1. Costs to Start a Payday Loan Business
The costs to start a payday loan business can vary as there are multiple options from brick and
mortar vs. internet site, franchise vs. start from scratch, size of market and the software.
If you are starting a payday loan business yourself from scratch as a brick and mortar expect
$40,000 and up for a turn-key operation with a leased location. About $10,000 would be for the
store and initial marketing and $30,000 to loan out. Yes it can be done for less but this is a
realistic number. There are stories (urban legends maybe) of someone starting out with $1,000
or less but that really isn’t realistic even with the best of collections. In this business you need
money to make money so there had better be some money to loan out, no if’s and’s or but’s.
A franchise operation will add $20,000 to $80,000 in terms of startup expense, build out and
reserve capital requirements.
Reserve capital is important in this industry as it will take you several months to figure out how
to underwrite and find the right customers to lend to. The first few months are scary as you now
have the realization that you are lending to total strangers with poor credit and if you lend to the
wrong person it’s not coming back. After some time though you will have a better
understanding of the industry and who to make loans through. You should work on projections
with different levels of default to see what your numbers need to be to stay afloat.
The money will usually come back and you will begin to accept that fact that there are going to
be some loses that will be offset by high interest from your other customers. If you are able to
start with a solid set of process and are aggressive with marketing and funding loans (and make
loans to people who will repay), profits should start coming in within the first 3 – 6 months.
For more articles on starting a payday loan business, visit StartupInformant.com
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