Are you interested in starting a payday loan business? Do you need a sample payday loan business plan template? Do you want to do business in the financial services sector? Then I advice you read on.
Because they provide quick cash to people when sudden expenses arise, payday loans are becoming more popular. Payday loan centers are springing up on every corner, which means the demand for payday loans is on the increase.
Now what is a Payday Loan Business?
A payday loan business (also known as cash advance) is one that provides short-term loans (such as two weeks) that are usually less than $1,000. Payday loans are so called because they are expected to be paid back from the borrower’s next paycheck.
If you have some idle funds and you are looking to start a profitable business that requires no professional qualifications and that caters to a wide range of individuals such as students, petty traders, salary earners, etc; then you should consider starting a legitimate and ethical payday loan business.
Aside making money from the business (in the form of interest), you will have the satisfaction of knowing that you can help people when they need it most. This article will explain in details how you can start your payday loan business. But first of all, let’s look at how payday loans work.
How Payday Loan Businesses Work
Imagine this scenario:
Mr. Johnson is driving down to his place of work. Suddenly his car swerves off the road into a ditch by the roadside. Though he was unhurt, the front bumper was badly damaged. While looking for the cause, he discovered that one of the front tires had burst. Aside the damaged bumper, the windscreen by the side, one of the front doors, and the headlamps were all badly damaged.
Upon his examination of the vehicle, Mr. Johnson’s mechanic requested $300 for the repairs. But Mr. Johnson had no more than $100 left with him from the previous month’s earnings. And his next payday is still 2 weeks away. Yet, he had to repair the car, since he drives it to work every day. So, he needed to get the money anyhow.
In the described scenario, Mr. Johnson could easily get a $200 payday loan for two weeks. That way, he would have his car repaired quickly. And once his next salary is paid, he repays the loan along with the specified interest. Having discussed how payday loans work, let’s now look at the steps involved in starting a payday business:
How to Start a Payday Loan Business – Sample Business Plan Template
Firstly, you will need to decide how to fund your payday business. Since you will be providing loans—though small—to customers, you will need to have the funds on ground. You will also need additional funds for running the business without depending on the return from loans.
2. Determine your risk bearing capacity
Secondly, you will need to determine how much loss you can tolerate to keep your business going. If your customers default, how long can you continue to run your business without having to close down or approach alternative sources of funding? This is very important, as it will help you know how to accept clients accordingly.
Your next step is to purchase or lease a location from which you will provide payday loans to customers. It may not be a large office, but it should have enough room for basic equipment that you will need, such as a chair, desk, counter, and storage area.
4. Get with your state regulation agency and obtain the necessary permits
In addition, you must bear in mind that there are regulations that bind the payday loan business. Failing to meet these guidelines can result in serious fines and litigations. So, you will need to learn more about these regulations as they apply in your state or country before taking a plunge.
5. Find an attorney to give your business legal backing
Furthermore, you will need to hire an attorney to help you write a contract for loans. The contract will contain the terms of the loan, the fees or interest rates, the date the loan is due to be repaid, and the consequences of non-payment. The language of the contract is very vital, so ensure that you hire a seasoned professional.
6. Marketing your business should come next
Without this step, no one would know about your business, and you won’t have any customers. So, you should adopt both online and offline marketing strategies. Online marketing strategies include pay-per-click ads, banner ads, forum marketing, social media marketing, classified ads, and so on. Offline platforms you can use to promote your business include newspapers, radio and television, display advertising, and so on.
7. Kick start your payday loan business
Finally, you will need to decide on your criteria for qualifying and disqualifying applicants for loans. Though most payday loan businesses don’t run credit checks on loan applicants, they have their own screening processes which vary among them.
You should, at least require a recent pay stub as well as a copy of the applicant’s tax return for the previous year. You may also need to verify the applicant’s identity from two sources (e.g. international passport and driver’s license).