How To Start A Private Lending Business - Money Lending Business

In this video, I'll be talking about how you, the average person, can start a money lending business where you lend money to people and have them pay you back and make money from fees or interest and this doesn't require you to be rich and have millions to lend. If you are the average person and you only have a couple hundred dollars, then this can and will work and I'll be telling you how you can go about creating this business and getting the funds to lend people the money and how to structure everything. If you are interested in this business or if you're just looking for business ideas, then be sure to stick around to the very end of this video so you can get all the information. Before I get into all the details here, just a very quick reminder, if you're new to the channel or if you're seeing me for the very first time, my name is Ian and I post personal finance related videos here on YouTube every single day so if this kind of content interests you, be sure to give this video a thumbs up, I'll really appreciate it and also consider subscribing to the channel and this way you'll be able to get the updates from the channel every day when I post a new video. Also, I want you guys to comment and let me know what you think about this business idea. Do you actually believe that you can do this with little to no money? Comment down below and let me know and we'll see if you change your mind later on in this video. Now guys, I'm talking about a legitimate money lending business here. This isn't where you just randomly lend people money and then chase them down when they don't pay you and also not pay taxes because if you make money, then you're supposed to pay taxes. That's just the way it works. So in this business, you're going to need some money up front. You won't need a million dollars to lend but you will need to register your business as an LLC or whatever structure you choose to go with because remember, you can get sued and if you ever get sued, you don't want to lose all your personal belongings and wealth because of the business. You'll also need to pay a lawyer up front or have one on retainer because at some point in time or another, people are going to miss the payments when you loan them money and you need an experienced lawyer to sue them or even to create or draft the initial contracts for the people who borrow money. Now usually, they'll be able to create some templates for you to use but you still want to keep a lawyer on retainer since when someone doesn't pay you, you can get to either sue them or have your lawyer provide you with all the options or steps that you need to take to get your money. Also, you need an accountant. Now in this business, you'll be dealing with a lot of money and the primary business of this business is money. So you'll want to get all your accounting needs taken care of professionally and even if you want to be cheap and say use a software to do this, then you can but I would definitely seek an accountant to at least structure everything and then help with the taxes. You're also going to need someone who knows a lot about the lending business in your local area and this could be a compliance officer and this way, you are operating in compliance with all the local laws as it relates to the lending business. The fourth person that you're going to need is yourself. So the startup cost for this business can be a lot but if you do the work yourself, you can reduce it. So for example, I just mentioned a lawyer, an accountant, and a compliance officer. Now these people will charge you so first of all, ensure that you find people who know what they're doing and not just any lawyer or accountant who just needs a paycheck from you. Now what you can also do here is to use an online lawyer service where you pay about $25 to $30 per month and they will help you in drafting the contracts and providing you with templates. And then when you get these, you can then have a local lawyer go over everything and make sure it is all good. Now this way, you don't have to pay a 10K retainer and then get charged $400 an hour by a lawyer who will take a week or two weeks to do everything. So if you do some of the work here, you can greatly reduce the startup cost. Also, as for the accountant and the compliance officer, you won't be employing them full time or at least the accountant. You can get them reasonably priced since they offer services that may cost you less than $150 per month and that includes doing all your accounting work. And this is good especially since you're just starting out and you won't have that many clients. So again, this won't be a very large startup cost for you. Now the major startup cost for this business will be the money to actually lend people. Now I know you're probably thinking of giving larger loans because you can earn more in interest but you can actually start this business with $5,000. Now in my opinion, $5,000 is a very good number because you can target people who need payday loans or payday advances. So if someone needs $500 because of some emergency like a water leak at home or for some other emergency like emergency car repairs, then you could lend that money. So you can target people who need smaller loans and need them for the short term. Now this is good for two reasons. Starting out, you don't want to loan all the money you have and then wait a year to get it back. So for instance, if you were to start with $5,000 and you lent $1,000 to five people and you gave them a year to repay you, yes, you would make money from them but you wouldn't be able to grow the business because you used all the money you had. So if you lend people who need smaller, quicker loans who will repay you in a week or two weeks, then you profit faster, you get that money back to lend someone else faster and things are simpler in the beginning. So if you don't currently have any money to start this business, then you should save for it. And I know some people who are watching this video who are in the business have probably gotten personal loans and then used that money to start the business, which can work, but I wouldn't borrow money to start the business. I would rather save and do it that way. Now if you are in this business and you borrowed money to start it, leave us a comment down below and let me know how much you borrowed and how long it took you to get that money paid off and to start profiting from your business. And also this way others can see and make a decision if they want to do that as well. Now I actually started talking about how the business works because I wanted to get to the point and not keep talking, but I also forgot to mention that there are some other costs associated with this business, but they aren't a lot or they don't cost a lot. So for instance, when you first start, you'll need marketing. You'll need to let people know you exist and that you lend money. So you need to create business cards and these you can give out anywhere. And guys, people always need small microloans for smaller emergencies. Don't take my word for it. If you don't believe me, look it up yourself. Over 12 million people borrow payday loans every year and that's just payday loans. There are many other types of microloans that people borrow for. The most interesting part of this though is that about 7 out of each 10 of these people use the loans not for emergencies but for bills. So there is a huge market for this. So here's what you need to do when it comes on to marketing. Instead of paying a marketing company or agency $3,000 a month to do this for you, hop onto Fiverr and get some great freelancers. You can get your business cards designed, a website created, and ads designed for people and this is going to cost you anywhere from $100 to $500 which for this business isn't a lot of money. Fiverr is very good and I use it all the time for my needs when I need promotional items or designs or even web design. I'll also leave a link below to it and I believe that you get some free cash if you use my link to go towards your first Fiverr order. And the good thing about Fiverr is that jobs usually start at just $5 to $10. You get to see samples of the freelancers work before you hire them and if they create the content and you don't like it, you get revisions until you are satisfied. So it's a really good place to go and I've been using it for years and as usual, I never recommend anything to you that I haven't personally used and liked. So it's good. Now remember you can buy a course and learn to do this but I'm telling you how to create and operate this business in the non-traditional sense where you and me, the average everyday people can get to start this business without a lot of money. So you won't need an office, right? You don't need to rent an office for $1500 a month. I would suggest just starting online. I've mentioned Fiverr and a website. You can get this website built and do everything online. This reduces the operating cost of the business and you can do this until you are making enough money and you want to hire employees and lease an office. And again, think about it. Who goes into a loan office anymore? If people need a loan, they'll take their phones and Google small loans near me or same day loan near me and if your business appears, then hey, you have a new client. So realistically, the monthly cost of this business are going to be under $1000 or just about there and if you try to do everything yourself, that cost could be lower as well. Actually, if you commit to doing all the work yourself, which you should, by the way, then you can do everything and only use your lawyer when you need them to review your documents. So remember, you already paid for and got the drafts and templates to use. You'll only need a lawyer maybe once or twice a month and if you have everything prepared, you shouldn't need more than a single hour or two of their time, which means you pay them for an hour or two every month. And that's if you need them at all. Now, the accountant will not cost you a lot of money either. If you look up accountants near you, I'm sure you'll find one that will charge you around $150 per month since you are small and just starting out and they won't be spending a lot of time on your business per month initially. So the monthly cost here won't be a lot. The major cost is going to be the startup cost. Now I would recommend saving $10K to start this business, but I think you can pull it off with about $7K and that would include $5K for lending when you have everything all set in place. You get 10 clients and you lend them $500 each and you collect weekly payments and cash flow the business and keep lending. Now as for the profits, how much money can you actually make here? Well, the answer is this, a lot of money. The average interest rate or APR of a payday loan today is over 390%. Yes, don't believe me? Go look it up yourself. I don't make these things up. This is real recorded data. Now of course you don't want to be a loan shark, although that is kind of what you'll be doing, but you want your interest rates to be attractive, so don't charge 390% because that's the average. Charge more like 17-30% and this depends on where you are, but you want to keep this and guys this is a tip I'm giving you here now. Keep the interest rate at a fraction of a point less than the average credit card interest rate for bad credit in your area. So this makes sense because if I have a credit card and I have bad credit, I need a quick loan of $300 and I do a cash advance for my credit card and I find out that it's going to cost me 50% in interest and then I find your loan company that charges 35% in interest, then I'll go with you. That's an easy decision to make. However, let's look at an example. Let's say you start this business with $5,000 to lend. The average interest rate you charge is 20%. That's going to be $100 from lending that money. Now of course $100 isn't a lot of money, so we have to look at the length of these loans. If the loans are longer, then the interest rate is usually lower. Remember, I mentioned the average payday loan being or having an interest rate of over 390%. Well, that's because they're going to pay it back in a week or two. So starting out, and this is why I recommend that you start with smaller payday loans first, but the main idea here is that you can charge more since these loans are short term. So you could charge 90% if you wanted. So you can make more money, and it depends on the loans that you offer. You and your compliance manager can probably see what this should be, or you can research it. However, to make a lot of money here in this business, you need to always be lending. Also, while this isn't required, you can charge a fee, or processing fee, or some sort of fixed fee. This could be $5, $10, $15, or whatever you want it to be per loan application. So for the average person, you can start this business with $5,000, but you want to keep on adding funds to your business, and you want to do this for every year, or do this for at least a year or two. Now if you read books on business, or if you've ever taken on any entrepreneur courses, you'll realize that most business owners don't make money in the first year or two years of business. The average time is usually around 3 to 5 years before that business becomes very profitable. So if you like this business, and you aren't rich, and you can't get a small loan of $10 million to borrow from your family, then you can still get into this business, but it will take you a little longer for you to get to that level where you can easily make passive income in the thousands per month. And actually, most of my how to business videos are for people who are normal people, who just want to have a business and don't have all the money to do it. So again, if you are the average person, not wealthy by any means, I know this can work for you. Now we've talked about how to get started in the business and how much money you can make. However, what happens if your clients don't pay you? What if you lend money and only some people pay you back? Well, this is why it's so important to start the business the correct way and use a lawyer in the beginning, because depending on the contracts, you can use them, or you can sue them rather, or you can take possession of some property that they own to get your money and interest payments. So don't take any shortcuts. If you don't have the money to start this business, keep saving until you can afford it. Also, you can't give everybody a loan, especially when you're just starting out. So you're going to have to create some guidelines here. Who you will approve and what they need to have. So if someone wants a loan of $500 and they don't have a job, they don't own an iPhone 11 where you can use that as security or anything else, most likely you need to reject their application because the chances of them being able to pay you back without having a job are very slim. Sure, you can take them to court and let your lawyer sue them, but that's a case that you can totally avoid. So have your guidelines and criteria set where you know if they default on the loan, there is a way to easily get your money back without having to take them to court, right? Taking somebody to court and suing them should always be a last resort. Also, most people don't want anything bad showing up on their credit. So if you find people who are employed and need a payday loan or a quick loan, they are most likely not going to miss the payments because they don't want to ruin their credit. You can also check credit scores and if you want to, you can actually do a soft check which doesn't hurt their credit but gives you an idea of what it is. So if someone comes in and they have a 350 credit score and several missed payments from another loan, then you won't approve them. But if Ian shows up and he has a 750 and no late or missed payments and he also has two jobs, then you should approve him because he will most definitely pay you back. So I think I've covered everything here from starting the business to the cost to what you need, the profits, the type of loans to offer starting out, the interest rates and marketing. Now if you have any experience in this business, drop me a comment down below and I know it's going to be positive but still comment down below and let me know how the business is working for you and how it's growing. Also if you like this business idea, let me know and even if you don't like it, drop me a comment and let me know why you don't like it. I hope you guys found this video helpful and if you'd like to see more videos like this one, give this video a thumbs up as that's the way these videos get recommended to more people here and I'll really appreciate it and don't forget to check out some of my other videos here on credit cards, banking apps, savings accounts, investments, ways to make money and much more. Also guys, giving this video a thumbs up is completely free and no cost to you. Also don't forget to subscribe and be sure to turn on all notifications for the channel as that's the only way you'll be able to get the updates of when I post new videos and remember I'll be posting a new video here on YouTube every single day and also I'm leaving a couple links down below to free stuff and free cashback offers so be sure to check all the links down below in the description for all kinds of free stuff. Also, be sure to drop me a comment down below and tell me what you think about this business idea. Once again, I hope this video was very helpful. All the best with your business and I'll see you guys tomorrow.