One of the most common questions I encounter as a writer for the Payday Lending industry, in one form or another, is “How do I start a Payday Loan operation?”. In fact, I almost dread the question at this point, because in my opinion it represents a hunt for an easy answer to a difficult question. On top of that, there are so many common mistakes that people make when first considering getting into the Payday Loan or “Cash Advance” industry.
Which is why I wanted to post a “response” to the question of “How to Start A Payday Loan Business….”
First of all, before getting anywhere near the ACTION of actually starting a Payday Loan business (PDL) I would encourage you to read and learn as much as you possibly can. Expect to spend months of dedicated reading, networking, and even (wait for it….) REAL LIFE RESEARCH!! Go to a local PDL business and get a loan, even though you don’t need one. Ask as many questions as possible. If you’re not prepared to invest the little $$ it will take to buy books on the industry, take out loans yourself for the education, pay for legal advice, and to spend real time networking then this industry is not for you.
Secondly, I will respond to nearly 90% of peoples first and most common misconception.
DO NOT START with internet lending.
“Why not? It’s cheaper than starting a “brick and mortar” store, and you can reach so many more customers! Why on earth would you encourage me NOT to start there, Gabe?”
Great question “readers”, let me go ahead and jump right on that one. There are several reasons why you should first “cut your teeth” in a brick and mortar model.
First off, setting up a direct online lending site is probably more costly then you would imagine. The domain names are very scarce, and decent ones are EXPENSIVE! If you purchase one, expect to spend the better part of a year investing in an aggressive SEO (search engine optimization) campaign in order to hopefully someday get your site popping up in popular related searches… After all, if you wanted an online loan would you go to page 1 or 100 of a search of “bad credit loan online”? That’s what I thought. Your site could possibly NEVER get close to 100. The big companies (I’ve heard from insiders!) are spending up to over $100,000 PER MONTH on SEO to keep a foothold on that page 1 spot!
So that leaves you “purchasing” leads to fund online.
Also…..
-online loans tend to default MUCH higher.
-you need MUCH more $$$ to fund online loans, if you actually get to the point of bringing in the amount of applications you desire, as opposed to growing slowly with a brick and mortar location.
-it is costly and difficult to get licensed in multiple states, in order to safely lend across multiple state borders. After all, that’s the point of online lending as opposed to starting a storefront, right? Well, the majority of lawsuits against online lenders is against those using the “choice of law” model, meaning they follow their own states PDL laws, while lending online across state borders. More and more, this is becoming VERY risky!
-collections can be VERY difficult for online loans. Also, if you START with internet lending, you probably aren’t any good at collecting yet (unless you are coming into the PDL industry from the collections business, as many often do!)
That said, you can see why many peoples first mistake is assuming that getting into online lending will be more profitable, and cheaper to start.
The next part of this series will focus on some other common mistakes, and will guide you to the proper channels and topics to immerse yourself in while considering starting your own Payday Loan business. As you can see, there is no “quick” answer. But like any other business, those who take the proper time to educate and prepare themselves, will generally be the ones to rise above and prosper in the long-term. There is no substitute for knowledge and preparation in this industry!!
