Starting A Micro Loan Business

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Professional lending companies may think that micro loans are only for experts, but the truth is that with some good record keeping, thoughtful planning and elbow grease, any individual can start a micro loan business on their own.

1. Pick a Cause

When starting a micro loan business, you should establish a mission and determine what collectives or groups of individual entrepreneurs they want to cater to. Activity-based micro credit can target small companies such as fishery, agricultural operations or textile-based start-up companies. They can be gender specific as well such as helping women establish home-based businesses.

2. Secure Adequate Capitalization

A capital requirement will often be based on the scope and amount of annual lending. Some alternatives for financing a for-profit company include venture capital, small business loans and the owner’s personal financial resources. If you’re starting a micro loan business as a non-profit organization, federal grants may be available through agencies such as the U.S. Department of Agriculture.

3. Create Lending Terms

Credit systems for micro loan businesses are based on requirements found in traditional banking. The applicant’s income-generating enterprises should make it viable to repay the loan. The economic and social background of a potential customer requires a long-term commitment for a more progressive attitude from the lender.

Accordingly, micro loan companies should focus on factors that determine an applicant’s existing operation’s or business plan’s ability to generate the income needed to repay the loan. Loans could start from $112 up to $335 with 3 to 5 percent interest per month.

Aside from the interest, you should charge another 5 percent as a service fee in order to cover your overhead costs. You should also create payment terms from two to six months. The advisable schemes are weekly and daily. However, payments can also be scheduled once a month or every payday.

4. Hire Quality Personnel

You should hire staff that has relevant experience and education in small business assessment and financial lending. They should bring respect and creativity to the mission. Look for individuals who have experience in micro-lending environments.

Aside from that, you should make sure that they have effective customer skills and are able to properly initiate the objective factors that the organization has developed in evaluating lending applications. If there is an enterprise component included, you should hire staff that have teaching experience in a business-related course and preferably have self-employment or entrepreneurial skills that provide real world applications to businesses.

The Bottom Line

There will be always a big demand for small loans. With this in mind, starting a micro loan business helps you be well placed to meet this need. You are not only providing start-up capital but also having a huge impact on other peoples’ lives.

References:
http://www.ehow.com/how_8106213_start-up-microfinance-company.html
http://www.pinoybisnes.com/money-making-business-ideas/how-to-start-a-microlending-business/