How to start a micro lending business

People in times of crisis would try to do anything to extend the budget. But budgeting can only extend the budget so much that is why we hear teachers selling longanisa, others would put up small homes businesses like sari sari store, join MLM of certain products like Avon and others. Many would try the internet to look for husbands overseas hoping to marry a rich foreigner, and others with skill and courage would apply for jobs overseas. But when the need for money is immediate – most people would go to credit lending agencies.

This is what the whole post is all about. How to start a micro lending business to meet the lending needs of many of our kababayans. Generally, lending firms are more lenient in their requirements, offer lower interest rates, and process loan applications faster. You're immediate competition is the predatory lending of Bombays that offers 5-6. We suggest you offer lower lending rates, preferably 5% or less.

Here are some information and advices:

1. A credit lending business can be a single proprietorship, partnership, or corporation. You cannot use the word "lending" or "finance" in your business name if you set up your lending business as a single proprietorship or partnership. You can only use those words only if your company is a corporation. A corporation has advantages that a single proprietorship or a partnership doesn't have.

2. You need to raise the required minimum capital of P1 million and then register your business with the Securities and Exchange Commission or SEC (www.sec.gov.ph). The usual permits and documents required in setting up a business will be required i.e. Mayor's permit, certification from the Bureau of Internal Revenue (BIR), and Social Security System, Philhealth, and Pag-IBIG coverage for the people you will be employing in the business.

3. In micro-lending without quasi-banking activities, may cater to employees, pensioners, sari-sari store owners, market stall-holders, and OFWs. OFWs usually require bigger loan amounts that start at P50,000, but it is advisable for start-ups to lend smaller amounts with short payment terms. This will make repayments faster and enable you to loan out money to more borrowers.

4. Micro-lending usually doesn't require collateral from the borrower. It only requires the borrower and the co-maker to sign a promissory note and submit other documents. However, for loans of P50,000 and higher, you should ask for collateral from the borrower. Any item that is of value can be used as collateral, such as jewelry, real estate, or vehicle, for as long as the borrower owns it. If the business of credit lending have grown you may have to think about asset based lending or home lending or vehicle lending. Credit lending with collateral is much safer.

5. You can start this business with three employees: one to take care of releasing loans, a second to collect payments, and a third either as bookkeeper or accountant on retainer.

There you go. If you are an OFW that just returned from overseas and is looking for a lucrative business, you can try micro-lending that offers reasonable lending rates.

Good Luck.