It is said that even the successful among us have some form of debt that they carry at a given moment. But that doesn’t mean that you should borrow without having a clear plan of repaying it. But what if you’re in the lending business, how would you go about it?
There are a number of questions that need answers if you want to get into the money lending business. This is when you start to look at the lenders out there with a different set of eyes. When you are scanning not just the success that comes with it, but also the risks.
So, what are the risks that money lenders encounter? Where exactly do you get the capital from and what are the types of licenses that you need to get? To answer those among, other questions about the business, you need to read below.
Private Money Lenders – What Do They Do?
A private money lender is someone who uses his own capital to lend out to individuals or firms. It is more or less the same way a bank can offer you a loan, but in this scenario, this is a private entity. When you lend your money, you essentially cut out banks.
The money that you as a private lender give out, is normally used for investments by the borrower. And if it is done correctly, the idea of being a money lender has the potential to grow your portfolio significantly. So, how do you start out?
Requirements to Become a Private Money Lender
Establish Your Business
You obviously need to get your business up and running. Get the right documentation for it from the relevant authorities.
Get Insurance for the Business
With this kind of business you need insurance. Consult your insurance provider to find the best cover for this type of business.
Create Your Company Structure
It is important for every company to have a structure in place. With the help of an attorney, set up the structure of your business.
Identify Your Favored Lending Targets
You won’t just be lending out without a clear idea of your target. Identify the right ones that fit your business needs.
Join a Peer-to-Peer Platform
Peer-to-peer platforms are the best place to network and find the right investment for your money lending business. Make sure to utilize this well.
Evaluate Your Potential Business
Before you get into the business, ensure that you evaluate every potential client that you’ll be getting into business with. To succeed, you always need to plan such aspects in advance.
How to Make Money
As a private money lender, there are a number of ways that you can make money. It offers you a host of flexible options as well. See them below.
The first way that you can make money as a lender is through interest. This is the obvious way from all others. You’ll be the one to set the interest rate and for how long as well.
Private money usually has some of the highest interest rates in the market. And since most borrowers expect it, you can make a killing out of it.
if you aren’t looking to make your money from the interest, then you need to consider a joint venture. This is where you agree to share a portion of the final profit.
You can opt for this idea if you’re 100% sure that the deal will be a success. Also, you should be sure that you stand to make way more in the final profit than you would with minor interests.
Another way that you can make money with private money lending is when the borrower wants out. In this case, according to your agreement, there should be an exit fee that the borrower pays to exit the agreement.
At times, if the borrower wants to take longer to pay off the loan, they are supposed to pay an extended exit fee. The exit fee is dependent on when the loan is supposed to be paid in full.
As a money lender, there are a number of opportunities where you can gain – as long as you have the right mindset about the business and have the right strategy. Here’s how you can start out the business with an eye set out towards the future on the whole project.