Money lending business has stood the test of time for years because one of the banes of entrepreneurship is getting access to credit. As a startup with little or no resources, your primary concern is scaling your business. Then you go to the bank for a loan and you’re slammed with unrealistic requirements. You change your strategy and then ask for an overdraft, the bottlenecks around it frustrates you to a halt.
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From time immemorial, the money lending business has been bridging that gap for a long time. If rightly done, it is indeed a very lucrative line of business. Why? Simply because entrepreneurs will always be in need of credit.
What Is A Money Lending Business?
The money lending business is the act or occupation of lending money at interest rates. However, the money lending business is a pseudo financial institution as it is not as heavily regulated as financial institutions like banks, insurance companies, etc.
In Nigeria, the money lending industry is regulated by the Money Lending Law of the various states. According to section 4 of the Money Lenders’ Law of Lagos State, a person who lends money at interest or who lends a sum of money in consideration of a larger sum of money being repaid is a money lender.
However, a person is subject to provisions of the Money Lenders’ Law if they carry on the business of money lending and not to persons who lend money as incidental to business or to a few friends who are in need.
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Steps To Starting A Money Lending Business
Let’s delve right into the “how” of running a money lending business:
1.) Register Your Business Money Lending Business
Registering your business is the first step to putting a structure to it. The Corporate Affairs Commission is the approved body for registering businesses in Nigeria. With a registered business, you can open a corporate account with any bank of your choice.
A registered business is trusted by clients and will help you build credibility. Also, you have access to the different financial support available to entrepreneurs with your registered business. A money lending business is registered as a limited liability company with 20 Million share capital.
The first step is to check the CAC website and run a search on your preferred business name on CAC’s portal. If the name is available, the name will be approved and you can then reserve the name. But, if it already exists, it will be disapproved and you will have to conduct another search for another name.
Once your name has been approved, you can then proceed with the business registration. The procedure can be made seamless by ReDahlia. ReDahlia offers business support services to entrepreneurs, helping them succeed in business. The interesting thing with working with ReDahlia is that the whole process can be done virtually and your certificate delivered to you.
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2.) Obtain Your License To Increase Your Credibility
Any business model that hovers around the financial industry requires some level of regulation. Hence, the need for a license from your host government. Only businesses licensed as a money lending business by the relevant government authority are permitted to engage in that line of business.
So, licensing further validates the fact that in the case of default, a licensed money lending business can successfully institute an action in court to recover the principal loan as well as the accrued interests.
Procedure for Obtaining License
- Apply to any Magistrate Court having jurisdiction in the area in which you intend to run the business with the following supporting documents:
- A cover letter addressed to the Chief Magistrate on the Applicant’s letterhead.
- Certified True Copy of CAC Form 2.
- Certified True Copy of CAC Form 7.
- Memorandum and Articles of Association of the Company.
- Certificate of Incorporation.
- Tax Clearance of the Applicant.
- Police Clearance from the Commissioner of Police.
- Evidence of Maintenance of current account with a licensed bank.
Upon the Application to the Chief Magistrate, the Applicant will be issued with a Letter and Forms B and C.
Please note the objects in your Company’s Memorandum of Association must include financial service or money lending business. Also, the share capital must not be less than N20, 000,000 (Twenty Million Naira).
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3.) Keep It Transparent
Obviously, businesses around the financial sector is anchored on trust and shouldn’t be taken with levity. Hence, the need to run a transparent model, when running a money lending business can’t be over-emphasized.
The system, structures, and mode of operation should be transparent right from the start. Avoid any form of ambiguity in the mind of a person taking money from you, in the contract, as well as in your mind. The lower the complexities the better for your money lending business.
The first product you buy and sell in the money lending business is trust. That way, you’ll stamp your brand in the faces of people.
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4.) Investigative Profiling – Know Your Customers
One of your major asset – which is trust, is built on your KYC structure as the business goes on. You should never offer your services to those whom you cannot track back easily. Apparently, proper profiling is the bedrock of transactions and if not properly done, it will be a clog in the wheel of your process.
Circumvent the process with a guarantor to avoid the bottlenecks that come with proper profiling. So, when you are going through the credentials of borrowers, ensure they have a guarantor that can stand in for them.
5.) Focus on Marketing and Advertising
A poor service with great marketing and sales strategy will always outdo a great service with poor sales and marketing strategy.
As a money lending entrepreneur you have to spread the gospel of what you do; because who doesn’t want credit? Would-be entrepreneurs want access to the credit they need to fill a vital need in the community.
You have to create a website and take advantage of social media platforms to create awareness for your money lending business. Also, it will be nice to partner with entrepreneurial support platforms and co-working spaces who have entrepreneurs in their community.
6.) Use Technology To Build To Scale
Technology is the oil that fuels economies of scale. Stamping your feet in the Financial Technology (FINTECH) space is very germane especially if you’re looking at scaling as a money lending business. If done properly, the FINTECH model will skyrocket your revenue, especially in this digital age.
The fact remains that you necessarily don’t have to be the all techie entrepreneur to be in the space. You can get programmers and developers who would run the backend while you take charge of the front end. The most important thing is that you know your onions and the daily operations of your money lending business model.
Conclusion:
Every entrepreneur who plans to enter the money lending industry must get the appropriate license, so as to legitimize the company and also be entitled to an absolute legal remedy.
More so, the money lending business can be exciting and frustrating at the same time because of its lucrative model and risk. However, with a proper combination of good knowledge in the industry, a detailed feasibility study, and other preliminary findings together with the necessary risk management mechanisms, money lending could be very profitable.
Also, know that the best thing that has ever happened to the money lending industry is technology – FINTECH. Don’t underestimate the power of technology, especially when you want to build to scale.
As a would-be entrepreneur or an already existing entrepreneur in the money lending business, what do you think we omitted in this industry? Let us know in the comment section below.
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4 responses
As a legal practitioner who had read about these process before, reading it here gave another level of clarity and simplicity with emphasis on the vital elements in Law. Great work.
Very nice article. How do I chat the person that wrote this article personally.
Hello Godswill,
You can reach us on 08038874148. Thank you.
An interesting idea for sure.