How to Start Your Own Money Lending Business in Nigeria

How about being self independent, affording things that you wants and helping others? In this article i have prepared a guide on how to start your own money lending Business without stress.

Starting a money lending business is a smart move. This is true due to the desperate need of cash these days. If you want to be competitive, you must concentrate your efforts on a tiny market. It will be better if you start out your business with a minimal budget.

However, you have to make sure your business workplace is well-presented. If not, your clients might be intimidated by the prospect of using your services.

Please be guided, a money lending business could also be referred to as a private money lending business.

So, do you have some spare money to invest in a business that will bring you more profit? If yes, then I recommend private money loan business for you.

We will discuss the benefits and drawbacks of private money lending business. Also we will guide you on how to become a private lender soon as we progress.

What Money Lending Business is All About?

Money Lending Business is the process or act of lending money in form of loans at interest rates. Notwithstanding, it is not as highly regulated as financial organizations like banks, insurance firms, and so on. Some people view private money lending companies as a fake financial institution.

Down here in Nigeria, the money lending sector is governed by the Money Lending Laws of each of the country’s 36 states.

This is in accordance with Section 4 of the Money Lenders’ Law of Lagos State, the constitution clearly state that

a money lender is defined as a person who lends money at a rate of interest or who lends a sum of money in exchange for a bigger sum of money being refunded in the future.

A person, on the other hand, is subject to the terms of the Money Lenders’ Law if they engage in the business of money lending and not to individuals who lend money as a result of their employment or to a small group of friends who are in need. An equity split or return on investment is often received by the private lender in return for their invested capital of a note and mortgage or some other kind of security instrument.

This means that the terms of the private money lending are up to the borrower and the lender. The investor is allowed to set the interest rate or loan terms that are agreed upon between the two parties in this context.

Who Is Eligible To Start Money Lending Business?

It is common for private money loans to be created by somebody you know, such as; a neighbor or a family member.

Anybody that has cash that they don’t use but would like to earn a higher interest rate from can become a private lender.

So who and who is eligible to start amoney lending business? See those eligible below.

  1. Suitable for someone who has a large sum of money in a savings account, earning no interest on it.
  2. An individual with large retirement savings accounts like an IRA or 401k that they desire to expand on a regular basis.
  3. Applicable to someone, who wants to profit from the real estate market, without having to put in any effort.

What are the Pros and Cons of starting a Money Lending Business

Here, I will be sharing with you some of the advantages (pros) and disadvantages (cons) of starting a private loan business.

This is essential to all those who want to invest in this business.

So, before you venture into this money lending business, first, understand the positive and the negative side of the business.

So here we go.

What Are The Advantages of Starting A Money Lending Business?

(1)  It Has Flexible Loan Terms

Do you know, repaying a long-term loan reduces the monthly payment required for repayment? Because SBLCs are not banks and are not regulated by federal or state governments, they are able to offer terms that are tailored to their needs. Additionally, they frequently provide smaller loans with no requirement for a down payment.

(2)  Easy Requirements for Loans

In order to start or grow their businesses, most new small business owners find it difficult to obtain funding from traditional financial institutions.

However, small company loan organizations specifically target these business owners in order to provide finance to them; despite the fact that they have poor credit.

Although there might be a high-interest rate, being granted the funding that is required is the most crucial thing for business owners who are in a tight financial situation.

The Cons of Starting Money Lending Business

(1)  Higher Interest Rates

Personal loans typically have a higher interest rate than other types of loans in order to compensate for the risk involved. The risk rating of a company is one of the most important factors that influence the interest rate. Personal loans have a higher default rate than home or car loans, primarily because there is no asset to pledge as collateral.

(2)  The Problem with Regulation

Basically, there is no regulation of SBLCs by either the federal or state governments. This provides them the freedom to conduct their business in any manner they choose.

Despite the fact that it gives you more flexibility when it comes to their lending criteria, if you have issues with the way they do business, this might get problematic.

The SBA has standards for SBLCs, and if they don’t follow them, they risk having their lending authority withdrawn.

What are the Requirements for starting Money Lending Business in Nigeria?

Now you have discovered the ideal business opportunity which is the money lending business. I believe you are now set to move to take this business to the next level.

Don’t forget, there is more to starting a business than simply registering it with the appropriate government agency.

Of course, anyone can do that. We’ve put together a straightforward guide to getting your micro-lending business up and running without delays.

Hence, the process we have provided will help to guarantee that your new company is well-planned, correctly incorporated. Also, it will help you follow legal orders from the start.

Let’s take a look at the step-by-step requirements for starting a money lending business below.

1. Register Your Business

The first step in establishing a framework for your business is to register it.

The Nigerian government has designated the Corporate Affairs Commission as the official agency for the registration of companies in the country.

You can open a corporate account at any bank of your choice if your firm is registered.

However, clients are more likely to believe you if you have a legal business name. With a registered firm, you have access to a wide range of financial assistance for entrepreneurs. A limited liability corporation with a 20 million share capital is set up to conduct money lending.

To start, go to the CAC website and perform a search for your selected company name on the CAC portal. This is the first step. If the desired name is already taken, you will be notified and given the option to reserve it. Any name that is already taken will be disapproved, and your search for a new one will have to begin all over again.

You can begin the process of incorporating your firm as soon as your proposed business name has been authorized. Entrepreneurs can benefit from ReDahlia’s business support services, which are designed to help them succeed in their endeavors. With ReDahlia, you can complete the entire process online and then obtain your certificate.

I hope you got that point right. Okay, let’s now see the next call to action.

2. Get a Business License

Regulation is an absolute necessity for any business strategy operating in the financial sector. Therefore, a permit from the host government is required.

Only businesses that have been approved by the appropriate government authorities to operate as money lending enterprises are allowed to do so.

Therefore, the fact that a licensed money lending business can successfully pursue court action to recover the principal and accrued interest in the event of a default is further validated by licensing.

Any company strategy that is based in or revolves around the financial industry is subject to some amount of government regulation.

Because of this, you must obtain a license from the government of your host country.

Consequently, licensing also reinforces the fact that, in the event of default (none payments), a licensed money lending business can legally bring a lawsuit to recover both the principal loan and the accumulated interest on it.

How to Get a Business License

1.) You should file an application with any Magistrate Court that has jurisdiction over the area in which you intend to operate your business, along with the required supporting documents:

2.) A cover letter addressed to the Chief Magistrate and written on the Applicant’s letterhead is also required.

3.) CAC Form 2 must be a certified true copy.

4.) CAC Form 7 should be certified.

5.) The Company’s Memorandum and Articles of Association should be made available.

6.) You need a Certificate of Incorporation.

7.) Get the applicant’s tax clearance.

8.) Obtain Clearance from The Commissioner of Police.

9.) Show Evidence of Maintenance of current account with a licensed government financial bank

A Letter, along with Forms B and C, will be given to the Applicant upon the submission of the Application to the Chief Magistrate.

Note this: the purposes of your corporation as stated in its Memorandum of Association must include a financial service or a money lending enterprise. Aside from that, the share capital cannot be less than N20, 000,000.00.

3. Transparency in Business

Businesses in the financial sector are built on a foundation of trust, and therefore should not be treated lightly.

As a result, the importance of operating a money lending business with transparency cannot be overstated.

Transparency in the system, its architecture, and its method of functioning should be established from the outset.

Be spesific as possible. Avoid any type of ambiguity in the mind of the person who is taking money from you in the contract.

The lesser the level of complication, the better for your money loan company’s business.

In the money lending business, trust is the first and most important product you buy and sell. You’ll be able to imprint your brand on the minds of those who see it.

4. Proper Profiling Should Be Done

As your business grows, your KYC framework serves as a foundation for building trust, one of your most valuable assets. If you don’t know who they are, it’s best not to offer your services to them. A snag in your workflow can be caused by improper profiling, which appears to be the foundation of all transactions.

Don’t forget, by using a guarantor, you can avoid the inefficiencies associated with profiling properly. As a result, when reviewing a borrower’s qualifications, make sure they have a guarantor who can act in their place.

5.     Consider Advertising Your Business

When it comes to sales and marketing, a terrible service that has amazing marketing and sales strategy will always win.

For the sake of business, you must spread the word about your money lending venture. Who doesn’t want credit? There is a pressing need in the community that may be filled by a new entrepreneur.

For your money lending business to get traction, you’ll need a website and social media presence. Also, partnering with business assistance platforms and co-working spaces that feature entrepreneurs as members of their community can be beneficial.

6.     Scale Your Business

The technology that powers economies of scale is like the oil that powers a car.

An important consideration when trying to grow a money lending business involves getting involved with Financial Technology (FINTECH).

The FINTECH model has the potential to significantly increase your revenue, especially in today’s digital world.

The fact remains; being in the space does not entail becoming an all-tech entrepreneur.

Programmers and developers can be hired to handle the backend while you handle the front end. Alternatively, you can do both.

Most importantly, you must have a thorough understanding of how your money lending company strategy works on a daily basis.

Other Money Lending Sources

What I am going to share with you is a very common practice among pears nowadays. This in a way has helped small startup businesses grow and even the existing ones as well.

Crowdsourcing

Increasing numbers of small firms are turning to alternative finance in order to meet their short-term financial requirements.

Small businesses are increasingly turning to peer-to-peer lending and crowdsourcing to fund projects that will help them develop.

Web-based funding methods allow businesses to solicit funds from the public and secure funding for anything.

This can be done ranging from; a new piece of equipment or additional inventory to the down payment for an entirely new storefront via crowdsourcing.

I believe you have gotten a popper knowledge of starting a money lending business.

Have this in mind, any entrepreneur planning to enter the money lending market must obtain the necessary licenses to legitimate the organization and ensure absolute legal recourse.

We believe this article has been very useful to you. Just take a moment and share it with your friends on social media. Do not forget, someone might want to go into this business. They will definitely love to see this, and they will be grateful you did.

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