Starting your own private lending practice is a good way to make serious dollars, but like all other businesses, especially those that involve money, it does come with risks. These risks can be minimized or avoided if you have a plan in place before you even open up shop. Here are some suggestions.
Cater to your local market
You can be an authority on your local market; it takes more time, work, patience, and sometimes luck to be an expert in a market larger than your own. To minimize risks, cater only to businesses within a set distance, like 100 miles from your office.
Get help with your systems and processes
You can’t do all things on your own and expect to grow. You need professionals to help you with your systems and processes. According to LoadSpring, springboard solutions, for example, can help you with treasury reporting, financial management, and quality control, among others. Eventually, you’ll be able to master the business faster if you have professionals assisting you.
Be specific with your marketing
Don’t claim to be bigger than you are. When you advertise, don’t say you finance all loan types. Be specific about the loans that you do fund. Your business is based a lot on trust, so gain your customers’ trust by being specific and honest when you advertise.
Be a team player
There are other private lending practices that are bigger than yours and are capable of handling bigger loan applications. Don’t try to take on a responsibility that’s too big for you; refer your client to another lender that can serve them. But avoid brokering; that will lead to overcharging the client and possibly bad service, neither is worth your time and focus.
You can achieve success with a private lending business, but it is important to know and acknowledge your limitations so you don’t end up giving bad service and losing money in the process.