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How to Start an Online Lending Business in 2022?

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Running a money lending business can be highly profitable and acceptably challenging to manage. In this article, we are going to provide you with informative recommendations on how to start an online, offline, or hybrid loan business, and consider things to consider before investing in alternative lending.

Being well-aware of the basics, you can minimize risks and raise higher profits.

Selecting a business model

The first thing to decide is whether you want to operate in consumer lending or commercial lending, or would like to launch a P2P investment platform. Each of these options may require quality loan software and has its specifics.

1. Consumer lending

The loans are granted to individuals on a secured or unsecured basis. Consumer lending includes mortgage, auto lending, student loans, personal loans, revolving credit lines, POS lending, and Buy Now Pay Later programs. The latter two are more complicated to launch a startup with, while they require technical and certain financial integration with retailers or service providers. Most often, alternative lenders provide financing for personal needs, car, or real estate purchases.

2. Commercial lending

Launching a commercial lending company means providing business financing, which is either unsecured or secured by collateral. This lending type is usually associated with extensive documentation management, while the loan officers need to manage contracts, collateral, invoices, and other documents to make sure the loan has a high chance to be repaid after the disbursement.

3. P2P lending

Peer-to-peer lending may imply either the consumer or commercial lending depending on the business model. Businesses build marketplaces to help lenders and borrowers help each other indirectly. P2P lending investors provide their capital and receive remuneration, while borrowers get financing from a convenient platform. The liabilities of all three parties are regulated separately.

Within three major areas suitable for online lending business, you can narrow down the business area. For example, you may want to go for offering online term loans, SBA microloans, or personal loans for business. Most loan businesses decide to start from consumer loans, while commercial loans are paid off in longer periods and may appear less profitable. However, consumer lending is usually associated with higher risks.

Business planning session

How a loan company business plan should look like

To start a successful loan company it would be great to gather with a few like-minded investors and create a business plan.

A comprehensive business plan should contain the executive summary of your business, the target markets, strategy, and operational costs. Also, you may want to conduct market research and analysis to understand competitors, get an idea of projected revenues, challenges, and demands. At this point, it would be important to consider if you need lending software for automation and reducing labor costs.

How to choose lending software?

There are many options for aspiring lenders out there, and the key choice is between the custom and out-of-the-box lending software.

Custom software is most often used as bank loan software and has the potential to better adapt to your business needs. It is developed after a careful business analysis of the business

The out-of-the-box or readymade loan management software has a shorter time-to-market, covers up to 90% of the loan lifecycle by automating the operations, and is a lot more affordable. This is especially important for startups that lack financing at the initial stage.

The proper software can help lenders with creating new loan products in a click, receive online applications and process them, collect documents, set up disbursement, and accept payments.

What lending business owners need to consider before launching an online loan company?

  • Leaders need to have a great understanding of federal regulations and state laws and consult attorneys if any doubts arise. This will help at the stage of the business plan as well as on the stage of lending software development.
  • Plan out well the capital and the operational funds by using your own funds or attracting investors.
  • Consider merchant services and integrations for accepting online payments and making online disbursements. An experienced software vendor can help you with that.
  • Launch a website. Sometimes it requires separate development services, but sometimes lending software companies offer a web portal for customer acquisition as a bonus, for example, HES FinTech has this option.

Online lending

The Bottom Line

Starting and owning an online lending company is a highly promising business type in the years after the pandemic, while so many people are used to online services and are willing to receive financing without leaving their homes.

The ROI in the online lending business is high compared to other businesses, so if you have this idea – start working on the business plan today before your competitors use this opportunity.

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What to keep in mind when updating your business plan

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Why, when and how

Did you know updating your business plan should be a part of your regular business practices? If not, don’t worry — a lot of people skip this step. But it could benefit you to make this effort.

Read on to learn why updating your business plan is so important, how to tackle this task, how often you should make updates, and key things to keep in mind.

Let’s get to it!

Why should you update your business plan?

Black and white photo of man looking at laptop screen
Image source: Unsplash

Outside of updating your business plan as a standard course of doing business (which we’ll discuss in detail shortly), there are a few noteworthy situations that warrant a full business plan overhaul:

You need to raise funds

If you need capital to make tech upgrades, grow your team, or expand operations, you’ll likely need to raise funds. Before you can reach out to new investors, however, your business plan must be up-to-date and reflect your company’s current financial situation, including operating costs, cash flow, business goals, and income projections.

Related: 10 small business funding options

You want to refinance

Similar to potential fundraising moves, refinancing your business loans requires an updated business plan because it outlines operating costs, your company’s challenges, and forecasted revenue. No lender will entertain refinancing or even new loans without an updated business plan and financials.

You want to launch a new product

Big business moves necessitate an updated business plan and launching a new product or service qualifies. A new product means new potential revenue, so updating your business plan to reflect that fresh revenue stream is critical. Be sure to include everything you would’ve when writing your business plan the first time around — like costs, vendors, time frames, target demographic/segmentation, and financial projections.

You want to expand your company

Company expansion can take many forms. Perhaps you’d like to open up a second location in another city. Maybe you want to purchase more warehouse space for your products. Large technological upgrades are considered expansions, too. No matter what type of growth you have in mind for your business, updating your business plan to reflect this intention to grow is a key step before reaching out to investors and potential lenders.

You’ve changed your supply chain

Supply chain issues have become an acute problem since 2020. However, there has always been a need to update business plans to reflect changes in the supply chain and/or a change in the vendors you decide to use. Any time you make changes to your vendor list, put updating your business plan on your schedule.

Related: How to overcome supply chain challenges in 2022

You have new competitors

If a new major competitor enters your industry, it’s likely to affect how you do business. Whether that means your share of the industry “pie,” so to speak, decreases, or it means a new brand changes the expectations for your industry and you need to now follow suit — a  business plan update is in the cards to reflect these changes.

When and how often should you update your business plan?

As you can likely see by now, updating your business plan is an essential part of having a business plan in the first place.

It’s a dynamic document that needs to be updated to meet where your business is at right now.

Though you don’t need to update your business plan to reflect every little change, making regular updates is a solid business practice.

If your company is chugging along with no major changes, giving your business plan the once-over at least once a year should be sufficient for updating financial data and projections. However, if your company undergoes a major shift, you’ll want to update your business model when you expect that change to occur.

How to update your business plan

Close-up of person looking at charts next to smartphoneClose-up of person looking at charts next to smartphone
Image source: Unsplash

Now that you have a sense of how often you should update your business plan and why you need to do so in the first place, let’s turn our attention to the real meat of this article: how to update your business plan. Here are six key things to keep in mind when updating this most important document.

1. Make updating your business plan part of your regular review process

One of the biggest obstacles to updating a business plan is scheduling the time to do it. Business owners are busy people, and it’s all too tempting to leave these sorts of tasks until tomorrow. However, you can get around this by simply incorporating a business model review into other processes you already complete.

If your company does quarterly financial reviews, add in a business plan review during this time. You’ll already be taking time away from day-to-day business operations to complete the financial review, so you might as well spend a couple of extra hours updating your business plan.

You could even schedule it for when you do your taxes or prep documents to send to your accountant. Add the business plan update to your to-do list for those days.

2. Include your team in the process

If you have any kind of team for your business, you must include them in this process. They are likely involved with the day-to-day functions of operating your business and can provide key insights into what the future of your company looks like. For example:

  • Ask the marketing team for reports on trends they’ve noticed over the past six months or so.
  • Ask sales about any demographic shifts they’re noticing in the customer base.

Those who are doing work within your industry daily are going to feel the subtle shifts within the market before anybody else. And they might have insights into what projections look like — things that you might not come up with on your own.

Leveraging your team means getting a more complete picture of what your company has accomplished, how it’s currently positioned, and where it will go from here.

Pro tip: You can manage these tasks directly in Microsoft 365 as well. Sharing documents is a snap and you can collaborate on your business plan in real-time.

3. Note regulatory changes

When updating your business strategy, take some time to research any regulatory changes that have taken place in your industry. New rules, regulations and laws are passed all the time and many can have a direct impact on how you do business.

For instance, payment processors now must report your earnings to the IRS. This change could affect how you report income and change your relationship with contractors. The implementation of sales tax on internet sales made in the state where your business is located is another example from the past that had a profound effect on companies doing business online.

Such changes can impact your financial reporting and/or make your business more competitive, and less competitive, and otherwise change your approach to how you do business.

4. Note vendor/supply chain changes

Another factor to take into consideration when updating your business plan is any vendor or supply chain issues or changes that have occurred since your last plan update. If a vendor suddenly changed their billing system or adjusted their fees, you might need to account for this in your business plan as it could cut into your profit margin projections.

Or, if the supply chain has made it so you need to use multiple vendors to meet your company’s needs without experiencing disruptions, your business plan should make note of this change — and even indicate that supply chain issues are an ongoing problem.

To be honest, nearly every company has experienced some issue with the supply chain since 2020, so if you haven’t updated your business plan since then, now is probably the time.

5. Keep broader economics in mind

The overall state of the economy can directly affect your company’s performance. And while economic downturns can leave some industries untouched, it’s rather rare. But even if your company is lucky and hasn’t been affected by broader economic fluctuations as of yet, keep updating your business plan on your radar.

The economy as a whole can impact your vendors, shipping, packing, contractors and other services related to how you do business. It can also affect staffing and the accessibility of talent. So even if your company hasn’t experienced negative effects, acknowledge the general state of the economy in your business plan and include contingency plans should issues arise.

6. Follow demographic changes

We’re currently in the midst of huge demographic changes in the United States and all over the world, which will have a direct impact on how you do business and what the future might bring to your company.

As of 2022, the median income among the middle class is going down, the income of the very wealthy continues to go up, and the median age of workers is going up, too. People are having babies later in life and at lower rates than in the previous generation.

All of these factors can directly impact your revenue potential as well as who your target demographic or ideal customer even is. And this means you need to update your business plan to account for these shifts. Continue to revisit demographic data and projections a couple of times per year to ensure your internal projections still apply and to see if your processes need updating and track your actual results. If so, a business plan update is in order, too.

What to do next

If you haven’t even so much as glanced at your business plan in a bit, now’s the time to dust off the document and give it a once-over. Times are changing — seemingly faster than ever before — so it would behoove you to set aside some time to update your business plan sooner rather than later.



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Starting A Business

4 Tips for Starting an Industrial Business

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The industrial sector is a broad category that covers businesses involved in the manufacturing, production, and distribution of goods. Small industrial companies are growing across the country and there are many opportunities for entrepreneurs to get involved in this sector.

As with any type of business, there are certain things you need to do to set yourself up for success. Here are four tips for starting an industrial business:

photo credit: Pixabay

1. Do Your Research

Market research means figuring out who your target customers are and what they want or need. There are a number of different ways to do this, but some of the most common include surveys, interviews, focus groups, and observation.

Surveys can give you a good overview of customer opinions while interviews or focus groups can help you to delve deeper into specific issues. Observing potential customers in their natural environment can also be helpful in understanding their behavior and needs.

2. Choose the Right Niche

When it comes to starting an industrial business, one of the most important decisions you’ll make is choosing the right niche. There are a number of factors to consider when making this choice, and it’s important to do your research before settling on a particular industry.

First, you’ll need to identify the needs of your potential customer base, such as the products or services they need. Once you have a good understanding of the market, you can then start to narrow down your options. Consider the competition in each niche and decide which one offers the best opportunity for success. When making your final decision, it’s essential to choose a niche that you’re passionate about.

3. Create a Business Plan

In today’s competitive marketplace, it’s more important than ever to choose the right niche for your industrial business. When you specialize in a specific industry or type of product, you can better meet the needs of your target market and stand out from the competition. How do you know what niche is right for your business? Here are a few things to consider:

First, think about your strengths. What does your company do better than anyone else? What unique skills or experience do you bring to the table? Use these strengths to narrow down your focus and choose a niche that you’re passionate about.

Next, consider your target market. Who are you trying to reach with your products or services? What needs do they have that you can address? When you choose a target market and understand their needs, you’ll be better able to choose a niche that meets their demands.

Finally, don’t be afraid to experiment. Trying new things is essential for any business, so don’t be afraid to test out different niches to see what works best for you. By keeping these tips in mind, you can be sure to choose the right niche for your industrial business.

Engineers work with industrial printer

4. Optimize Your Processes

Through industrial control engineering, you will be able to identify opportunities for improvement and design solutions that achieve the desired results. In many cases, these solutions involve the use of automation and other advanced technologies.

By optimizing industrial business processes, industrial control engineers can help to improve efficiency and increase productivity. In addition, they can also help to improve safety conditions by reducing the potential for accidents. As industries continue to grow and become more complex, the demand for qualified industrial control engineers is likely to increase.

Endnote

With an increased demand for industrial operations and manufacturing, there has never been a better time to start an industrial business. By following these four tips, you can be sure to set your business up for success.

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Starting A Business

How to Find the Right Business Coach — and Avoid the Wrong One

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