Do you want to start a local escrow business? If YES, here is a complete guide to starting a local escrow business with NO money and no experience.
An escrow can be referred to as a neutral third party that helps two parties engaged in a transaction to retain their money and other deposits. Escrow activities in the united states are regulated and they require licensing from the state before the business can start up.
The main attribute of this business is trust as the parties involved must trust in your ability to safely secure the funds and dispense them when needed and also to have transparent processes in place to handle disputes should they arise. Most escrow companies in the United States offer their services to the real estate industry.
Escrow businesses are essentially Business to Business (B2B) transactions and so it helps the escrow businesses know essentially who their target market is and how marketing strategies can be developed to get the attraction of this targeted B2B market.
Also, in order for your business to have a strong foundation, it is essential that there is a comprehensive business plan in place to address certain issues such as how you intend to source for start-up capital, generate revenue and generally run your business.
A business plan is very important because lenders and investors who intend to have a stake in your business will want to see a comprehensive plan.
Regardless of how local the escrow you intend to start will be, one smart move that you should not neglect is in carrying out a thorough research in order to know how strong your competition is. You can try yellow pages or check through directories in order to know your competitors.
You must also have a thorough knowledge of the level of success they have achieved and how they have positioned themselves in the marketplace and through this knowledge develop a blueprint that will help set your business apart.
It is essential that you possess thorough knowledge about the escrow industry as your customers expect you to know about the complexities in the industry such as title defects, lens and encumbrances. Most escrow companies usually run their business as a title and escrow company so as to expand their services to include other forms of services in the real estate industry.
Steps to Starting a Local Escrow Business
Table of Content
- 2. Conduct Market Research and Feasibility Studies
- 3. Decide Which Niche to Concentrate On
- 4. Know Your Major Competitors in the Industry
- 5. Decide Whether to Buy a Franchise or Start from Scratch
- 9. Discuss with an Agent to Know the Best Insurance Policies for You
- 10. Protect your Intellectual Property With Trademark, Copyrights, Patents
- 11. Get the Necessary Professional Certification
- 12. Get the Necessary Legal Documents You Need to Operate
- 13. Raise the Needed Startup Capital
- 14. Choose a Suitable Location for your Business
- 15. Hire Employees for your Technical and Manpower Needs
- 16. Write a Marketing Plan Packed with ideas & Strategies
- 17. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
1. Understand the Industry
The advent of technology and the increasing pace of business due to stable economy has seen the B2B market gaining momentum and it has been predicted to boom even more by the year 2022. Due to the fact that users in the B2B marketplace are constantly on the increase, the industry and government has had to increase regulations guiding the escrow service industry in order for companies to engage in best practices.
Even though there are huge giants occupying the major market share in the industry, new entrants are also gaining foothold for themselves by offering niche services or making use of technological innovations to achieve their goals and objectives.
Even though escrow is used mostly in the real estate industry, it has spread to other industries especially with the internet which has seen businesses coming online to offer products or services. In the United States, there are government and private agencies that have been approved by government that perform due diligence as well as regular audits on escrow companies that are independently licensed.
These audit examinations are usually carried out in a bid to protect the funds of the stakeholders and also determine that the escrow companies comply with the escrow rules and regulations while keeping funds safe and secure.
Even though demand is growing slowing for this industry, it is still expected to pick up as escrow companies begin to infuse technological innovations into their services and also being flexible and creative in order to enhance the experience of consumers.
2. Conduct Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic composition of those that require the services of an escrow business include; private equity firms, lenders, brokers, professional intermediaries and advisors, law firms, investment banks, financial institutions, real estate and various business transactions.
Therefore, if you are looking to define the demography of your local escrow business, you could make it as wide as you can in order to accommodate various types of transactions from various clients.
3. Decide Which Niche to Concentrate On
Escrow businesses help provide third party solutions that are neutral in order that funds or assets might be secured during a transaction.
Because of how wide the services offered by an escrow might be, some escrow businesses might choose to start their business on a small scale by specializing in certain services in order to offer efficient and thorough services to a targeted group.
However, if you are running your business on a large scale, it would be possible for you to offer more services in order to attract more sets of clients. Below are some of the niche ideas that are within this particular business that one can specialize in;
- Escrow on mergers and acquisitions
- Escrow on investment offerings
- Escrow on Mortgages
- Escrow on Divorce Settlements
- Escrow on Litigation Settlement
- Escrow on Stock Transaction
The Level of Competition in the Industry
Even though escrow businesses are distinguished from the banks and other financial institutions, this hasn’t stopped these other financial institutions from engaging in escrow services for their customers, thereby increasing the level of competition that exists in the industry.
What customers want when they engage the services of an escrow business is that their funds are secure and should there be any dispute, it would be resolved in fairness and in accordance to industry best practices. Also, customers expect a transparent process, so it is therefore important that you adhere to that as any whiff of negative publicity could cause you to lose a lot of customers.
There are a lot of local, national and international escrows in existence in the United States and as an entrepreneur looking to start a business, it is best that you study the area where you intend to start up your business and also who your target market is so that you know the level of competition you are going to face in your area.
4. Know Your Major Competitors in the Industry
Escrow businesses became popular because of the level and nature of transaction that were being carried out in the United States with regards to mortgages and commodities. Through the years, several escrow businesses have stood out in the industry due to their best practices, customer care services, advertising and publicity strategies.
Below is a list of well-known local escrow businesses in the United States;
- BNY Mellon Corporate Trust
- American Trust Escrow
- First American
- Open Escrow
- U.S Escrow Services, Inc
Most local escrows are dependent on the real estate market which therefore means that they are very sensitive to interest rates from mortgages as well as the wellbeing of the economy. The industry received a boost in its revenue especially during the housing bubble due to the surge in real estate transactions. However, the economic downturn from 2007 caused the industry to lose a lot of its revenue.
The industry is one that has faced a lot of challenges especially with the continuing regulatory changes being experienced and its effect on how transactions are done especially regarding real estate. The industry has not only faced increased regulation, there has also been stringent compliance, with technology hurdles causing costs to rise for operators in the industry.
The industry had a more competitive environment prior to the economic downturn due to the many companies that were in existence and the products that were being launched, in addition to the technology that was being leveraged on. All these changed after the downturn as innovative products and technologies were kept aside as companies tried to consolidate and create processes that complied with regulatory guidelines.
The industry is however experiencing strong demands that will help improve the experience of its customers while also attracting new ones. Regardless of how technology has been retrenched by most of its operators, it is being predicted that in order to be able to meet future demands, there must be an embrace of innovation.
5. Decide Whether to Buy a Franchise or Start from Scratch
One of the decisions that you have to make concerning your business is if to start the business from scratch or to buy a franchise.
While each option has its pros and cons, whatever you decide on should be dependent on what your core goals and objectives are. In choosing which franchise to buy, it is essential that you look through what they have to offer you and your business especially as regards lending rates, government regulations and IT technological evolutionary trend.
One good thing about buying a franchise is that it allows you to have leverage over other new businesses especially if the brand you choose is one that has high values and consistent business ethics.
The reason why some entrepreneurs choose to buy a franchise is because they are also getting mentorship from those that they are buying the franchise from, which allows them to learn the ropes of the business while generating revenue.
This does not mean that you cannot however start your business from the scratch especially if you have studied your market well and have crafted several strategies that you feel will enable you run your business and achieve your stated goals and objectives.
One good thing with running your business from scratch is that you are in control of all aspects of your business and can change strategy or pace to the benefit of your business whenever you feel like unlike a franchise.
6. Know the Possible Threats and Challenges You Will Face
Threats and challenges are part of every business cycle and as entrepreneur, you must not only know this, you must be prepared for it as well. This is why it is often advised that a business research be conducted because it will allow you understand the business you are going into and evaluate what your chances are in the business.
The escrow business, for instance, is a very sensitive business and while just starting out, you are bound to encounter some threats and challenges that can cause your business to fail if not properly handled.
Therefore, the threats and challenges that you are likely to face during the course of starting your local escrow business include; getting the trust of your intended clients, battling against competition from well-established escrow businesses, dealing with industry and government regulations.
7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)
One of the toughest decisions that you are going to make regarding your business is what legal entity will be most appropriate in allowing you not only run your business but also achieve all your intended goals and objectives.
This is because certain legal entities might limit the way you can run your business and so it is necessary that you have thoroughly conducted a research regarding the kind of business you intend to go into and which legal entities will best help your business achieve its full potential.
Due to the financial sensitive nature of an escrow business, legal entities such as sole proprietorship and partnership will not be suitable for this kind of business. As such, the choices for a legal entity are Limited Liability Company (LLC), S Corporation and C Corporation.
In choosing any of these legal entities, you will need to engage the services of a lawyer with experience in your kind of industry to help you set up a legal entity for you after pointing out the advantages of each legal entity and which will most likely suit your business.
The LLC which is a flexible legal entity is regarded as a legal person under the law which then means that it is seen as having the rights to conduct business as well as comply with the laws. The LLC is regarded as a hybrid legal entity because it takes features from several legal entities, which is why most entrepreneurs love it; however, laws regarding the LLC differ from state to state.
Under the LLC, members have limited liability which allows them to be exposed only to the amount that they have invested in the business.
A corporation even though similar to the LLC is usually stricter especially as regarding how the business is run. In order for the business to be formed, you are required to file with the state where you intend operating the business from.
Just like with an LLC, a corporation is also regarded as a separate entity and so owners are offered some level of protection if the entity at a point is sued. However, the difference between an LLC and a corporation is that additional tax filings are usually required. Under a corporation, business owners can decide to go for the C Corporation or the S Corporation.
The difference between a C Corporation and an S Corporation is that the former is subject to double taxation, which means while corporate taxes are being paid on its net income; taxes are also being paid by the shareholders on the income they receive.
In the S Corporation, there is only one level of taxation as even though shareholders pay taxes on income received from the corporation, they do not pay on their net income. The S Corporation is usually common amongst small business owners.
8. Choose a Catchy Business Name
One of the first steps that you will take in order to make your business legal is to get a name that will allow your business stand out and compete against others in the same field.
Generating a business name might look easy but it is something that must be carefully considered because not only must your name represent the kind of business you do, it must also be something that others within and outside your industry can easily remember as well as pronounce.
Below are some catchy business name ideas that are suitable for a local escrow business;
- Openway Escrow Services
- Millennial Trust Escrow
- Guided Escrow
- Umbrella Escrow Services
- Alusa Trust Escrow, Inc
9. Discuss with an Agent to Know the Best Insurance Policies for You
There are a number of calamities – manmade or natural disasters – that can happen to shut down your business and when these calamities occur, it might be hard to rebuild your business especially if you hadn’t made the required preparations.
According to statistics from the Insurance Information Institute (III), 25 percent of businesses that close down after a disaster never reopen for business. This is why it is often advisable for entrepreneurs to get all affairs regarding their businesses in order before opening up to customers.
If you aren’t too sure of what insurance policies you might require, it is best to engage the services of an insurance agent or broker to help you with the necessary policies that you might require. Below are some of the necessary insurance policies that you will need in order to start your local escrow business;
- Property Insurance
- Casualty Insurance
- General Liability Insurance
- Workers’ Compensation Insurance
- Errors and Omissions Insurance
- Homeowners’ Insurance
- Business Auto Insurance
- Directors and Officers Liability Insurance
- Umbrella Policies
- Business Owner Policy (BOP)
10. Protect your Intellectual Property With Trademark, Copyrights, Patents
The escrow business is one where you provide a service for two set of parties that are transacting business. You are not required to apply for any sort of intellectual property protection before starting or while running this business.
If there are however important aspects of your business that requires protection such as your business name, logo and any other concept; then you might go ahead and apply for an IPP but ensure that you engage the services of a lawyer who is well knowledgeable to help you out.
11. Get the Necessary Professional Certification
In starting an escrow business, you do not need to purchase any form of educational knowledge neither will you need any sort of professional certification as all that is needed is that you are able to interact with your customers well and that your integrity is flawless.
This does not however mean that you cannot acquire a degree with backgrounds in commodities and real estate in order to be able to have the necessary edge that you need over your competitors in the same sector.
12. Get the Necessary Legal Documents You Need to Operate
The escrow business is a sensitive business due to its financial nature and so it is important that you have all the necessary documents in place in order to be able to run your business without hitches and fear of the authorities. If you do not know what documents to acquire, it is best that you ask others who are in the same business with you or you seek the services of an attorney.
Some of the legal documents that you will need in order to run your escrow business include;
- Certificate of Incorporation
- Operating Agreement for LLCs
- Business Plan
- Business License and Permit
- Insurance Policy
- Surety Bonds
- Escrow Officer License
- Employer Identification Number (EIN)
- Contract Documents
- Federal Tax Identification Number (TIN)
13. Raise the Needed Startup Capital
Even though the escrow business is one where you will be holding funds for buyers and sellers till the transaction goes through, you will still require a substantial amount of money in order to be able to start the business and run it well.
Sourcing for start-up capital is usually not an easy task for any entrepreneur, which is why you are required to not only have the necessary passion regarding the business but to also have a written plan that investors whom you are looking to approach can see and know if your business is one that they should invest in.
No matter who you are looking to approach for start-up capital, it is important that you at least have some of your own money as this is only how you can convince others to invest in your business idea. Some of the financing options that are available for you to start your business with are;
- Generate part of your start-up capital from personal savings and sale of stock
- Source for soft loans from your friends and family members
- Apply for loan or line of credit from the commercial bank
- Borrow equity from your home
14. Choose a Suitable Location for your Business
In looking to start your business, deciding on the choice of location is very important as where you are located can have a huge impact on the growth of your business. Many entrepreneurs have found out too late how important where they have situated their business is.
It is important to note that this is a business that you can run from your home as you do not need to meet with either party to be able to successfully offer your services as a neutral third party holding their money. However, if you are looking to run your business from home, it is important to ensure that you have everything in a section that is not only organized but cannot easily be reached by others especially as you will be handling a whole lot of documents.
If however, you have noted that your competitors have an office facility, then it is vital that you also get an office facility for your business so that you can easily compete with them and achieve your intended goals and objectives.
The fact that you are getting an office facility does not mean that you should get a space that is too big, thereby causing a strain on your overall budget. A small facility within your target market is better for you and you might even get a shared office if you really need to have a physical facility.
Ensure that your facility is one that is easily accessible by those who might be looking to physically visit you and also ensure that it is conducive to work in as well.
15. Hire Employees for your Technical and Manpower Needs
Escrow services are in place to help two parties keep a transaction safe especially if the business deal is one that has several complicated steps. The principals to the escrow – buyer and seller – will usually draw up a list of items that will need to be completed before the money can be transferred.
Escrow can be used for all sorts of transactions but they are mostly used for mortgages, property transactions, online transactions and transfers. The responsibility of the escrow company is to ensure that all instructions in the agreement have not only been made but also properly executed before the transactions can be finalized and the escrow deemed closed.
You do not need any sort of technical experience in order to start an escrow company but having thorough knowledge of the industry is expected as your clients will look for you to handle all their transactions using the best practices or industry trends.
Building a solid business structure for your local escrow business is very necessary as this is a business where you are expected to attain a certain level of integrity. If you are working on a low scale, then you can run this business by yourself and contract some services out.
However, if you are looking to run a very professional business and one that is on a medium and huge scale, then you will need to hire an office manager, human resources manager, title and escrow officers, customer care executive, accounts office and marketing manager.
From the above analysis, you will need at least 6 key people to start your local escrow business in the United States.
The Service Delivery Process of the Business
An escrow company in the United States is typically needed when two parties are involved in a transaction. Once the buyer and seller have agreed on what the purchase price should be, an escrow account is then opened and the funds are transferred, and it is then managed by the escrow company.
Therefore, an escrow company is one that is legally authorized to hold funds for buyers and sellers and it confirms that all elements of the contract have been fulfilled before the fund is released. Also, escrow companies help provide all documentations concerning taxes and escrow to mortgage holders so that they can easily file tax returns.
As an escrow company, you will also be responsible for reviewing regulatory documents and also take care of compliance.
16. Write a Marketing Plan Packed with ideas & Strategies
When looking to market your escrow business, you will need to follow the same principles as one who is promoting any other kind of business by ensuring that you have a marketing plan. In your marketing plan, you are expected to identify your customers by using key features such as sex, location, age, education level, income level, marital status as well as occupation.
Once these factors have been taken into consideration, you will also need to consider the other driving factors such as the values, attitudes and lifestyle of your target market. It is essential that you look towards marketing as not only intended to help you achieve your revenue generation goals but also as a means to enable you achieve the goals and objectives of your brand.
While everyone starts a business with the intention of achieving certain goals, none of those goals can be actualized if steps are not taken to ensure that they are, such as making the business achieve visibility and so it is necessary that you take this aspect of your business very seriously.
By having a marketing plan, it is expected that you also have a budget at hand as this will help you plan what activities you should be involved in and so that you do not end up engaging your business in campaigns that will drain your purse without attracting the amount of clients you need to generate revenue that will sustain and grow your business.
Below are some of the marketing ideas and strategies that you can use for this particular business;
- Ensure that you are somewhat affiliated with the financial professionals in the lending industry as being in contact with them can enable them to refer business your way
- Network with builders, real estate companies and developers in order to broadcast your services
- Ensure that your escrow company has a Facebook page, Linkedin Profile and Twitter account as this will make it easy for potential customers to get to you
- Having an online presence is very important and as such it is necessary that you engage the services of a web developer to help create a professional website for your escrow company
- Use blog posts to market your services to your intended target market
- Ensure that you empower your marketing executives to physically meet with clients in order to create awareness for your company
17. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
Being able to boost the awareness for your brand as well as create a corporate identity for your escrow company is very important because a publicity campaign not only allows you achieve awareness, it also allows your business to convert a certain percentage of these earnings into revenue generation for your company.
As with creating any other strategy that is intended to boost the bottom line of your company, it is expected that you take time to research so that your strategies can be effective. Conducting a thorough research might also enable you create strategies that you never thought of before in relation to boosting the awareness for your brand.
The huge benefits that are gotten from boosting the awareness of a brand is why already successful business ventures do not mind setting aside a certain amount of money regularly to boost their image.
Once your strategies have been created, ensure that you constantly monitor them so that you can remove or modify the ones that are not so effective in helping you achieve your goals and objectives. Some of the ways by which you can boost awareness and also create a corporate identity for your brand include;
- Distribute your business cards in strategic places such as real estate conferences and seminars
- Ensure that your website is optimized in order to be ranked tops in search engines
- Encourage your loyal customers to help spread the word about your business
- Place adverts in local newspapers and related magazines as well as on radio and television stations
- Write blog posts and publish in popular online forums
- Have a social media platform such as Facebook, Twitter and Linkedin in order to promote your business