Preparing to Start the Business
1. Choose a company name.
The first step is to choose a company name and then choose a corporate address. Make sure to get a phone and fax number.
- You should search your state’s business filing office to find out if a name has already been taken.
2. Draft your business plan.
- Executive summary. You will need to briefly describe the nature of your business and why you think it will be successful. The executive summary should contain your mission statement as well as company information. As a startup, you should focus on explaining how your experience and background will contribute to the business’s success.
- Company description. Explain the nature of the business, your intended market, and the market needs your lending business will satisfy. For example, you might want to meet the small loan needs of your community, which are underserved.
- Market analysis. You should explain the size and distinguishing characteristics of your target market. For example, you may want to make small loans to new immigrants in your community seeking to start a business. You would then explain how few lenders have tapped into that market.
- Also identify your competitors and describe their strength or weakness in the market.
- Product line. Describe the loans you want to make. You should explain the advantages of your loans over those of competitor’s.
- Marketing and sales. Discuss your overall sales strategy, including your plans for growth. For example, you may hope to grow geographically, offering your loans to a larger community. Or you might hope to grow by offering additional types of loans to your current market.
- Financial projections. Based on your market analysis, you should forecast your projected finances for five-years out.
3. Settle on financing.
- Some money lenders have dipped into their retirement accounts, such as their IRAs and 401(k) accounts, to fund their loans. Experts encourage money lenders who do this to understand the risks that they are taking. For example, loans might not be repaid, in which case you could lose a large percentage of the loan amount.
- If you seek funding from investors, then you will need to work closely with a lawyer to draft a prospectus to share with investors. State and federal laws tightly regulate how you advertise securities to potential investors. Your lawyer will need to be experienced in securities regulation.
4. Draft underwriting criteria.
- Generally, you will assess risk by gathering information about the loan applicant’s financial history. For example, you would want to look at their income, FICO score, and other debt load.
5. Attend seminars.
6. Meet with a lawyer.
- To find an experienced business lawyer, you can visit your state’s bar association website, which should run a referral program.
- You can research any attorney by visiting his or her website. Look for experience with business formation, as well as banking or lending experience. If you are starting a lending business for real estate, then look for an attorney who has real estate experience as well.