How to Start an Online Lending Business

Running an online lending business can be not only profitable but also rewarding. But when you just start this journey as a new entrepreneur, it may look challenging to get everything you need together. So today, we’ll cover the basic steps needed to start an online lending business.

Step #1. Choose your business model

Lending businesses can come in various shapes and sizes, and in the first step, you need to choose the direction of your business. Do you want to work with consumer lending or with commercial lending? Or maybe you are more interested in peer-to-peer lending? There are many options of what you can do, and you can focus on one of them or combine several types of loans. Here are some examples of different niches you can choose:

  • Microfinance
  • Mortgage
  • POS Lending
  • PayDay
  • Auto Lending
  • Peer-to-Peer
  • Leasing
  • Factoring
  • Bank Lending
  • Merchant Advance

Your business model will depend on the niche you choose. After you’ve decided on the main direction, you need to explore more information about this market. Research your potential competitors and their offers, and investigate your customers’ needs and pain points. All this information will help you build a successful business model.

Step #2. Comply with the law

After you choose the business model, you need to make sure your future business will not be fined by the government. This is probably one of the most important and difficult steps in creating an online lending business because every country and every field will have different requirements for lending companies. It’s better not only to complete the research yourself but also to get a consultation from a lawyer that works in this field.

Step #3. Create a business plan

Once the first two steps are completed, you can finally dive deeper into planning how your business will work. At this stage, you need to write a detailed business plan that includes the following information:

  • Your business idea summary. First of all, you need to briefly describe what you will do, your competitive advantages, your unique offer, and market opportunities.
  • Detailed business description. In this section of your business plan, you need to dive deeper into details. What will be your lending strategy? What interest rate will you set for each lending product? Also, don’t forget about your marketing strategy and how you will promote your business online and offline.
  • Market opportunities and analysis. Here you need to explain how you are planning to make your business profitable. Explain how you will grow your business using current market trends and statistics. Mention what possible challenges are on this path.
  • Team. In this part, you need to calculate how many people you need to start your business and what they are going to do. How they will help you achieve planned results.
  • Financial plan. Finally, you need to create a detailed financial report of what your costs and incomes will look like during the first years.

Step #4. Choose the right software

Next, you need to choose the right lending software for your business. You have to make 2 major choices:

  • Will you hire developers in-house and develop your software or buy it from some vendor like
  • Do you need a fully customized solution, or are you ready to deal with the limitations of out-of-the-box software?

Both these choices depend on your business needs. Because commercial lending software is different from peer-to-peer software. And microfinancing organizations and their needs have almost nothing in common with leasing companies.

Step #5. Find founding

Last but not least, you need to decide how you’ll get money for your business. You can present your business plan to investors, start a fundraising company, ask your friends or family, get a loan, or use all these options altogether. Again, it all depends on your current situation. For example, in some countries, you can not get a loan for such needs.

As you can see, starting an online lending business requires a lot of time and patience for deep research on each step. But it’s not as impossible as it may look. Just remember – one step at a time.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.