How to set up your own loans company
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The loans industry in the UK has grown significantly over the last decade. A combination of UK banks having a stricter lending policy and the evolution of the Internet has seen the payday loans industry, guarantor loan and peer-to-peer lending industry soar to a value worth over a combined £4 billion. (Source: BBC, This is Money, The Independent) with payday worth £2 billion in its own right.
So for whatever kind of loans you are offering, we give an insight into how to set up your own loans company and the different teams involved.
Read here about the different loan management softwares.
Creating a Store Front or Website
There are several lenders in the UK which have a storefront – so a customer can walk into the store on the high street, fill in an application form and if approved, they can leave with money on the same day. To give an example, Loans2Go have almost 100 stores around the UK.
If this is the type of service you wish to offer, you will want to set up your loan store in an area where there is a demand and the relevant footfall. Targeting affluent areas may not be suitable but areas where there are a lot of people passing through or a variety of demographics may be better.
Alternatively, most lenders set up their businesses online and this includes having a ‘front-end website’ where customers can see who you are, what you do and also make an application online. A ‘back-end system’ must be present in order to process all the applications that come in and store all the relevant details.
You don’t necessarily have to build your own software – there are several companies which provide the entire back-end system including application form, decision engine and funding process.
Your website definitely needs to be secure as you are dealing with the public’s person details and there are serious risks if this information gets into the wrong hands. The least you can do is put your website on a secure server so it starts with https, like our own website.
What is your USP?
When you set up a lender business, you need to consider what will make your proposition different or what is your USP (unique selling point). Will you offer a competitive APR? Will you provide short term or long-term loans? Will you provide loans to those with good or bad credit?
For instance, if you wish to sell guarantor loans, you will need to decide whether you offer loans to tenants or homeowners or both.
Such decisions will have an impact on the size of your market, your marketing material and potential for growth. Requiring guarantors as part of the process may limit the number of people you can potentially reach as most borrower may not want guarantors. However, this could mean that you could be more competitive on price as having a guarantor reduces the risk for lenders.
Having a USP will also allow you to create a criteria for your loans so you can decide whether applicants need to be a certain age, credit history and employment status. Every lender has their own criteria so this is something to consider and you can always change it as you go.
When branding your business, you want to have a name and image that is relevant and will allow people to take your business seriously – and finding that balance is key.
Using characters or animations can work if used tastefully but if not, it can degrade your business. Successful loan companies will try put borrower’s at ease through the use of branding elements which is why having a backdrop of clouds or the ocean is very popular. Some of the best names around include Ocean Finance, Fair Finance and Sunny Loans.
Most lenders will have a customer support team available by email, phone or Live Chat to take queries from customers and help with basic questions like eligibility and other aspects of the application.
Customer agents should have good people skills and be able to provide useful information, be patient, easy to talk to and be reassuring. They will typically be required to read from a script that has been approved by the senior staff and is compliant with responsible lending.
Sometimes the customer support agents will double up their duties as underwriters or collection agents, as discussed below.
Underwriting refers to the steps taken by the lender when deciding whether or not to approve a loan. Every lender will have a certain criteria of who they lend to based on things like credit score, affordability and loan history.
The underwriters tend to have strong risk and analytical skills when reviewing applications and other information such as customer pay-slips and bank statements.
For some lenders, the loan decision will be decided manually by an underwriter or by an algorithm that is overseen by the underwriter.
Every lender will have a collections team made up of customer service agents who follow up customers for payments that didn’t go through.
For some customers, their payment might have failed due to a card error or due to a lack of funds. So a collection agent will try recover debt using their phone headset and sending out follow-up letters.
Finally, the most important thing about setting up as a lender in the UK is to have proper authorisation from the relevant governing bodies. You will be required to apply for a license and display the number clearly on your website and every document. There is a list of responsible lending and treating customers fairly guidelines which must be adhered to by all staff in order to trade legally as a lender in the UK.
Setting up a loans company does not require too many people. You will be surprised that some of the biggest lenders in the UK have less than a dozen people in their offices.
The most important factors are making sure that you have the regulation and authorisation in place so that you can issues loans in the UK. Furthermore, one must ensure that they follow a strict responsible lending and treating customers fairly policy and that this culture is instilled and implemented by the rest of the staff.