How to Earn Money in the Midst of an Economic Crisis (A Guide to a Microlending Business)
The economic problem that the world is experiencing right now has actually provided a ray of light for aspiring entrepreneurs. While others are selling their businesses or discouraged from engaging in one, there are others who have thought of making this recession an opportunity.
Micro lenders are among these people who have considered going into business. In a country where many people also go into small businesses to survive this economic crisis, this micro lending business has quite a big target market. Here is a guide on how to establish one in the Philippines and earn money from a business even in an economic crisis.
GUIDELINES AND REQUIREMENTS
After you have taken care of your capital and you have an excellent business plan drafted, then it is time for you to establish your business. You have to submit a series of documents to SEC or the Security Exchange Commission. In doing this, you also need to acquire a business permit in the city where you want to establish your business and a certification from the Bureau of Internal Revenue. Requirements vary according to the nature of your business. You can register your business as a single proprietorship, a partnership or a corporation. For more information on other requirements you can check the SEC ( Philippines ) site.
It is easy to establish a client base for this kind of business. A lot of people these days consider borrowing money from micro lending agencies rather than going to a bank. Why is this so? Banks require many requirements that these micro lenders don’t ask from them. When they know the right lender to go to, they could get interest rates that are much lower than in the banks. But what probably attracts most of them is that loans are released faster. There are even those that only take a one day of processing and then clients can get their money immediately. Thus, getting clients will not be a headache.
These days, there are a lot of individuals who have considered going into small and medium businesses. And these people need financial resources.These people look for ways where they can have money as a capital for the businesses that they have thought of.
Who are these people that you, as a micro lender cater to?
Individuals or groups who want to start a small business will comprise your market. This could be from retail stores, cottage industries to buying franchises. You can advertise for this one or rely on word of mouth from your first few clients and your friends and families. Big targets for the micro lending business are the many employees from different companies. Here, you can approach different companies and pass a proposal. You might give them an attractive one where they can receive commission for each employee who lends money from you.
STRATEGY FOR SUCCESS
Although there are many potential clients, you should be careful who to lend to. One of the major concerns is getting the loans paid on time. You should see to it that they have the financial capability to pay you back. To ensure this, experts on micro lending recommend that you based their loans on their actual and potential income. This means that you will only loan a certain amount to your clients depending on how much their revenues are. Borrowing money is easier than paying. There are others who just borrow money without even thinking of their capability to pay. The payment schedules should also be arranged in a way that they can afford to pay their dues each month.
Another strategy that you should employ is zero-tolerance for payment delinquencies. Although you are not as strict as banks when it comes to requirements from your clients, you should not be as tolerant when it comes to paying their loans on time. You must impose some penalties for delayed payments. Otherwise you will end up not having any profit from your business if you will treat them as welfare cases!
It is also essential that you assess your clients yourself. It is not just enough that you grant them the loan based on the requirements and collateral (for bigger loans) that they are able to submit. Take into consideration their character and integrity. How do you feel when talking to them? Are they likely to avoid paying their dues or do they strike you as diligent in paying? Also consider if their businesses are viable and if they can manage a business well. Remember these businesses will be their means of income, thus, their means of paying you. If you think one’s business or their ability to handle it is questionable, then you might also think twice of paying them.
Since you are still starting, it is better that you lend small amounts of money to your clients first. This makes your clients capable of paying you easier than when you lend them big amounts. Clients such as retail store operators and employees usually borrow money of small amounts. Borrowers of big amounts higher than 50,000 are usually those who also want to start small businesses and OFW’s. For clients like these, you can ask for a collateral in case of failure to pay. Micro lending agencies usually have terms of a month to half a year with a bi-monthly or monthly repayment schedules. Micro lenders usually charge 3-5% interest. Aside from these charges, there is also the service charge of 3%-5% for some lenders and then of course the penalty fee in case of payment delinquencies. Note that interest rates vary. Take more time to study on what is a competitive interest rate for your lending business.
Keeping track of all the dues and the payment schedules takes a lot of effort. These days, a lot use a business software to ensure more efficiency. It would be advantageous for your business if you invest in a software that will allow you to efficiently track your clients’ loans, their repayment schedules and the overall flow of money in your business. If you do not want to use such, you must ensure that you have an efficient manual record system.
To ensure an efficient collection of payments, you need to employ one person who is in charge of this alone. You can assign someone else for the application and release of loans to clients. As with any business, you need to also employ the services of a bookkeeper to take care of your overall financial aspect of your business. It is also very important that as the business owner, you need to be there yourself to do the assessment for the prospective clients’ application.
Micro lending is a viable business especially these times. However, just like any other business, you just don’t provide the capital and then let your business run through your staff. Especially during these hard times, your management of your business plays a very important role. It is better that you are there to personally see how things are. You just have to be sure who you lend your money too. As long as you have a good system keeping track of who borrows and who pays, nothing could go wrong. At these times when people are faced with financial problems, you already have a market. Just tap the right ones so your money will not fall in the wrong hands.