If you are in the lending business, or you are considering becoming a lender, there is an avenue that the Rules of Thumb blog from MoneyThumb has yet to discuss when you talk about the subject of lending, and that starting up a microfinance company.
So what exactly is microfinancing? Microfinancing is defined as a provision of financial services available to low-income people. This type of loan is specifically designed for people who could not otherwise get a traditional loan and the amount of the loan is much smaller than a traditional loan. One example of microfinancing for individuals is a payday loan company. People who can't make ends meet borrow money from a microlender at a much higher interest rate with the promise of paying the money back when they get their paycheck.
However, a payday loan company may not be what you are interested in starting. For one thing, a payday loan company usually has a storefront location. For the purposes of this blog post, we will assume that you are more interested in starting an online microfinance company strictly for business loans to entrepreneurs who otherwise would not qualify for a traditional loan.
To help you start your microfinance company, this great article from How to Start an LLC offers a very comprehensive guide on starting a microfinance company, along with advice on how to market it. That article is very long and answers any question you might have about owning a microfinance company. For your reading convenience, we have listed the steps to starting a microfinance company courtesy of that article:
Once you're ready to start your microlending company, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your microlending company is ever sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your microlending company keeps your finances organized and makes your business appear more professional to your customers.
- Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
- Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers. You may even decide that you want a microfinance company that is strictly online, so your website is the whole of your business venture.
By following the advice that the Rules of Thumb blog from MoneyThumb has offered above, you should have a much easier time of getting your microfinance company off the ground. And keep in mind that we offer the perfect tools for you to quickly and seamlessly convert the bank statements and other financial information of prospective clients in the form of our PDF financial file converters. We even have a specific tool created just for lenders. You can take a test drive here.