How to Start a Payday Loan Business
Acquireo Team - Director of Marketing, Acquireo.com
One of the newest businesses that have become a feature in most cities is the rapid growth of the payday loan business. These lending companies make loans against a person’s pay day check, their pension check or their Social Security check. The customer writes a check for the amount that will be due on the day of the coming check and pays the loan and the interest. Since this is a high-risk loan due to the clients and the chances of not getting paid or paid on time, the interest that can be charged is extremely high compared with a standard bank loan. The clients as a rule are people who cannot get loans from banks or credit unions. Most of the clients will pay the loan, if their employment is not interrupted. The interest rate per $100 borrowed can be as low as $15 and as high as $75 per $100 in the state of Missouri for a 30-day loan. The amount that can legally be charged depends on each state’s laws.
Two ways to get into this business
A person can start a payday loan business from scratch or buy an existing business or franchise. The startup costs includes setting up a retail shop, office furnishings, fast Internet connection, computer and a reasonable amount of cash for lending. If an existing business is purchased, the plus factor is the business has a client base. The client base is important, as many of these borrowers will be repeat customers for a surprisingly long number of months. They will pay off the loan and then come back in a few months and do it again. These customers usually have a very good source of funds like a pension or SS.
The return on investment is very high and is not without a substantial risk. The rule is being tough on whom you lend too and be very quick to find out why a payment was missed or late. Many of these clients will have more than one of these loans out at a time. Since credit checks are not usually run, the lender cannot look at this factor. It is wise to ask the borrower if they have other loans out.
The idea for these companies is that people, who do not have a good banking relationship, will have emergencies that will require a short-term loan. This is the stated purpose of these companies. However in real life these lending companies become like a bank to people who cannot get a bank loan. A well runs payday loan company can make a substantial return on the money that is loaned out to the customers.
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A business that demands good people skills
Payday lending requires solid training of the staff to make sure that the employees follow all applicable laws. The fines for not following the state laws are substantial. Another reason for good people skills is the enter-action between customers and the business will be determined by how the customer is treated if there is a problem. Collecting delinquent accounts is part of the business and the success in this area will directly affect the profit of the company. Rapport with the customer will go along way toward the customer being willing to work through a problem area like loss of job or sudden illness.
People who are clients of a Payday loan company are lacking in credit standing, but are just in a bad place and cannot use normal borrowing methods that are open to people with good credit. Treating them with respect will go along way toward making them feel obligated to paying you off as soon as possible. They will also be more forthcoming if a problem does happen. Training your people to treat the customers well will pay dividends over time.
Location and referrals
Use your customer base to get more customers. Referrals are one sure way that existing customers can help to grow your business. Give them an incentive to recommend you to their friends. A spiff for them and the referred person will make getting new customers an easier proposition.
Your location in a high foot traffic area will be very helpful as it is with any retail business. A shop with no other attractions near it will have to do much more advertising to bring in the customers. Coupons that are mailed individually or in coupon letters of flyers will get a small return based on the number sent out. Insets and asking old customers for referrals will probably get a better response.
Payday loan businesses fill a need and are also very lucrative to the owner. The high return on money that is out on loan can return a significant profit if some care is exercised on whom the loans are made to by a strict loan policy. Checking accounts and debit cards are a solid sign of stability. Fixed income clients are also good potential customers, as their money flow will not be disrupted. Home ownership and length of time at one bank will also be an indication of stability.
Repeat customers are like gold to this type of business. You have a history with them and you can expect it to be satisfactory in the future. Lack of credit is the biggest factor that drives people to use these companies to borrow money. The result is you are dealing with a higher risk client, but you can also make more money on the money you lend out to the customers. Some loss factor must be built into the business plan. However a good pre-loan interview will help to keep losses at a minimum. The Internet is a good place to get further information on this type of business.
Existing Check cashing Businesses for sale may be viewed at http://www.acquireo.com/tag/check-cashing-page-2.aspx