Business

Are You Planning to Start a Business in Micro-lending? Here’s What You Need to Know.

The micro-lending industry is slowly growing during the last few years. Back in 2019, the industry was valued at $134 billion. It’s expected to reach about $300 billion by 2027, becoming one of the biggest industries in the US. With a healthy compound annual growth rate of 12% for the next five years, joining the industry is better than ever. If you’re new to the industry or new to businesses in general, you must know what the industry is about before starting a business in it.

Micro-lending

Generally, micro-lending is the giving of small loans to people who need them. Many of these people are usually budding entrepreneurs, such as you, looking for needed cash to start a business or expand business operations. Some of your clients can also include people who are in dire need of money but can’t afford the interest rates that banks offer or don’t have any credit score to work with. In the bigger scheme of things, you are part of the crediting world, similar to banks and other entities giving loans with interest.

However, unlike banks and other entities of the crediting world, your interest rates are much lower simply because the loans you give are also quite small. This can range between $25 to $13,000. Anything higher than $50,000 can’t be considered as a micro-loan so keep that in mind.

So how do you earn money? Well, you earn money through interest rates and fees on top of lending transactions. However, it’s important to know that micro-lending companies don’t earn as much as banks and other business enterprises out there.

Sure, you can earn a profit, but you won’t make out a hefty amount of cash in a couple of years. The main delight of micro-lending is being in touch with other people in the business world and considering the opportunities that may come your way. So how do you get started?

Think of a Business Plan

You’ll have to draft your business plan before you can build your company. Think of your company’s goal, possible revenue, and chosen target market. Your goal can be general, like helping people in need. The company’s possible revenue can be estimated by your starting capital and the average interest rate of your business.

Your target market can be low-income earners and first-time entrepreneurs. These are just general examples you can use for your business plan, and you’re free to make your own. After this, there are two ways you can go about your micro-lending business. The first way is the traditional micro-lending.

Traditional Micro-lending

Traditional micro-lending means having your own office and personnel. You don’t necessarily need personnel at first, and you can handle business operations by yourself. Still, as your company grows, you’re going to need more people to keep an eye out on multiple accounts. An accountant is important because it will help determine whether your interest rates are enough to keep your business going.

The minimum interest rate for this is 6%, but it can go as high as 20% or 30%, depending on the size of the loan. The main advantage of traditional micro-lending is that you can interact with clients in real-time. This can give you more business opportunities with them. The downside is your utilities. We recommend that you start with a home office.

Online Micro-lending

Online micro-lending is the second way is to set your own website and do your business there. This is by far the safest way if it’s your first time doing a micro-lending business. There are two profitable ways you can go about your online micro-lending company. The first is that you can be the sole lender, and you can lend dollar values to developing countries to help small business owners start their dreams. As more and more people from other countries enter the business world, the more clients you can have.

The second way is to run a peer-to-peer micro-lending platform where you and many other people can offer loans to people who need them. You can profit from this through fees and a small commission for every loan made on your platform. It is unknown which way is more profitable, but either way, you can help various people from all over the world jump-start their dreams of becoming business entrepreneurs.

Micro-lending is a humble business venture that helps people realize their dreams. You might not earn as much profit as other businesses might have, but you can have the sense of achievement in knowing that you might have lent the money to the next Steve Jobs or the next Bill Gates.

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