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Last Updated on September 5, 2022

How To Start A Money Lending business? There are the best tips for you.

The money lending business is a very profitable venture. It is a socially and economically viable business that is highly self-sustainable. Revenue from the money lending business comes from the paybacks realized from a borrower.

Private lending is in high demand as a borrower will prefer to deal with individuals and organizations rather than traditional financial institutions.

Anybody with an unusual appetite for risk can begin a private lending business. While there are risks involved, the business can also be financially rewarding.

So there is no gain with no pain in this business. There are many private lending companies worldwide that are still in business today because they know how to handle the risks that come with the territory.

This type of business is always attractive to start since you stand to make lots of money. However, for you to begin, you will need to develop your business plan. After which, the next step will be to acquire an operating license from the regulatory authorities.

What is lending?

Before you begin your private money lending business to give loans to a borrower, you will need to understand what lending is. A loan is when a private organization or individual gives private money to a borrower in the financial industry.

In the process of lending, there is usually a type of contract (or agreement) between the lending entity and the borrower.

This agreement shows that the borrower is indebted to the lending organization as they are meant to pay back parts of the loan debt with interest regularly.


The repayment plan for the private money is usually drafted and given to the borrower to sign as part of the agreement.

When the transaction is concluded, the borrower receives the private money and is expected to pay back the full loan plus interest in installments or in full.

What is hard money lending?

Hard money lending is a type of loan obtained using a hard asset like real estate as collateral. Hard money loans are usually different from private money loans since hard money loans have stricter loan conditions than private money loans.

Most times, a hard money lender will use the value of the hard asset to decide the amount of loan and the interest that the borrower is eligible for.

What is private money?

As opposed to hard money, private money involves a less strict form of a loan. Private money essentially refers to the money that is lent by a private lending business to a borrower.

In private money loans, there isn’t usually collateral like a real estate property. Whereas the banks are traditionally good financing sources for big businesses like real estate, purchasing big assets, and others, private lending is provided by private lending organizations or individuals.

Private money loans may come with non-traditional eligibility guidelines. However, private money loans traditionally have higher risks. Therefore the risks involved in private money loans can affect the private lending company/individual and the borrower.

How to start a money lending company

To get your loan company of the ground, you will need to know how to start one. Knowing how to start a loan company goes beyond amassing a large pile of cash and identifying your potential clientele. Knowing how to start a loan company involves doing the right things to make your company a reality.

Things to put together before starting your lending company:

Choose your company’s name

To start giving out loans, you will need to choose a suitable name for your loan company. So, after choosing one, you will need to search for business names to ensure that no one has taken that name. Then you will need to get a business address. Then a phone and business fax number will follow next.

Create a solid business plan

A business plan is ideal for helping you start your company and also helps you keep it afloat. A business plan is mandatory for a business that operates in the money lending niche since there is a high risk. This plan will also help you get investors to invest in the company. The plan will also help you achieve your goals while opening you up to several opportunities along the way.

A comprehensive business plan should come with a minimum list of the following features:

The Executive summary

This will include a description of the business and why you think it will be a successful one. The executive summary is where you detail the company’s mission statement and general information on the company.

Since you are a loan start-up, this part of the plan should explain how your background and experience will help make the business successful.

The description of the company

In this segment, you get to explain the nature of the loan company. You will write down your target market and your new loan company’s needs in the marketplace.

For instance, you may be targeting to cater to the financial needs of young employees. And students in the community who the existing loaning businesses might underserve.

Market Analysis

With market analysis, you should show how well you have performed your research. So, this should include an explanation of the market size and the behaviors of your prospective customers.

For instance, You might be targeting giving out salary loans to workers or business loans to fresh start-ups and other SMEs. You will then describe how you have just a few loan businesses that are currently in this field.

This part also allows you to seek out who your competitors will be. You might also add in their weaknesses and strengths.

Your products and services

This part explains your different loan products. It would be best if you described the benefits of your product line over those of your competitors.

Sales and marketing

This is where you talk about your general selling strategy, and it includes the plans you have to grow. For instance, your growth plans could be to expand your geographical footprint and open more branches. Or you could plan to add more products to your services.

Financial projections

You should be able to forecast your expected finances from the market analysis. This forecast can be for five years.

Funding sources

One important part of the business plan is to choose a reliable funding source. So, this is an essential part of the plan that you need to spend some time here to think about how you will get money to lend to the borrower.

Also, people who use investors to fund their lending operations will need a professional lawyer to create a prospectus shared with the investors. The lawyer should be an expert in the regulation of financial securities.

Drafting your eligibility criteria

The business of private lending does not mean that just because you do not have traditional lending criteria like the banks, you give money to anybody that comes to the office.

Every applicant should be evaluated according to fixed criteria. This process is known as underwriting.

Before you start to give out the loans, you will need to draft out these criteria. Most applicants are generally at risk through a background check on their past financial records. This might include checking their FICO score, income, and their past unpaid debts.

Get good knowledge on how to start a private lending business:

The business of loaning money outcomes with high risk. You might want to learn how to start one. There are also several means of learning how to start a money lending business. You could attend online classes, watch YouTube videos, or go for formal classes/seminars. You need to select the best platform that will be the most rewarding.

Get a lawyer

In this business, a lawyer can be among your closest friends. You certainly need to get one. A lawyer will help incorporate the company, minimize the delay involved in the process and also help you sort out the paperwork.

Get a domain name for your business

The scope of your chosen market will determine the intensity of your marketing efforts. Hence, if you are looking to cast your nets far and wide to get clients from all walks of life, a website is indispensable to your money lending business. You need a website regardless of the size of your company.

Get your business registered

One of the first things to do when you first start a business is to incorporate. You have different options when it comes to going corporate.

They are:

  • Limited liability company,
  • A sole proprietorship, and
  • A corporation.

It would be best if you got legal advice to decide on the best option for your loan company.

Applying for the right licenses

You are expected to apply for an operating license from the regulatory authorities. This could be the state and the apex financial institution in your region. You will need to get permission by getting a license for your money lending company. Your lawyer can help you navigate the legal bureaucracy of this process.

Register the name of your company

Now, apart from getting your business registered, you will need to register the business name. If you have chosen a name for the business which is different from your name, then you need to get this name register to the proper authority. This registered name is known as your “DBA,” which means “doing business as.” The name has to be registered with the state agency or the local government.

Register your company with the SEC

So, if you have taken money from investors to start your company, you will need to register it with the right securities commission. Your lawyer will help you clarify this part.

Get the company’s tax identification number

If your private lending company is not a sole proprietorship, you will need a tax number. This is referred to as an EIN. Your EIN can be obtained from the IRS.

Be familiar with the debt retrieval laws of your region

Lending companies usually use any means necessary to recover their money from a borrower. Before you begin your private lending company, you need to understand the laws that affect money lending and the retrieval of your money.

Starting your money lending business:

Rent an office space

If your loan company is not completely based online, you will need a physical office. You look more professional and trustworthy with a physical address. You can decide to rent a commercial space for your loan company.

Get a bank account

As a private lending company, you will need a bank account to help transact business better. The bank account(s) would be for sending and receiving money. As a new loan start-up, you might need several items to open an account.

You shall be needing the following:

  • A business tax identification number,
  • Your business license,
  • The filing document for your business name,
  • The articles of business incorporation from the corporate affairs.

Always draft out contracts

Before you finalize a loan agreement, you should always make the borrower sign an agreement for the loan. You can get your lawyer to draft out contracts for loan agreements. You could also obtain samples of these loan contracts on the internet.

Marketing and promotional activities

Besides having a website, you must advertise your company to increase your visibility. Your short-term business goals and available budget will determine your advertising.


There are various ways of getting your business out there. You should consider methods that are affordable and effective.

Deciding on the right business model for your loan company

When it comes to choosing the right business models, you have two types to choose from. They are commercial lending and consumer lending.

Commercial lending

This is a type of debt-based loan that is carried between a business and a bank. Commercial lending is usually for a short time. It is something that can be paid back between 30 days and one year.

This type of loan can either be secured with collateral or unsecured. Most businesses usually go for commercial lending to finance machinery purchase, operational costs, and also costs of operating a business.

Consumer Lending

Consumer lending is a situation whereby a borrower gets private money from a money lending business. This private money can be obtained either in unsecured or secured terms.

There are various examples of a borrower getting private money from a lender. Some common examples of consumer lending also include consumer loans, personal loans, refinances, credit cards, mortgages, student loans, and auto loans.

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