Do you want to start a payday loan business online? If YES, here is a complete guide to starting a payday loan business with NO money and no experience.
Okay, so we have provided you an in-depth sample payday loan business plan template. We also took it further by analyzing and drafting a sample payday loan service marketing plan backed up by actionable guerrilla marketing ideas for payday loan businesses. In this article, we will be considering all the requirements for starting a payday loan business. So put on your entrepreneurial hat and let’s proceed.
Why Start a Payday Loan Business Online?
If you live in the United States of America, you will agree that a lot of entrepreneurs are making money from offering loans on payday to workers whose paychecks might not be enough for them to meet their expenditure for the month or if they need quick loan to fix a pressing need or project without going through the rigors they are likely going to be subjected to by their bank or other financial institutions.
Starting a payday loan and check cashing services business can be demanding and risky at the same time, but if you have done your due diligence before attempting a start the business, you are likely not going to run at a loss. First and foremost, you are expected to have an experience in the financial industry. It will do you a world of good to study accountancy or banking and finance if indeed you want to venture into this line of business.
No doubt starting a payday loan and check cashing services business requires reasonable start-up capital, but the fact still remains that it is a profitable venture. It is important to state that payday loan and check cashing services business is a highly risky venture because you stand the chance of getting your money trapped by those who for one reasons or the other won’t be able to pay back the loans they got as at when due.
It is very important that you analyze the existing payday loan and check cashing services business in and outside of your area. Know how many there are. Also, you would be required to check the existing competition, as well as know their strengths and weaknesses.
Knowing the weaknesses of the existing payday loan and check cashing services 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 payday loan and check cashing services business 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 pondering on starting your own payday loan and check cashing services business, but do not know how to go about it, then you should consider going through this article; it will sure give you the needed guide and direction.
Starting a Payday Loan Business Online – A Complete Guide
- Industry Overview
Firms that operate in the Payday Loan and Check Cashing Services industry offer payday loans, installment loans and other related financial services. They may also cash checks, drafts or money orders for the general public. It is important to categorically state that banks and firms that operate exclusively online are not part of the Payday Loan and Check Cashing Services industry. The industry has loads of small business operators servicing a wide range of clients.
The Payday Loan and Check Cashing Services industry is indeed in a mature stage of its growth. The industry is characterized by growth in line with the overall outlook of the economy, consolidation from the largest players in the industry and wholehearted market acceptance of the industry products and services. The payday loan services and check cashing line of business will continue to be in high demand by the general public in the United States.
It cannot be ruled out that the nature of the Payday Loan and Check Cashing Services industry gives room for it to perform well during the recession. This is so because, as consumers struggle during difficult economic times, they use industry services to advance their paychecks or to get quick cash back.
As the economy continues to recover and consumers start to fatten their wallets, there is a likelihood that the demand for the industry’s services will decline. Moreover, industry regulations have been increasing, hampering revenue growth and profit margins for firms in the Payday Loan and Check Cashing Services industry.
The Payday Loan and Check Cashing Services industry is indeed a large industry and pretty much active in most developed countries of the world most especially in the United States of America, United Kingdom, Mexico and Canada et al.
Interesting Statistics About the Payday Loan Business Online
Statistics has it that in the United States of America alone, there are about 14,569 registered and licensed (big, medium scale and small) Payday Loan and Check Cashing Services firm scattered all across the United States responsible for employing about 89,794 people and the industry rakes in a whooping sum of $11 billion annually. The industry is projected to enjoy 1.8 percent annual growth within 2011 and 2016. The establishments with the lion share of the available market in this industry are Cash America International and AARC.
A recent report released by IBISWORLD shows that the Payday Loan and Check Cashing Services industry has relatively low barriers of entry, particularly when compared to other financial services industries. According to Cash America, a new retail location can be ready for business within four to eight weeks after the location and appropriate licenses have been secured.
Total start-up costs generally range from $500,000 to $600,000 for the investment in property and equipment. The report further stated that in Mexico and other international markets, start-up costs are generally less expensive, with the initial required investment ranging from $50,000 to $120,000 due to the smaller size of these locations and lower labor and materials costs.
One thing is certain about starting a payday loan and check cashing services business, if you are able to conduct your market research and feasibility studies, you are more likely not going to struggle to secure clients because there are always clients all across the United States who would need your services from to time.
The fact that payday loan and check cashing services business can easily be found in cities in the United States of America, does not in any way make the industry to be over saturated. The fact that there are people out there who would always need quick loan from time to time makes the business ever green.
Lastly, with payday loan and check cashing services business, you can afford to partner with other smaller firms that are into financial related services. You can partner with tax consulting firms, accounting and auditing firms and human resources consulting firms. The bottom line lies in the fact that if you are have a robust network and you are well positioned, you can indeed maximize profit with your check cashing and payday loan services firm.
Starting a Payday Loan Business Online – Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographics composition of those who require the services of payday loan and check cashing services cut across corporate executives and business owners cum entrepreneurs 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 payday loan and check cashing services business, then you should make it all encompassing. It should include corporate executives, start-ups, entrepreneurs, aspiring entrepreneurs, and casual and full time workers within and outside the city you are operating in.
List of Niche ideas Within the Payday Loan Business That You Can Specialize in
Most payday loan and check cashing service companies tend to operate general services that involve every business activity that a standard payday loan and check cashing Services Company is expected to offer. That is why it seem that there are no niche areas in the industry.
But on the other hand, some payday loan and check cashing services company may decide to major in some key areas or niche area such as;
- Providing payday loans for recurring expenses
- Providing payday loans for unexpected emergencies/expenses
- Providing check cashing services
- Providing payday loans for other reasons
- Loan servicing and administration
- Cash handling and management services for businesses
- Money transmission servicing
- Safe deposit box renting
- Selling money orders and traveler’s checks
- Providing financial advice to individuals and small businesses
The Level of Competition in the Payday Loan and Check Cashing Services Industry
The level of competition in the Payday Loan and Check Cashing Services industry depends largely on your financial base (the liquid cash you can afford to lend out per-time) and how big and organized your payday loan and check cashing services business is.
The truth is that, no matter the level of competition in an industry, if you have done your due diligence and you brand and promote your products or services properly, you will always make headway in the industry. Just ensure you have what it takes to raise capital for your business, know how to reclaim loans from debtors and also figure out how to reach out to your target market (those who need payday loan and check cashing services and can successfully pay back without stress).
List of Well – Known Brands in the Payday Loan Industry
These are some of the leading payday loan and check cashing services business/brands in the United States of America and also in the globe;
- Cash America International
- Speedy Cash
- Finova Financials’ Car Equity Line of Credit
- Tradition Media Group (TMG) Loan Processing
- Ace Cash Express
- Advance America Cash Advance
- One Click Cash
- Blue Trust Loans
- Check Into Cash
- Check ’n Go
- Check City
- Lend Up
- 100 Day Loans
When it comes to starting a business such as payday loan and check cashing services business, you just have to get your feasibility studies and market research right before venturing into the business. It is good to mention that payday loan and check cashing 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 the 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 the services of 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 the long before you break even.
Starting Your Payday Loan Business 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 payday loan and check cashing services firm/brand as against starting from the scratch. Even though it is relatively expensive buying the franchise of an established payday loan and check cashing 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 alternate financial services industry, then you might just want to start your own payday loan and check cashing services business from the scratch.
The truth is that it will pay you in the long run to start your payday loan and check cashing 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.
Possible Threats and Challenges You Will Face When Starting a Payday Loan and Check Cashing Services Business
If you decide to start your own payday loan and check cashing services firm today, one of the major challenge you are going to face is the presence of established payday loan and check cashing service firms, merchant cash advance service firms and also other related financial lending businesses (micro money lending services, micro-finance banks who are offering same services that you intend offering. The only way to avoid this challenge is to create your own market.
Other threats include; unfavorable government policies, fraudulent people who may not want to pay back the loans collected, the arrival of a competitor within your location of operation and global economic downturn which may affect your ability to raise working capital. 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 Payday Loan Business Online – Legal Matters
- Best legal entity to use for a Payday Loan Business Online
When considering starting a payday loan and check cashing services business, the legal entity you choose will go a long way to determine how big the business can grow.
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 payday loan and check cashing services firm. Ordinarily, general partnership should have been the ideal business structure for a small scale payday loan and check cashing 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 a board of directors, shareholders meetings and other managerial formalities.
Catchy Business Name Ideas Suitable for a Payday Loan and Check Cashing Services Business
If you are considering starting your own payday loan and check cashing services firm, here are some catchy names that you can choose from;
- Ends Meet Payday Loan and Check Cashing Services, LLC
- The Loan People Services, Inc.
- Cosmos Lindsay Payday Loan Services, LLC
- Capital Express Payday Loan, Inc.
- Cap It All Cash Advance, LLC
- Team Excel Payday Loan Group
- Future Guaranteed Payday Loan, LLC
- Premier Payday Loan and Check Cashing Ltd.
- Sum Assured Capitals, Inc.
- Life Line Payday Loan and Check Cashing Services, Inc.
- Prime Focus Capitals, Inc.
- Get It Now Funds, Inc.
In the United States of America 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 payday loan and check cashing services firm.
Here are some of the basic insurance policy covers that you should consider purchasing if you want to start your own payday loan and check cashing 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 payday loan and check cashing 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.
Is Professional Certification Needed to Run a Payday Loan Business Online?
Aside from the results you produce as it relates to return on investment (ROI), professional certification is one of the main reasons why most payday loan and check cashing services firms stand out. If you want to make an impact in the payday loan and check cashing services industry, you should work towards acquiring all the needed certifications in your area of specialization.
These are some of the certifications you can work towards achieving if you want to run your own payday loan and check cashing services firm;
- Certified Payday Loan Lenders
- Bbb Certified Payday Loans Operator
- Degree in Finance Related Courses
Please note that you can successfully run a payday loan and check cashing services firm in the United States and in most countries of the world without necessarily acquiring professional certifications as long as you have adequate experience cum background in the financial services industry.
List of Legal Documents You Need to Run a Payday Loan and Check Cashing Services Business
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 such as payday loan and check cashing services firm. It is a fact that you cannot successfully run any business in the United States without the proper documentations.
These are some of the basic legal documents that you are expected to have in place if you want to legally run your own payday loan and check cashing 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 Payday Loan and Check Cashing Services Business
Aside from the required capitalization and pool – funds to invest with, starting a payday loan and check cashing services firm can be expensive. 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.
Here are some of the options you can explore when sourcing for start-up capital for your payday loan and check cashing services firm;
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell 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 Payday Loan Business Online
Payday loan and check cashing services firms and most alternative financial services based type of businesses require that you see physically with your clients hence it must be located in 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 profits from the business.
The fact that you can operate your payday loan and check cashing services firm from any part of the world does not mean that location has little influence on the success of the business. If you have taken your time to study payday loan and check cashing services firms, you will realize that payday loan and check cashing services businesses and related businesses are willing to pay expensive rents in order to stay in a busy business district; a place where business and financial activities are at their peak.
Starting a Payday Loan Business Online – Technical & Manpower Details
On the average, there are no special technologies or equipment needed to run this type of business except for customized loan services software and other financial related software apps and social media management software applications. So also, you will definitely need computers/laptops, internet facilities, 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 payday loan and check cashing 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 firm, then you should consider the option of leasing a facility for your office.
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, Fund Manager/Portfolio Manager, Risk Manager, Accountant, Business Development Executive/Marketing Executive, Loan and Check Cashing Officers, Debt Collectors, and Customer Service Officer or Front Desk Officer.
Over and above, you would need a minimum of 10 to 20 key staff to effectively run a medium scale but standard payday loan and check cashing services firm.
The Service Delivery Process of a Payday Loan and Check Cashing Services Business
On the average, the way payday loan and check cashing services firms work varies from one agency to another, but ideally, a payday loan and check cashing services firm is expected to first and foremost build a robust company profile before sourcing for working capital.
Basically, payday loan and check cashing services firms operate in the same way other micro lending services firms do. They get people to invest with them and pay them interest, while lending out that money to people who ask for loans and charging interest on those loans.
The difference between payday loan and check cashing services firm/cash advance firms/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. Payday loan and check cashing services firm can charge any interest rate they like because of an exemption in the Usury Act.
It is important to state that a payday loan and check cashing 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 Payday Loan Business Online – The Marketing Plan
- Marketing ideas and strategies
As a payday loan and check cashing services firm, you would have to prove your worth over and over again before attracting investors and individuals to give you the needed liquid cash/working capital. So, if you have plans to start your own payday loan and check cashing services firm, it will pay you to first build a successful career in an alternative financial services industry.
People and organizations will only commit their money under your care if they know that they are going to get good returns on their investment.
So, when you are drafting your marketing plans and strategies for your payday loan and check cashing 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 alternative financial services industry and the organizations you have worked for. This will help boost your chances in the market place when sourcing for clients.
Here are some of the platforms you can utilize to market your payday loan and check cashing services firm;
- Introduce your business by sending introductory letters alongside your brochure to all the corporate organizations, households, start-ups, small and medium scale business community in the location you intend operating your business
- Advertise your business in relevant financial magazines, radio stations and TV stations (make yourself available for payday loan and check cashing services related talk shows and interactive sessions on TV and Radio)
- 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 financial needs as it relates to loan and interest rates
- Leverage on the internet to promote your business
- 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
Factors That Will Help You Get the Right Product Pricing
One key factor that will help you offer your services or give out loan with interest rate that is highly attractive is to ensure that you source your working capital from sources that won’t put pressure on you or give you high interest rate.
Another strategy is to ensure that you cut operational cost to the barest minimum and channel your efforts towards marketing and promoting your brand name. Aside from the fact that this strategy will help you save cost, it will also help you get the right pricing for your products and services.
Strategies to Boost Your Payday Loan Brand Awareness and Create Your Corporate Identity
If your intention of starting a payday loan and check cashing 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 the promotion and advertisement of your brand.
In promoting your brand and corporate identity, you should leverage on both the print and electronic media and also 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, start-ups, small and medium scale business communities in the United States et al by calling them up and informing them of your organization and the 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.