Payday loan centres are springing up on every corner, which means that the demand is high. If you can run a legitimate and ethical payday loan business, you'll be ahead of most of your competitors, and you'll have the satisfaction of knowing that you can help people when they need it most. A payday loan business is one that provides short-term loans (such as two weeks), usually for less than £650.
- Skill level:
Decide how you will fund your payday loan business. Since you will be providing loans, albeit small, you'll need sufficient capital to provide all approved customers with the money they need, but without depending on the return to make end's meet. You can also buy a franchise of an existing payday loan business for as little as £16,250.
Determine how large of a loss factor you can tolerate to keep your business afloat. If clients default, how long can you sustain your business without having to shut your doors or turn to alternate sources of funding? This is important to know before you start so you can accept clients accordingly.
Purchase or lease a storefront from which you can provide payday loans. It doesn't need to be a very large office, but it should have enough room for a desk, chair, counter and storage area.
Learn the regulation laws that govern a payday loan business (see Resources below). This industry is highly regulated, and failing to follow the guidelines can result in serious fines.
Write a contract for loans with the help of an attorney. It should contain the terms of the loan, the fees or interest rates, the date the loan is due to be repaid and the consequences for non-payment. The language of this contract is crucial, so make sure you obtain knowledgeable advice.
Advertise your payday loan business in newspapers, on television or on the Internet. Driving customers to your store is the most important thing, so make room in your budget for advertising costs on a weekly or monthly basis.
Decide how you will qualify applicants for loans. Most payday loan businesses don't run credit checks on candidates, but they do have their own screening processes. You should, at a minimum, require a recent pay stub and a copy of the applicant's tax return from the previous year. Additionally, you will need to verify identification, ideally from two sources (e.g. driver license and social security card).
Tips and warnings
- Develop a policy right away for turning down applicants. If you approve everyone who walks through your doors, you'll be dealing with far too much default.
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