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.