NywCafe: loans, lenders articles

It is the second part of the article for those people who want to start their own payday loan or cash advance business. The article contains some common misunderstandings and advice for fresh businessmen in payday lending industry.

Although I have stated it in the first part of the article more than once, I will repeat that I can’t give a quick response to the question how to start own payday lending business.

The purpose of the series of articles is to help people to escape from typical mistakes and to educate them on some basic ideas they should keep in mind when starting up a business. I hope that people, who are reading the article, will understand that starting a business in this industry is a difficult and laborious process that demands a lot of efforts and time. They should examine legislative acts in lending industry, ask for advice from a legal expert and have consultation with a person, who is experienced in payday lending in order to sort out all the necessary information. So, let’s focus on further important facts about payday loan business.

1. Study the legislative acts of your State.

I recommend you to start with “brick and mortar” business model in the State, where you are a resident. Firstly, you should learn and make a copy of all the needed laws of your State. Call the State finance institution and find out how to get a license. Request for what activities the license is needed and what documents you need to provide to receive it. Ask your State advisor as many questions as possible, and don’t be embarrassed by the legal language, he is using in conversation with you.

2. Study how Automated Clearing House processes.

I don’t intend to explain you what ACH transaction means and how does it work. Briefly, it can be defined as a kind of withdrawal or direct deposit, by using which borrowers and lenders can transfer money to their check accounts directly. This procedure reduces the number of defaults, but is rather costly.

Find out what companies exist in your State and what prices and conditions they offer for their services. Tell them in advance that you are a payday lender, because many banks consider payday loans to be harmful to their non-sufficient funds profits. These banks forbid the clearing houses, with which they are cooperating, to deal with payday lenders in any cases. Banks are interested in holding back the operations of payday lending companies, but a great number of automated clearing houses are still cooperating with the lenders.

3. Connect with banks

Visit a bank with which you want to work and where you are going to open an account. It is necessary to inform the bank that you are a future payday lender. Learn about rules and limitations that they establish for you as a potential lender.

Follow the recent news in payday lending industry. Part 3 of the article will be issued soon.

The most frequent question people ask me as an author of a great number of articles about payday lending industry is “How can I start my own payday lending business?” Actually I’m not happy with such a question, because it is very difficult and requires not an easy answer. Moreover, people make a lot of simple mistakes when they are first trying to start their business in cash advance or payday lending industry.

That’s why I decided to write a series of articles, which can give people a common idea about starting payday lending business.

Firstly, before writing business plans and getting start-up capital for the business, you should study and read as much as possible. You must not be lazy to devote a couple of months to attentive networking, reading books and articles about payday lending and conducting life researches. Even if you don’t need a loan, you should go to the local payday lending store and borrow one. By doing this you get information about payday loans that you really need. If you are not ready to spend a little cash for the books, borrow a loan in order to learn more, ask for a legal advice from the lawyer, or network for some time, you would rather choose another business to be engaged in. The payday lending industry doesn’t fit you then.

In the second place, I will tell about most typical misunderstandings, the majority of people have when they are speaking about payday lending industry.

Don’t begin with offering loans via internet

“Why shouldn’t I do it? To create a virtual store is much cheaper than to build or rent a real store. Moreover, you can have much more customers via internet. Why don’t you recommend starting business in such a way?”

It is one of the most interesting questions I receive from my readers. And I want to answer it right now. There are a couple of reasons for trying yourself in a traditional business model.

First of all, you will spend much more money on creating a website than you suppose to spend. There is a high deficit on the domain names, and the appropriate names are really expensive. If you buy it, you should be prepared to spend most of the year to finance a good campaign of search engine optimization and hope that one day your website will appear in popular searches. In addition, if you were a borrower, what page of search results, 1 or 100, will you choose to borrow online from a secure lender? That is the problem. You payday lending website can never highlight on the first pages. As the employees of the big and reputable online companies have told me, the companies’ management spends more than $100,000 monthly in order their websites remain on the first page of the search engines.

So, these facts will probably prevent you from starting the business online.

It is also important for you to know:

1. Customers that are borrowing payday loans online usually have much more defaults than those borrowing from non-virtual stores.

2. If you want to make a fortune quickly, rather than developing more slowly with usual payday loan stores, you need to invest huge sums of money in online stores.

3. Getting a license for your business is rather problematic and costly in the majority of states. But you need this license in order to operate across borders. Mainly because of the possibility of working in other states, businessmen choose online stores. But the most complaints against online payday lenders are addressed to those lenders, who operate in accordance with a model under the name “choice of law”. That means that payday lenders apply the laws of the states, where they are registered, but offer their loans to the residents of other states, where payday lending may be banned at all. Year after year these operations are becoming more risky.

4. You can have problems with collections when engaged in online lending industry. Usually if payday lending is your first business, you don’t know anything about collections practices. So that a lot of people first start with collections and only than come to the payday lending business.

The above mentioned examples show that most people are not right, if they think that internet payday lending business requires less expense and brings more profit.

In the next part of the article I will tell you about some other mistakes and educate you on further issues and guidelines, you must pay attention to, when starting payday lending business. As you have noticed, this topic is not easy. But all businesses are similar, and ones who want to prosper and reach success in future, should find time to study and get a proper education in the required sphere.