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10 Step Guide to Starting a Lending Biz

Now that you have conceptualized your business idea for a new lending business, the next step is reviewing this general startup checklist to make sure that you start your business right the first time.

1. Develop a Business Plan

If you haven’t developed a business plan already, it is very important that prepare at least a preliminary business plan.

A business plan helps you refine the strategy for your operations, is critical for when you are ready to raise funding, can help keep your business on track as you measure milestones versus actual results, and helps you identify key resources that will be critical to the success of your business. Through your business planning process, you should decide which segment(s) of the market you will be targeting, determine the size of said segments, and what the potential for the growth of your lending business will be based on the number of clients you believe you will be able to offer loans to within your target segment.

A thorough risk analysis, and the development of a risk management framework to determine the conditions under which you will lend to your clients will need to be documented in your business plan, and most importantly; operationalized and executed within the business when that time comes.

Because of the level of research that will go into the business planning process, it will also help you to identify which business legal structure may be most appropriate for your lending operations and well as which taxes and licensing fees you may be liable for. In short, a good business plan helps you to identify if your business idea makes sense and helps to keep you on track for the future as well.

2. Assess your Business Funding Strategy

Capital for any business is very important, but it is even that much more important for a lending business. The velocity at which you are able to lend to your clients and the efficiency at which you are able to collect and lend again will be extremely important to your business’ longevity. Unless you are an heir to a significant fortune or have already amassed a significant amount of wealth on your own; bootstrapping a lending business to success will be extremely difficult and highly unlikely. Therefore, attracting outside funding for your lending business will be absolutely necessary at some point during its existence.

As a result, you will need to start assessing at the very outset when you have decided to start a lending business two critical things

(a) How much funding you will need to successfully launch and execute your business plan, and

(b) How you will attract the necessary funding

Whether your lending business will be a bank that will seek to attract relatively “cheap” funding by way of deposits from the general public, or it will be an entity that lends its own capital, having a solid business plan – inclusive of a comprehensive funding plan will be very important. You will have to be able to show that your team has the expertise and is fit ad proper to be able to successfully execute such a business, that you have the appropriate strategy to penetrate the market successfully as a new entrant, and that your business will plausibly be able to offer an appropriate return on investment to your investors.

A strategy, therefore, could be that you bootstrap the business through its startup phase and in the process, validate your business model. Now that you have some level of actual performance in place, you would then be able to speak seriously to funding sources such as Angel Investors, Venture Capital Funds, Development Banks (who often provide funding for on-lending), or even explore an initial public offer (IPO) to become a publicly listed company.

3. Select a Business Name and Legal Structure

Depending on the jurisdiction within which you are located, you will have a variety of choices when selecting a legal structure. Some of the likely available legal structures within your jurisdiction may be to operate as a:

– Sole Proprietorship

– Partnership

– Limited Liability Company

– Corporation

– Not for Profit/Charity

4. Obtain Licenses and Permits

Depending on the jurisdiction that your business will be operating in, your lending business may be subject to very stringent regulations in order to begin and maintain operations. Your business planning and research will help you identify the responsible government or state agency for your to determine the requirements for doing business. These licenses and permits may become renewable at different points and may have special conditions attached in order for your business to remain in good standing so it is important that you pay attention to this from the outset.

LoanCirrus prides itself on ensuring that Know Your Client (KYC) requirements are built into our application, therefore, when you are ready to choose a software for your business we will certainly help you maintain compliance from a client data collection perspective.

5. Open the Company Bank Account

You will need to select a bank and open the company bank account as this account(s) is where funds flowing in and out of the business will be facilitated.

It is very important that you contact the bank you wish to do business with prior to opening the account to see what their specific requirements are to open a business account; some banks’ requirements are fairly simple whereas some banks’ requirements are extremely complex.

6. Lease Office and/or Build out Web Platform for Customer Acquisition

Depending on how you wish to execute your business strategy, arrange for office space to be leased. This may be started by contacting a commercial realtor in your area. If a brick and mortar structure is what you will be using to execute your business, you will also need to make arrangements for utilities and office furniture. All of these costs would have been projected in your business plan – hence another reason why having the plan upfront will be so important.

If you wish to execute your lending business via online channels, LoanCirrus has a partner product: REACH which provides your business with a highly customizable web front end that allows your clients to complete their loan application online. REACH also integrates seamlessly with LoanCirrus so all data collected through the front end feeds into the backend of your application.

7. Hire Employees (if applicable) and get Business Insurance

If you intend to hire yourself or others as a full or part-time employee of your company, then you may have to register with the appropriate State Agencies or obtain Workers Insurance. The number and type of employees you will need to hire will be dependent on how you wish to execute your business model, and would have been explored and projected in the business planning phase.

Business insurance is a huge part of business continuity strategy. Business insurance helps keep you up and running in the case of catastrophic events (such as fire, theft, disasters disrupting your business).  Insurance can also help you cover issues related to lawsuits if they arise, or compensation if you lose a key member of your leadership team.

8. Set up an Accounting, and Systemize your Operations

It is very important that you setup your Accounting and Record-keeping system to ensure that you are in compliance with the taxes your new company is responsible for paying. Depending on where your company is located, company documents generally are required to be kept for at least a minimum amount of years, including a list of all owners and addresses, copies of all formation documents, financial statements, annual reports, amendments or changes to the company. All Tax and Corporate Filings are also be kept for a minimum period as well.

It is important that you prepare the business as if someone needed to take it over and run it for you. This means have a method or system in place to process orders, pay bills, pay employees, pay taxes, maintain your permits, etc. Basically, try to make the operational aspect of the business as automated and efficient as possible so you can concentrate on growing your business.

LoanCirrus is a great application to use to systemize your lending operations in terms of client data collection, loan processing, repayments, and collections. LoanCirrus will also integrate through APIs to almost any web-based accounting or Customer Relationship (CRM) system.

9. Develop a Business Identity (Branding) and Get the Word Out (Marketing)

A professionally created logo can make your business look professional and established. With this logo in place, design and order business cards, letterhead and promotional materials for your business. In your business plan, you would have created a marketing plan for your loan products that target your ideal customer for your sales funnel so you will now have to start executing. You may also have to undertake digital marketing such as social media advertising and Google Adwords to reach these target clients. Without your clients, your business will not be a success.

If you have REACH as the front end for your loan business, you are already starting on the right foot as it is SEO friendly and helps get you found online by your clients. In addition, our Client Scoring feature in LoanCirrus will help you set benchmarks based on qualitative and quantitative factors around who your ideal client will be. Therefore, as persons who hear your marketing messages comes into your organization physically or electronically; LoanCirrus (based on the scoring parameters you have outlined) will help you determine if that is the right client for your business.

10. Begin Using LoanCirrus for Real in your Business

By now, you would have completed your 14 day trial of LoanCirrus and would be ready to use the world’s number one loan management software in your lending business. Just set up billing and see how LoanCirrus will help you:

  • Lend to more people faster
  • Cut down on paper
  • Optimize document management
  • Reduce operating costs
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