How to start a small lending business

If you’re interested in starting a small lending business, it can be a great way to earn money and become your own boss. Lending businesses allow you to help other people and small businesses with money needs while making money yourself. 

A small lending business would allow you to loan out smaller sums of money to those in need of funding. About 43% of small businesses apply for loans to support their business. Some of these small businesses struggle to secure funding and, as a result, suffer from poor cash flow. 

This shows that there is a market for small lending businesses. You could offer to fund individuals and small businesses that struggle to get approved at larger institutions. If you’re wondering how to start a small lending business, there are a few things you’ll need to know to get started. 

This guide will cover how to start a small lending business, including: 

• What you’ll need for a small lending business 
• How to set up your small lending business
• How to organise your lending business
• How to market your lending business to find clients 

Knowing how to start a small lending business means knowing what you’ll need to run that business smoothly. 

The most important part of a lending business is the funding. You’ll need money to lend out to your clients, which you will eventually earn interest on. So, to start this business, you will need access to cash. This could come from your savings or from investors that finance your lending business. 

When sourcing financing for your business, consider how you can remain profitable. If you seek investors as a cash source, you will likely need to pay them back with interest. This can reduce your business profits. If you use your savings, you will need to examine how much you want to lend out and how quickly you can start earning money from these services. 

Once you secure a funding source, you can create a business plan to organise your objectives and long-term and short-term goals. By writing a plan for your business, you can understand your mission and work towards it. 

This plan could outline your lending intentions and target market. Who do you want to lend to? Will you focus on small businesses that are struggling to get funding? Will you approach your business with a social cause, such as lending to communities that are struggling? 

Plan how much money you’d like to lend out and determine your interest rate. This can help you understand how much money you can make from your business. 

You’ll also want to examine your startup costs. Though lending businesses don’t usually have many startup costs other than the funding itself, you may want to invest in a good computer, bookkeeping software, loan processing, and marketing. 

To succeed in your lending business, you’ll need to know about the lending industry. This will help you appear professional to clients and reduce risk. You will also want strong financial skills so that you can stay on top of your lending business.

Consider continuing your education in lending and financing by taking a course or attending seminars or conferences. This can teach you important information and trends within the industry. A strong grasp of the lending industry will help you avoid major business losses and lend to clients responsibly. 

An important part of how to start a small lending business is showing people what you can offer them. Consider how you can make yourself trustworthy as a lender. If you can clearly explain your services and how you help borrowers with financial opportunities, you can more easily convince people to use your services. 

Also, consider what you can offer that larger lenders cannot. As a small lending business, your interest rate may be higher than larger firms. But, you may offer better customer service and build stronger personal relationships. 

You’ll need marketing skills to grow your audience and to find clients. With a clear understanding of your target market, you can reach the right audience through digital and physical marketing tactics. Consider where you can find the right people and use your people skills to build relationships and convince potential clients of your services. 

Knowing what you’ll need to get started is just one part of how to start a small lending business. Once you have everything you need, you can set up that business to start earning money. There are a few steps you’ll need to follow. 

You can start by registering your lending business as either a sole trader or limited company. As a sole trader, you’ll be personally liable for your business, while a limited company is a separate legal entity from you. This means you are not personally liable for the business. 

You may also want to register a company name. A unique and memorable name can help build your brand identity and appear professional to clients.  

Next, you’ll need to register to pay your taxes with the HMRC. As a self-employed person, you’ll need to manage your own taxes. If you choose to register as a limited company, you’ll also need to pay corporation tax. Plus, if your lending business may bring in over £85,000 annually, you’ll need to register for VAT.

To run a lending business in the UK, you will need authorisation from the Financial Conduct Authority or FCA. This FCA is a financial regulatory body that operates separately from the UK government. As a lender, you’ll need to follow conduct principles outlined by the FCA. 

You’ll likely also want to read the FCA Perimeter Guidance Manual, so you know what the FCA expects of your business. You can apply for a limited or full permission for your company. In this application, you’ll have to show how you’ll conduct your lending business and deal with different challenges within operations. Apply for permissions through the FCA here.

You may want to seek insurance for your lending business. Consider how you can ensure that the money you lend gets returned to you in a timely manner. You can consider lender protection insurance to ensure that you still receive your money if something happens to the person or business you lend it to.  

You can also look into business insurance to help protect you from risk as a lender. 

Once you know how to start a small lending business, you’ll want to efficiently organise your business for success. A strong business organisation will help you keep track of your clients and finances to grow your business. It can also help ensure your business is profitable.

You can organise your lending operations through business management platforms like Google Workspace or Microsoft 365. These platforms let you keep your contacts, calendars, and documents in one place so that you keep track of everything easily. 

As a lending service, you’ll also need to outline your lending process. Think about how you’ll collect, process, and organise your loans through bookkeeping. 

It will be important to outline your services and terms so you can appear professional and organised. First, determine your loan amounts and interest rates. Then, outline a payment schedule and conditions for each loan. Clearly stating these terms can help clients understand what you offer and what is expected of them when they take out a loan. 

With a lending company, financial management may be more important than in other small businesses. Though you aren’t required to open a business current account unless you register as a limited company, it can help you separate your business finances from your personal ones. 

It will also help you to build credit and streamline your finances. 

The Countingup business account and app lets you easily organise your business account. It automatically categorises business expenses and track your cash flow. It can also automatically update spreadsheets to simplify your lending finances. 

As a lender, you will want to keep your client base and lending amounts organised. This will help you know when a payment is due from a client and when payments are running late. To earn money from lending, you’ll need to ensure that your clients make their payments on time and as agreed. You can learn more about chasing up late payments here. 

Knowing how to start a small lending business means you’ll need to know how to find clients for that business. Marketing your business will be important to its success. 

You can start marketing your business by building a brand identity that reaches your target audience. Your brand is a design and tone that represents your business and makes it memorable. If you remain consistent with your brand, you can build awareness and reach a larger audience. 

You can use design platforms like Canva to create marketing materials for your business, such as logos to business cards. 

A business website will be important to the marketing of your small business. Having a website can make your business more accessible to interested people. If you make the website easy to navigate and consistent with your business brand, potential customers can use it to learn more about your business. 

Make sure your lending business website has your company name, contact information, and services outlined clearly. You can find a website designer to build your website for you, or you can use a platform like Wix, Squarespace, or WordPress to build your own. 

A great way to reach your audience is through social media marketing. If you create profiles and post regularly to platforms like Facebook, LinkedIn, and Twitter, you can build your outreach and find potential clients. 

LinkedIn might be a great platform to focus on for marketing if you want to lend to small businesses. You could also consider posting finance and lending tips to a YouTube channel to appear knowledgeable to potential clients. 

Make sure each of your social media pages is consistent with one another. You can add your business logo and website URL each page to make your business accessible to potential clients. Give yourself a schedule and list content ideas to maintain regular engagement with the platforms. 

Apart from growing your audience through digital marketing, you can create an advertising budget for your lending business. Advertising in local newspapers and magazines will help you reach small businesses nearby that may need funding. 

You can also look for online opportunities for advertising that will reach the people you want to lend to. 

Email newsletters are another great way to spread your business services and regularly update potential clients. These newsletters are easy to subscribe to from your website. Overall, using your marketing skills to grow and engage with your audience will help you find your first lending clients. 

Once you get your small lending business up and running, managing your finances will be crucial to your success.. That’s why thousands of business owners use the Countingup app to make their financial admin easier. 

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here.