBA are granted every day.

That’s quite a market and only a fraction of the total U.S. business lending happening every day.

You can tap into that market. But like any startup, you need to have a plan.

Let’s explore how to start a loan business.

Be A Catalyst

Chances are that you’re not trying to be a one person lending show. Instead, if you’re looking into how to start a loan business, you’re likely teaming up with a group of investors.

Together, you’ll spread risk. And each brings their own strengths to your lending endeavors.

Connect and collaborate with this group of investors. Make sure that you share similar goals and can work together effectively to meet them.

Establish the underwriting criteria for your company. How will you evaluate and mitigate risk?

Among these investors, you’ll want a wide variety of talents, industry experience and connections. Outline these talents in a document to be integrated into your business plan.

All parties should meet in person to agree upon the plan and its stated direction for the company. One of the main reasons startups fail is leadership breakdown at the top.

Before you ever open your doors, these important details should be worked out and agreed upon to avoid dysfunction later.

Be the catalyst that brings these people together and helps all of you build something amazing.

Solidify Your Local Presence

If you want to know how to start a loan business, look at the overwhelming success of companies who solidify their local presence.

With the Internet, it can be tempting to go after the big fish from the get go — so to speak. But this is typically a bad move in lending for several reasons.

  1. You’re spread too thin.
  2. You can’t consolidate your efforts.
  3. Touchpoint chances are diminished because you’re not focusing on one area first.
  4. You don’t know who your target audience is.
  5. You haven’t optimized your business processed on a small scale.
  6. You’re dealing with too many state and local laws — or international laws if you’re going global.

Master your local area first. Demonstrate that your strategies work. Ensure that you have the right leadership in place. And then expand into new areas when it makes sense to do so.

Find A Niche

For the same reasons that starting local finds greater success, edging into a niche is a great way to start a loan business.

Your need should be singular, but multi-faceted so that you can heighten your targeting potential.

The niche can include things like a specific:

  • Money range (e.g., 50 thousand to 100 thousand)
  • Industry (e.g., real estate)
  • Type of borrower or borrower need (e.g., startups, single family homes, growth, and expansion)

Research your local area to find those underserved niches or niches that you know that you can do better.

And then capitalize on it. At the same time, give those who may have limited access to funding a way to fund their businesses.

Be As Clear As Glass

When you’re exploring how to start a loan business you may think that the industry is writhing with corruption and ambiguity. And this may be the case, especially in some areas.

But lending companies that work like this don’t find long-term and high-level success. They’re paying endless legal fees and settlements. And they’re paying out their noses for reputation management services to try to fix how people see them.

They’re losing business due to the perception of being slimy.

You’re best bet in lending is to strive for 100% transparency. You want no small print, no hidden fees and nothing that may seem to be misleading.

Whether you’re a payday loan company of a SBA lender, consumers today are more educated and connected. Informed consumers will sniff out inconsistencies or attempts to hide costs or questionable practices.

And they will call you out — publicly.

To gain consumer trust and word of mouth (social media) promotion, everything you do must be perceived to be 100% on the up and up.The inverse of this is serious bad publicity, which can take a lending company down almost overnight

You could follow the example of Bayport Financial Services by creating fee schedules, calculators and providing helpful online resources.

These kinds of “freebies” foster trust and demonstrate that there’s 0 ambiguity about you and your lending business.

Start With Growth In Mind

Your ultimate goal probably isn’t to saturate your market and stop. You want to know how to start a loan business and take it to the next level. To do this, think long term and prepare for growth opportunities from the start.

During your time as a startup continually evaluate your growth potential so you know when it’s time to grow and how to grow.

What do you do best? Before you expand, make sure you know what you do well. And do it better than anyone else. You’ll have to have a market differentiator when you expand into new markets.

Your goal in your local market should be to perfect your niche so that you can take something special nationwide — or beyond. Otherwise, you just become one of the many lending companies who never quite take off.

Additionally, knowing your strengths helps you identify the right expansion markets when the time arises.

What are your weaknesses? Are there certain markets you should avoid?  If it’s going to be a huge up hill battle, can the pay off justify the struggle? If you decide to move forward, how can you keep those weaknesses from sinking your ship?

Keep your goals in mind and always work to improve your business.

How To Start A Loan Business

Think big, but start small. Know who you are and who your customers are. Be transparent and fair with everyone you work with. Come together with others to create something great. This is how to start a loan business.

What would you add to our 5 tips to start a loan company? We’d love to hear from you. Share below.

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