Do you want to start a micro money lending company? If YES, here is a complete guide to starting a micro lending business with NO money and NO experience.
Okay, so we have provided you an in-depth sample micro lending business plan template. We also took it further by analyzing and drafting a sample micro lending services marketing plan backed up by actionable guerrilla marketing ideas for micro lending businesses. In this article, we will be considering all the requirements for starting a micro lending business. So put on your entrepreneurial hat and let’s proceed.
Why Start a Micro Money Lending Business?
If you live in the United States of America, you will agree that loads of entrepreneurs are making money from offering small loans to individuals who cannot access loans from banks. It maybe for workers whose paychecks might not be enough for them to meet their expenditure for the month; or for people who need quick loans to fix some pressing needs or projects without going through the rigors they are likely going to be subjected to by their banks or other financial institutions.
Starting a micro money lending business can be demanding and risky at the same time, but if you have done your due diligence before venturing into the business, you are likely not going to run at a loss. First and foremost, you are expected to have experience in the financial industry. It will pay you to study accountancy or banking and finance if indeed you want to venture into this line of business.
It is very needful that you analyze the existing micro money lending business in and outside of your area. Know how many they are. Also, you would be required to check the existing competition, as well as know their strength and weaknesses.
Knowing the weaknesses of the existing micro money lending businesses around you means that you would be able to learn from their mistakes and in turn come up with a better and more preferred micro money lending services devoid of the mistakes and weaknesses of others.
So, if you have done the required feasibility studies and market research, then you might want to venture into this business. If you have been tinkering with starting your own micro money lending business, but do not know how to go about it, then you should consider going through this article; it will surely give you the needed guide and direction.
Starting a Micro Money Lending Business – A Complete Guide
- Industry Overview
The financial services industry is indeed a broad industry. An aspiring entrepreneur who has little start-up capital and a good grasp of how the financial business works can successfully start a micro money lending business.
Micro money lending (Microcredit or Microloans as it is also called) are small loans that are given by individuals rather than banks or other related financial institutions. These loans can be given by a single person or gathered across a number of persons who each contribute a portion of the total amount.
The micro money lending business is a business that is part of the microfinance industry. Micro money lenders basically give out loans of $50,000 or less to start-ups and other small scale businesses or individuals. More often than not, micro loans are given to people in Third World countries where traditional financing is not available, to help them start small businesses.
Micro lenders receive interest on their loans and repayment of principal once the loan has matured. Due to the fact that the credit status of these borrowers may be quite low and the risk of default high, micro loans command above the average market interest rate making them attractive for investors to come in.
Statistics shows that as at 2009 an estimated 74 million men and women held microloans that amounted to US$38 billion. Grameen Bank reports that repayment success rates are between 95 and 98 percent.
The Micro Money Lending cum Micro Finance industry is indeed a thriving and profitable industry especially in third world countries like Bangladesh (where it originated from), Botswana, South Africa, Kenya, Uganda, India and a host of other countries.
Some of the factors that encourage entrepreneurs to start their own micro money lending businesses are that the business is highly profitable and also the fact that micro money lending has been facilitated by the rise of the internet and the worldwide interconnectivity that it brings. Individuals who wish to put their savings to use by lending and those who seek to borrow can find each other online and then legally carry out a transaction.
Over and above, starting a micro money lending business requires professionalism and good grasp of how the lending business works. Besides, you would need to get the required certifications and license and also meet the standard capitalization for such business before you are allowed to start a micro money lending business or microfinance business in the United States. The industry is heavily regulated to guide against fraud and criminality.
Starting a Micro Money Lending Business – Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic composition of those who require micro loans cum services of micro money lending companies cut across people and start-ups who need quick loans but don’t have the requirements to access these loans from banks and other standard financial lending institutions.
So, if you are looking towards defining the demographics for your micro money lending business, then you should make it all encompassing. It should include start-ups, aspiring entrepreneurs, and workers within and outside the United States
List of Niche ideas Within the Micro Lending Industry That You Can Specialize in
There are no niche areas within the micro money lending line of business; micro money lenders basically give out loans of $50,000 or less to startups and other small-scale businesses or individuals. Some micro money lending companies also operate on the internet; that is, people can access their micro loans without physically residing within the locations where the micro money lending business is located.
The Level of Competition in the Micro Money Lending Industry
The level of competition in the micro money lending industry does not in any way depend on the location of the business since most micro money lending ventures can operate online and from any part of the world and still effectively compete in the micro money lending industry.
But over and above, there are several micro money lending ventures and micro finance banks scattered all around the United States and in the cyber space. So, if you choose to start your own micro money lending business in the United States, you will definitely meet stiffer competition not only amongst micro money lending ventures in the United States, but also all over the globe especially if you choose to also operate online. Besides, there are well – established micro money lending firms that determine the trends in the industry and you should be ready to compete with them for clients.
List of Well Known Brands in the Micro Lending Industry
In every industry, there are always brands who perform better or are better regarded by customers and the general public than others. Some of these brands are those that have been in the industry for a long while and so are known for that, while others are best known for how they treat their patients.
These are some of the leading micro money lending services firms/brands in the United States of America and also in the globe;
- Grameen America
- Opportunity Fund
- Accion New Mexico
- Justine Petersen
- CDC Small Business Finance Corp.
- Valley Economic Development Corp.
- Empire State Certified Development Corp.
- Main Street Launch
- Kiva U.S.
- Pacific Community Ventures
- Excelsior Growth Fund
- Funding Circle
- CircleBack Lending
- Lending Club
- Prosper Marketplace, Inc
When it comes to starting a business like a micro money lending services firm, you just have to get your feasibility studies and market research right before venturing into the business. It is good to mention that micro money lending services business is not for rookies; it is for professionals who have successfully gathered the required experience and expertise to handle such business. But an aspiring entrepreneur can learn on the job/business. You just have to be careful so that you don’t get swindled.
Starting this kind of business definitely entails that you raise plenty of start-up capital (pool cash from interested investors). If you are already a wealthy person, this might not be an issue. Conversely, if you cannot, you may want to consider pulling resources from family and friends. Depending on the scale at which you want to start from, you might require as much as multiple thousands of dollars to strike this off.
You will be expected to hire experts that will help you with comprehensive economic and cost analysis and the profitability of the businesses within the location that you intend launching the business. If you get your economic and cost analysis right before launching the business, you may not have to stay long before you break even.
Starting Your Micro Money Lending Venture from the Scratch versus Buying a Franchise
When it comes to starting a business of this nature, it will pay you to buy the franchise of a successful micro money lending services firm/brand as against starting from the scratch. Even though it is relatively expensive buying the franchise of a micro money lending services firm, but it will definitely pay you in the long run.
But if you truly want to build your own brand after you must have proved your worth in the financial services industry and other related financial consulting businesses, then you might just want to start your own micro money lending business from the scratch.
The truth is that it will pay you in the long run to start your micro money lending services firm from the scratch. Starting from the scratch will afford you the opportunity to conduct thorough market survey and feasibility studies before choosing a location to launch the business.
Please note that most of the big and successful micro money lending ventures around started from the scratch and they were able to build a solid business brand. It takes dedication, hard work and determination to achieve business success and of course you can build your own micro money lending firm brand to become a successful brand with corporate and individual clients from all across the length and breadth of the United States of America and other countries of the world if you choose to operate online.
Possible Threats and Challenges You Will Face When Starting a Micro Money Lending Services Business
If you decide to start your own micro money lending services firm today, one of the major challenges you are likely going to face is the presence of well – established micro money lending services firms and also other related financial lending institutions (banks, mortgage banks, and payday loan services firms et al) who are offering the same services that you intend offering. The only way to avoid this challenge is to create your own market.
Some other threats that you are likely going to face as a micro money lending services firm operating in the United States are unfavorable government policies, the arrival of a competitor within your location of operation and global economic downturn. There is hardly anything you can do as regards these threats other than to be optimistic that things will continue to work for your good.
Starting a Micro Money Lending Business – Legal Matters
- Best legal entity to use for a micro lending business
When considering starting a micro money lending services business, the legal entity you choose will go a long way to determine how big the business can grow; some micro money lending services firms design their business and services for regional/community market, some for national market, while others for international market via online platform.
Generally, you have the option of either choosing a general partnership, or limited liability Company which is commonly called an LLC for a business such as a micro money lending firm. Ordinarily, a general partnership should have been the ideal business structure for a small – scale micro money lending services firm especially if you are just starting out with a moderate start-up capital.
But people prefer limited liability Company for obvious reasons. As a matter of fact, if your intention is to grow the business and have clients both corporate and individual from all across the United States of America and other countries of the world, then choosing general partnership is not an option for you. Limited Liability Company, LLC will cut it for you.
For example, setting up an LLC protects you from personal liability. If anything goes wrong in the business, it is only the money that you invested into the limited liability company that will be at risk. It is not so for general partnerships. Limited liability companies are simpler and more flexible to operate and you don’t need board of directors, shareholders meetings and other managerial formalities.
These are some of the factors you should consider before choosing a legal entity for your micro money lending services firm; limitation of personal liability, ease of transferability, admission of new owners, investors’ expectation and of course taxes.
If you take your time to critically study the various legal entities to use for your micro money lending services firm, you will agree that limited liability company; an LLC is most suitable. You can start this type of business as limited liability company (LLC) and in future convert it to a ‘C’ corporation or an ‘S’ corporation especially when you have the plans of going public.
Upgrading to a ‘C’ corporation or ‘S’ corporation will give you the opportunity to grow your micro money lending services firm so as to compete with major players in the industry; you will be able to generate capital from venture capital firms, you will enjoy separate tax structure, and you can easily transfer ownership of the company; you will enjoy flexibility in ownership and in your management structures.
Catchy Business Name Ideas Suitable for a Micro Money Lending Services Firm
Generally, when it comes to choosing a name for a business, it is expected that you should be creative because whatever name you choose for your business will go a long way to create a perception of what the business represents. Usually it is the norm for people to follow the trend in the industry they intend operating from when naming their business.
If you are considering starting your own micro money lending services firm, here are some catchy names that you can choose from;
- Best Deal Micro Lending House, LLC
- Crestal Boom Micro Money Lending Services, Inc.
- Bernard Campari Securities, LLC
- Micro Lending Solutions, Inc.
- Lego Nick money lending services, LLC
- Fleming Hills micro money Dealing Services Group
- James Capstone micro money lending services, LLC
- Phil Garry Securities Ltd.
- Platform lending services, Inc.
- DMX Lenders, Inc.
- Shannon Stevens Lending House, Inc.
- LMDS Financial Aid services, Inc.
In the United States and in most countries of the world, you can’t operate a business without having some of the basic insurance policy covers that are required by the industry you want to operate from. So, it is imperative to create a budget for insurance policy covers and perhaps consult an insurance broker to guide you in choosing the best and most appropriate insurance policies for your micro money lending services firm.
Here are some of the basic insurance policy covers that you should consider purchasing if you want to start your own micro money lending services firm in the United States of America;
- General insurance
- Risk Insurance
- Credit insurance
- Deposit insurance
- Financial reinsurance
- Lenders mortgage insurance
- Health insurance
- Liability insurance
- Workers compensation
- Overhead expense disability insurance
- Business owner’s policy group insurance
- Payment protection insurance
Intellectual Property Protection/Trademark
If you are considering starting your own micro money lending services firm, usually you may not have any need to file for intellectual property protection/trademark. This is so because the nature of the business makes it possible for you to successfully run the business without having any cause to challenge anybody in court for illegally making use of your company’s intellectual properties.
But if you just want to protect your company’s logo and other documents or software that are unique to you or even jingles and media production concepts, then you can go ahead to file for intellectual property protection. If you want to register your trademark, you are expected to begin the process by filing an application with the USPTO. The final approval of your trademark is subject to the review of attorneys as required by USPTO.
Is Professional Certification Needed to Run a Micro Lending Service?
Aside from the results you produce as it relates to return on investment (ROI), professional certification is one of the main reasons why most micro money lending services firm and financial consultants stand out. If you want to make an impact in the micro money lending services industry, you should work towards acquiring all the needed certifications in your area of specialization.
You are strongly encouraged to pursue professional certifications; it will go a long way to show your commitment towards the business. These are some of the certifications you can work towards achieving if you want to run your own micro money lending services firm;
- Micro-Lending License
- Certificate in Microfinance
Please note that the higher your qualifications and experience (expertise), the easier it is for you to secure high profile money lending deals from corporate clients.
List of Legal Documents You Need to Run a Micro Money Lending Services Firm
The essence of having the necessary documentation in place before launching a business in the United States of America cannot be overemphasized especially a business like micro money lending. It is a fact that you cannot successfully run any business in the United States without the proper documentation. If you do, it won’t be too long before the long arm of the law catches up with you.
These are some of the basic legal documents that you are expected to have in place if you want to legally run your own micro money lending services firm in the United States of America;
- Certificate of Incorporation
- Business License and Certification
- Business Plan
- Non – disclosure Agreement
- Employment Agreement (offer letters)
- Operating Agreement for LLCs
- Insurance Policy
- Consulting contract documents
- Apostille (for those who intend operating beyond the United States of America)
- Company Bylaws
- Insurance Policy
- Memorandum of Understanding (MoU)
Financing Your Micro Money Lending Services Firm
Aside from the required capitalization and pool – funds to invest with, starting micro money lending services firm can be cost effective. Securing a standard office in a good business district, equipping the office and paying your employees are part of what will consume a large chunk of your start-up capital.
No doubt when it comes to financing a business, one of the first things and perhaps the major factor that you should consider is to write a good business plan. If you have a good and workable business plan document in place, you may not have to labor yourself before convincing your bank, investors and your friends to invest in your business.
Here are some of the options you can explore when sourcing for start-up capital for your micro money lending services firm;
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell of shares to interested investors
- Applying for loan from your bank/banks
- Pitching your business idea and applying for business grants and seed funding from donor organizations and angel investors
- Source for soft loans from your family members and your friends.
Choosing a Suitable Location for your Micro Lending Business
Micro money lending services firms and most financial services based type of businesses require that you see physically with your clients hence it must be located in a good location; a location that is prone to both human and vehicular traffic and a location that is at the epicenter of a business district, if indeed you want to attend to loads of clients and maximize profit from the business.
The fact that you can operate your micro money lending services firm from any part of the world does not mean that location has little influence in the success of the business. If you have taken your time to study the micro money lending services firm cum financial consulting industry, you will realize that those firms are willing to pay expensive rents in order to stay in a busy business district; a place where business activities and financial activities are at its peak.
Starting a Micro Money Lending Business – Technical & Manpower Details
On the average, there are no special technology or equipment needed to run this type of business except for customized micro money lending services software and social media management software applications and other financial related software apps. So also, you will definitely need computers/laptops, internet facility, telephone, fax machine and office furniture (chairs, tables, and shelves).
When it comes to choosing between renting and leasing an office space, the size of the micro money lending services firm you want to build, and your entire budget for the business should influence your choice. If you have enough capital to run a standard micro money lending services firm, then you should consider the option of leasing a facility for your office; when you lease, you will be able to work with long term planning, structuring and expansion.
As regards the number of employees that you are expected to kick start the business with, you would need to consider your finance before making the decision. Averagely, you would need a Chief Executive Officer or President (you can occupy this role), an Admin and Human Resource Manager, Funds Manager/Portfolio Manager, Risk Manager, Chief Financial Officer (CFO)/Chief Accounting Officer (CAO), Business Development Executive/marketing Executive, Customer Service Officer or Front Desk Officer, and Accountant.
Over and above, you would need a minimum of 10 to 20 key staff to effectively run a medium scale but standard micro money lending services firm. Please note that there will be times when you are expected to go out of your way to hire experts to help you handle some high profile financial consultancy contracts/jobs especially from big corporations.
If you are just starting out you may not have the financial capacity or required business structure to retain all the professionals that are expected to work with you which is why you should make plans to partner with other financial consultants/experts that operate as freelancers.
The Service Delivery Process Involved in a Micro Money Lending Services Firm
On the average, the way micro money lending services firms work varies from one agency to another, but ideally, a micro money lending services firm is expected to first and foremost build a robust company profile before biding for micro money lending services contracts from corporate organizations, it will give them an edge amongst their competitors.
Micro lenders operate in the same way banks do. They get people to invest with them and pay them interest, while lending out that money to people who ask for loans and charge interest on those loans.
The difference between micro lenders and banks is that banks have a ceiling on the amount of interest they can charge, which is stipulated in the Usury Act. Micro lenders can charge any interest rate they like because of an exemption in the Usury Act.
Despite the fact that micro money lending services is highly risky, it is still a profitable venture hence there is an agreement between the micro money lending services firm and the client as it relates to the commission. Most micro money lending services firms charge based on the amount of money involved and also a fix consultancy/business administrative fees.
It is important to state that a micro money lending services firm may decide to improvise or adopt any business process and structure that will guarantee them good return on investment (ROI) efficiency and flexibility; the above stated business cum services process is not cast on stone.
Starting a Micro Money Lending Business – The Marketing Plan
- Marketing ideas and strategies
As a micro money lending services firm, you would have to prove your worth over and over again before attracting business deals from clients. So, if you have plans to start your own micro money lending services firm, it will pay you to build first build a successful career in the micro money lending services industry.
People and organizations will use your services to help them handle all their financial needs if they know that they can trust you.
So, when you are drafting your marketing plans and strategies for your micro money lending services firm, make sure that you create a compelling personal and company profile. Aside from your qualifications and experience, it is important to clearly state in practical terms what you have been able to achieve in time past as it relates to the business, and the organizations you have worked for in time past. This will help boost your chances in the market place when sourcing for clients/investors.
Here are some of the platforms you can utilize to market your micro money lending services firm;
- Introduce your business by sending introductory letters alongside your brochure to all the corporate organizations, households and international business community in the United States.
- Advertise your business in relevant financial magazines, radio stations and TV stations (make yourself available for micro money lending services related talk shows and interactive sessions on TV and Radios).
- List your business on local directories/yellow pages.
- Attend international financial cum investment expos, seminars, and business fairs et al.
- Create different packages for different category of clients in order to work with their budgets.
- Leverage on the internet to promote your business (when you blog regularly on key issues as it relates to your business, people would consider you an expert in the field).
- Join local chambers of commerce and industries around you with the main aim of networking and marketing your services; you are likely going to get referrals from such networks.
- Engage the services of marketing executives and business developers to carry out direct marketing.
Strategies to Boost Your Brand Awareness and Create a Corporate Identity for your Micro Lending Business
If you are in business and you are not deliberate about boosting you brand awareness and communicating your corporate identity, then you should be ready to take on whatever the society portrays your business to be. One of the secrets of larger corporations is that they are willing to spend fortunes year in and year out to boost their brand awareness and to continue to communicate their corporate identity the way they want people to perceive them to be.
If your intention of starting a micro money lending services firm is to grow the business beyond the city where you are going to be operating from to become a national and international brand, then you must be ready to spend money on promotion and advertisement of your brand.
In promoting your brand and corporate identity, you should leverage on both print and electronic media and also the social media (the internet). As a matter of fact, it is cost effective to use the internet and social media platforms to promote your brand, besides it is pretty much effective and wide reaching.
Another strategy is to sponsor relevant community based programs, TV and radio programs, advertise your business in relevant magazines and newspapers.
Below are the platforms you can leverage on to boost your brand and to promote and advertise your business;
- Place adverts on financial magazines and related newspapers, radio stations and TV stations.
- Encourage the use of word of mouth publicity from your loyal customers.
- Leverage on the internet and social media platforms like; YouTube, Instagram, Facebook, Twitter, LinkedIn, Snapchat, Badoo, Google+ and other platforms to promote your business.
- Ensure that you position your banners and billboards in strategic positions all around your city.
- Distribute your fliers and handbills in target areas in and around your neighborhood.
- Contact corporate organizations, households and international business communities et al by calling them up and informing them of your organization and the micro money lending services you offer.
- Advertise your business in your official website and employ strategies that will help you pull traffic to the site.
- Brand all your official cars and ensure that all your staff members and management staff wears your branded shirt or cap at regular intervals.