Starting a loaning business can put you in a very vital position in the society. A position where people tend to turn to you for financial service in the situation of an emergency. Play your cards right and you just might be the best option for credit service within and beyond the society you operate in. Through the course of this article, we will look at the key bricks to starting up a micro lending business in South Africa. Read tight!!
What is Micro Lending?
Microfinance, also called microcredit, is a type of credit service provided to unemployed or low-income individuals. It is mainly for groups who otherwise would have no other access to financial services.
Micro lending allows people to take on reasonably small business or personal loans safely. This loaning system is usually consistently with more ethical lending practices.
How does a Micro lending company make money?
Micro lenders make money by charging their benefactors interest on their loans amount. Interest might vary depending on some factors. You may lend out R500 at a 20% interest rate. This means the debtor will owe R600 by the time they conclude the transaction. Interest might vary depending on some factors.
Some of these factors include credit score, the loan amount itself, the cost of operation and others.
8 steps to starting up a successful Micro lending business in South Africa
Without mincing too many words, let’s break down the magic 9 steps in setting up a loan business in South Africa. We have taken our time during this research to consider all the options and loopholes, so consider every step solid.
Step 1–Plan your Business
Nothing is as essential for the success of a business as of business as a simple plan. It helps you map out the specifics of your business and also discover some unknowns. We see a few important questions to be considered during planning below;
- What is the startup cost?
- What is the operational cost?
- How much can you charge customers?
- Who is the target market?
- What will you name your business?
Step 2–Form a legal entity
Establishing a legal business entity such as an LLC or corporation makes you distinct from your firm. It protects you from being held personally liable if someone sues your lending company.
Step 3–Register for Taxes
It is also important you register for a variety of state and federal taxes before you can open your business. You must register within 60 days after you have started your business by completing an IT77 form.
You can get this form from your SARS branch or you can register for e-Filing on www.sarsefiling.co.za.
Step 4–Open a business bank account
Using dedicated business, banking and credit accounts is very essential for personal asset protection. When your personal and business accounts are mixed, your personal assets and other valuables are at risk in an event someone sues your business. In business law, they refer to this as piercing corporate veil.
Step 5–Set up business accounting
Expenses and sources of income need to be recorded in order to adequately understand the financial performance of your business. Also, keeping accurate and detailed accounts simplifies your annual tax filing.
Step 6–Get a business insurance
Your business needs insurance in order to operate safely and lawfully. Business insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the type of risks that your business may face, go with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Step 7–Define your business
Your brand is what your company stands for. This involves your morals, ethics, and how your business is perceived by the public. A strong brand reputation will help your business stand out from other competitors. Two major questions are to be considered at this stage;
- How best to serve your target market
- Keep customers coming back
- How to promote & market a micro-lending company
Step 8; Establish a web presence.
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Conclusions
Micro lending business is excellent for not just anyone but those who understand the power of responsible lending. This isn’t charity, but it is giving someone else a helping hand when they need it the most. The successful lender will need an excellent balance between helping others and remaining financially solvent.