The common denominator for almost every type of business imaginable is money, and for the most part, it is bringing money into the business. However, there are a few businesses that are on the giving end of cash. Lending businesses rely on others needing money to earn their profit. Discover how companies who lend money operate strategically and under strict compliance guidelines and some tips and tricks for creating a lending business.
Although technology has benefited almost all industries, one thing that remains true about the lending business is that they have a blueprint and a compliance checklist. Things like character, collateral, and capital are essential parts of what lenders look for in borrowers. They want to know that borrowers are trustworthy and won’t be a risk if they loan them money. Lenders know that assessing almost all parts of the borrower’s past financial history is vital for their business.
However, other tips and tricks for creating a lending business are:
Have an underwriting criteria.
Borrowers from all walks of life will come into your business for loans. No two loan applications will be the same. No two circumstances for needing to borrow will be the same. No two applicants will have the same debt to income ratios. No two applicants will have the same credit score or issues regarding their credit history.
Ensuring that your underwriting criteria is fair and unbiased may be a challenging situation for a new lending company. Managing it all can be easier with the help of online lending solutions. This is a technology that makes the underwriting process smoother. It takes away the risk of having employees personally assess and decide each application. These solutions take away the pressure of personal feelings involved in the loan decision making process altogether.
Keep business local.
Deciding where to open your office is vital since it is best to loan money to those within 100 miles of your office. One of the main reasons lenders do better when they are local is because businesses are looking to borrow as well as individuals. Both want to save money and believe they do better using local companies.
Another reason is that borrowers enjoy the personalized service. If they are local, they can come into your office and develop a lasting personal relationship. Starting your business in an up-and-coming community will help lenders and clients interactions due to proximity.
Lastly, keeping business local as a lending service keeps the money you lend to your local economy. Whether the loan is personal or business, devoting it to the local community enhances and builds that community.
Transparency is the biggest trust-builder in the lending process. At every stage, you will be educating the potential buyers about the process. It is a way of sharing realistic expectations and helps the borrower anticipate where things are. In addition to building trust, being transparent also provides clarity about the details of the loan. That means that the more information shared during the process, the more clarity to borrowers about the status. Setting honest expectations on both sides of the loan is vital for the lender and borrower.
Be prepared to go further.
After honest and valiant efforts to disburse loans, the fact of the matter is that all loans will not be approved. Whatever the reason, many don’t lose the desire to do whatever they want to do with the borrowed money. Most times, denied loans get based on collections, bankruptcy, foreclosure, too many credit inquiries, or cash.
Therefore, be prepared to coach, mentor, and consult when loans are not approved. There isn’t much that cannot be overcome that makes someone ineligible for a loan if they are working and otherwise a productive citizen. Working with someone in your community to help them establish credit, repair credit, or pay down debt is a small price for building in your community.
Technology has benefited almost all industries, but lending businesses still have a blueprint and a compliance checklist. Old fashioned criteria and compliance guidelines remain essential for processing loans. Some other tips and tricks for creating a lending business are listed above. Following them will give your lending business a great start to building your community.