How To Start A Money Lending Business: A Complete Guide

Fintech has opened the door to several business opportunities over the past few years. One such opportunity is having your own money lending business.

Money lending has been a traditional source of income for many decades. 

However, with technological advancements, money lending has completely changed. 

Today, starting a money lending business is a lucrative solution as the return on investment is good and the reach is even better.

The impact is such that even the existing financial businesses are moving towards a digital approach and starting their money lending platforms.

If you, too, plan to penetrate the rewarding market, then this is the post for you! In it, we have curated everything you need to know about the money lending market and how to start a money lending business from scratch. 

Before we jump into the details, let’s quickly begin with an overview of the market.

Money Lending Business Overview: Market Size and Key Statistics

The money lending business you may be familiar with allows you to put your extra wealth to work. The entire model of this business is to bring things.

The global lending market was valued at $10.4 trillion in 2023, from where it is expected to reach 14.9 trillion by 2028 and then to $21 trillion by 2033 with a CAGR of 7.49% & 7.06% respectively.

These estimated growth numbers are just a sneak peek into the lucrative market opportunities that it offers.

The digital lending market has certainly fueled growth in the entire money lending business as digitization has expanded its reach by multiple folds. 

Types of Money Lending Businesses – Which One is Better For You?

Money lending businesses have evolved significantly over time. There are different types of lending businesses and each of them caters to different audiences, through different methods. 

Primarily 4 types of money lending businesses are popular among the users. These are –

► Traditional Lending

This is the oldest arrangement of lending money where banks and existing financial institutions like credit unions, banks, etc.

Offer loans to borrowers looking for financial assistance. 

► Peer-To-Peer Lending

A modern way of lending money without having to interact with a bank or a financial institution, peer-to-peer lending allows a user to lend or borrow money directly from individuals. 

► Micro-Lending

It is a type of lending service that several money lending businesses focus on.

These are small loans that are offered to borrowers who often do not meet the lending criteria for traditional lending. 

► Hard Money Lending

Through hard money lending, the loans that are sanctioned to users are solely based on the collateral that they have to offer.

These are asset based loans that do not require creditworthiness. 

As you might have an idea, each of these money lending businesses cater to different borrower needs and risk profiles.

All these methods have dedicated ways to be executed. And understandably starting your own money lending business requires you to identify the niche you want to pursue and the borrowers you plan to cater to.

Steps to Start a Money Lending Business

Now that you are aware of the types of money lending businesses, you can decide on which area to invest your money.

There are a few preliminary steps that you need to take to start your money lending business.

These steps are –

Step 1: Research the Market

Understanding the needs of the market is your first step towards starting your money lending business. The more you know about the targeted audience, the more precise your decisions can be.

The money lending market is a crowded one as there are several different players already catering to different types of users.

Based on this research you will be able to narrow down your target market, which will help you understand the ideal services and products that you should offer through your business.

Step 2: Put Together a Business Plan

Once you have identified the most lucrative and rewarding services that you want to offer through your lending business, it is time to identify ways to monetize them.

Building a business plan helps you identify the roadmap that your money lending business will follow.

This is the step where you outline all the basic processes, identify how you plan to disburse loans, what type of loans you plan to offer, ways you will approach repayments, what will be your plan of action when someone defaults on your loan, etc. 

Step 3: Decide Business Structure

Define the way your company will work. The business structure requires you to clear everything from the registration to the legal structure of how your money lending business will operate.

You can become a sole proprietor, LLC (limited liability company), or partnership based on the arrangement you have. Identifying how you want your business to function defines the business structure.

This is crucial before you start applying for licenses and registration for your money lending businesses. 

Step 4: Registration & Licensing

After you have a business structure, you need to check the registration and licensing regulations of your business.

There are different types of regulations that you have to follow based on the region you plan to operate in. Being a financial institute or a lending institution to be precise, there are several things you need to take into account.

This is a part of setting up your business and company. All the legal requirements must be fulfilled before finalizing the terms and conditions of the services that you plan to provide through money lending. 

Step 5: Setup Lending Platform

Knowing that you now have a well setup business and a registered company, it is time to develop a loan management software platform that your users will use.

Offering lending services has become significantly easier with the implementation of technology.

Connect with a money lending app development company and set up a customer facing platform that expands your reach and allows you to leverage technology for your business.

Money lending applications are certainly taking over the way traditional lending works. 

These steps can help you set up your business and start your journey towards a successful money lending business. 

Finding the right software to support your lending business is crucial. That is because if you plan to go digital, you need to have a robust money lending application that allows you to manage all the aspects of your business.

Latest Trends in the Money Lending Industry

The money lending industry as discussed earlier has evolved significantly. This evolution is the result of ever changing industry trends.

What started with a basic fintech application that served as a platform for lending has now evolved into a full fledged application that offers multiple solutions and different types of loans. 

All of it has been possible thanks to different types of money lending industry trends. These trends can be found in the table below.

With all these loan lending app trends supporting the growth of the industry, the future of the industry is quite promising.

This is also the reason why people are inclined towards a money lending business. 

Modern Technologies Used in the Money Lending Business

Just like every other business, money lending has also seen exponential growth with the introduction of technology.

While it was an issue to track the payments, clearing the terms and conditions, assess credit worthiness, etc. today all of it is automated with the help of customized money lending solutions.

You can use these technologies in your loan lending app tech stack and experience the blend of advanced and modern features. 

Several modern technologies are used in the money lending industry. Some of the crucial ones that you must be aware of are –

♦ Artificial Intelligence

AI in loan lending finds its use cases in profiling the borrower profile diligently and deciding on the creditworthiness of the user.

♦ Cloud Computing

With the help of cloud based solutions, money lending services can be scaled as required to cater thousands of user requests easily. 

♦ Blockchain

The technology helps in enabling borrowers and investors to connect safely, without having to worry about the intermediary. 

♦ Natural Language Processing

NLP helps your money lending application to understand user preferences better offering personalized options. 

♦ Data Analytics

Breaking down all the data that is shared by the user is required to understand the profile and calculate the ROI. Data analytics helps in the same.

The application of technology in money lending businesses has grown significantly, thanks to the digitization of money lending and financial services altogether.

Today, it is easy for anyone to create a P2P lending app and start their business, thanks to the available tech resources. 

Common Mistakes and Solutions in Starting a Money Lending Business

When starting a money lending business, you should be prepared for all the ups and downs that come with the journey.

There are several mistakes to avoid while developing a loan lending app.

Take a look at some of the mistakes that the majority of users make –

1. Lack of Documentation

Launching your own money lending business requires you to have clear documentation with no discrepancies.

The more strong your documentation is, the better your business will be. You see when lending money for clothes, you have to take care of all the technicalities while drafting your lending agreement.

If the contingencies are not stated clearly, there can be a lot of unnecessary complications. 

Solution: Create a dedicated system for documents and follow the same for every application that you receive. Standardize your documentation to ensure you are not missing out on any clause. 

2. Lack of a Credit Evaluation System

When you plan to lend money to others, you should have a dedicated evaluation system.

These dedicated systems allow you to screen a borrower’s profile diligently and understand their creditworthiness. The system is really helpful in deciding the credit line limit for your client.

Some money lenders often make the mistake of not having the right credit evaluation system, which in turn leads to uninvited issues and complications. 

Solution: Find a database while setting up your money lending business and connect it with your digital solution to run through the credit history of your user. Knowing if the profile is correct for lending or not.

3. Not Adhering to Compliances & Regulations

Compliances and regulations are created to ensure that every transaction is done legitimately and there are no limitations to the legality.

However, some businesses make the mistake of bypassing those regulations just to earn more profits or sometimes due to an honest mistake.

Either way not adhering to compliance and regulations is a huge mistake that can often lead to issues in money lending businesses, sometimes even leading to suspension of your license. 

Solution: Understand the requirements of compliances and regulations before starting the business. Different factors vary from city to city, and region to region.

You need to finish the compliance requirements before starting the money lending business. You can even ask a professional to guide you through. 

4. Neglecting the Risks of Investment

When you start a money lending business, or any business for that matter, your goal is to make profits.

The growing numbers in the market of money lending businesses are a clear inspiration for many to jump into the market however people do not analyze the risks of investment.

Money lending businesses require a lot of capital and certainly, when you have invested heavy amounts of money, you need to consider the fact that there are risks involved. 

Solution: Measure all the factors in your business and accordingly make your choice.

Do not simply rely on the growth aspect, also consider the downside of investing in a money lending business and then make an informed decision.

5. Not Spending Enough on Technology

To ensure that your money lending business reaches the right audiences and a large volume of transactions is managed properly, you need to introduce the right technology for proper management.

All types of solutions are required to maintain a proper balance between your services and transaction management.

Businesses often feel that there is no need for tech while managing financial services; however , things have changed, and not spending enough on technology might prove to be a mistake for businesses. 

Solution: Compare and contrast all the existing services and check the involvement of technology in the overall lending application.

Spending money on technology can prove to be a great asset for your business if done in the right way. 

These mistakes often cause your money lending business to collapse even before it starts to soar.

The solutions mentioned however can help you minimize these issues and make your business more and more reliable.

Revenue Model: How a Money Lending Business Make Money

You may be wondering how money lending apps make money. Well, there are several ways a money lending business makes money.

The revenue model of the business states that while it is a capital intensive business, profits can be made if it is executed properly. 

Here are some ways a money lending business makes money –

➤ Interest

The basic concept of lending money survives on the fact that when the borrower returns the money, they pay a certain amount extra as interest.

This extra amount is the direct earning of the lender, which further helps in keeping the business afloat. 

➤ Processing Fees

When offering a loan, there are different processes for instance checking the creditworthiness of the borrower, completing the application, managing the terms of disbursement, etc.

All these processes require dedicated resources and tools that you can easily charge your client for. The processing fee is another way money lending businesses make money. 

➤ Late Payment Charges

In case when a borrower fails to repay the money as agreed, different penalties are levied on them that they have to pay.

These penalties are another way money lending businesses make money. These charges allow a business to maintain the proper payment timeline and help them make up for the lost time. 

➤ Cross-Selling & Advertisements

Even if you have only started as a money lending business, it is not mandatory to stick to it. You can introduce different other services such as an eWallet, banking services, etc.

The same platform can be used to cross sell your other services. Not to mention you can spare advertisement space for other similar services from the spectrum to support your business monetization. 

➤ Subscriptions & Early Access

If you are offering your money lending service through a robust application, you can offer additional features and bundled benefits in the form of a subscription.

This subscription can offer early access to services, better interest rates, monthly credit score updates, etc. to ensure that the user gets worth their money. This makes way for recurring income for your applications. 

The revenue model of a money lending business is a lucrative one provided you have the resources to make the most of it.

A digital application can help you maximize profits as it widens the reach of your business. Needless to say, developing loan lending app is the way to go!

Successful Money Lending Businesses and Their Growth Stories

There are several industry leaders when it comes to the money lending business.

Some of the best loan lending apps inspiring the next generation of money lending apps are listed below –

1. LendingClub

Type of App: Money lending, lending marketplace, P2P lending, banking services. 

Overview: LendingClub offers multiple types of lending products and services such as personal loans, business loans, auto refinancing, patient and education finance loans, etc.

It is a type of peer-to-peer lending platform.

USP: Offers a convenient way to access loans for the users without compromising on security, evaluation, and user trust.

Similar Topics: How To Develop An App Like LendingClub

2. SoFi

Type of App: Banking services, money lending, wealth management.

Overview: SoFi Technologies is an American personal finance company that offers multiple banking products, from lending to investing.

The application is a 360 solution when it comes to managing finances online. 

USP: The app offers all types of necessary banking services and easy lending solutions, all under one roof.

More to Explore: Cost To Develop An App Like SoFi

3. Upstart

Type of App: Loan lending, lending marketplace, AI lending platform.

Overview: One of the only names in the American lending business spectrum that initiated the use of AI in evaluating the creditworthiness of the users, and evaluated the profile on different points other than simply relying on the credit score. 

USP: The application “Upstart” uses AI to identify data points that give better insights into the creditworthiness of the borrower. 

4. Prosper

Type of App: Peer-to-Peer lending app

Overview: Driven by the community, Prosper is a money lending platform that onboards all types of lenders and borrowers to form a community allowing them to fund existing users and borrow from them via loan requests.

USP: Prosper serves as the centralized platform for users looking to invest by lending. This way a borrower can leave a request on the platform and it can be fulfilled. 

5. MoneyLion

Type of App: Budgeting tools, lending apps, investment tools. 

Overview: To develop an app like Moneylion, you need to build a fintech platform that offers a collection of services running from lending cash advances to investment options.

The lending services on the application are vital for beginners as they offer credit building loans.

USP: Helping users build credit and manage their finances easily, MoneyLion is a user friendly platform that does it all.

Different other names such as Funding Circle, Brigit, Affirm,Okash, etc. can be studied to understand the entire money lending industry.

What all of them have in common is their unique approach to making the user’s experience better and offering new features that attract audiences that are suitable for their services.

All these applications can be taken as a case study or a base to start your own money lending business. 

How Nimble AppGenie Can Help You Launch a Money Lending Business

After reading about the current market leaders and the lucrative opportunities that the money lending market has to offer, you may be wondering how to get started.

Well, to help you with your first step, we at Nimble AppGenie are always ready with a technically advanced solution. 

To launch your business, you need a robust fintech solution that supports all the aspects of money lending.

Digitization is one of the most crucial steps in building your business ground up. And we can help you achieve the best results through a customized solution.

With years of experience in building robust money lending solutions and fintech apps, we can help you address the current challenges and needs of the market and craft a customized money lending solution for you. 

Reach out now and start your money lending business today!

Conclusion

Starting a money lending business seems a tough nut to crack as it requires experience with financial services, a lot of capital, and a centralized digital solution. 

However, if you are determined and are willing to invest your time and effort, it can be a great decision to explore the money lending market as it is growing exponentially and offers great opportunities for earning profits. 

Once you have decided on what type of money lending business you want to pursue, there are a series of steps that can guide you through the process of establishing your own money lending business. 

Keep in mind that you should always build an application that supports the latest trends and uses modern technologies. 

Stay away from the common mistakes people usually make while planning their business and focus on ways you can monetize your business. A business in money lending and financial services can be a great investment if done right.

Hope the entire post helps you understand key insights on how to start a money lending business. That will be all for this post. Thanks for reading, good luck!

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Niketan Sharma

Niketan Sharma is the CTO of Nimble AppGenie, a prominent website and mobile app development company in the USA that is delivering excellence with a commitment to boosting business growth & maximizing customer satisfaction. He is a highly motivated individual who helps SMEs and startups grow in this dynamic market with the latest technology and innovation.