The great recession has devastated traditional institutions into thinking twice about lending money to high-risk borrowers. The Peer-to-peer (P2P) lending business is vital to recovering this system. P2P lends money to individuals with business needs or high-interest credit cards. Rather than being bank-funded, the platform leverages other people’s money. In essence, this acts as a marketplace, connecting those looking for financial support with those willing to offer help. However, a P2P business is a high-risk sector that’s heavily regulated. If you’re an investor looking for working capital for an SME, find P2P lending by Linked Finance here. Here are essential procedures for starting your peer-to-peer business:
Register Your Business Name
Registering your business with your state (especially the one you intend to operate your business from) is vital. The registration process and requirements may vary considerably depending on the state in question. Check with the state’s directory for potential business names besides ones already registered. In addition, your business name must identify with the entity you’ve preferred. The corporation may register as “P2P business, Inc.” but an LLC will register as “P2P business, LLC.”
Select and Register Business Domain
Your domain should be easy to remember by potential customers—research fields like Go daddy or P2Pbusiness.com that allow hosting services and email add-ons. In addition, use a unique domain name for the future possibility of trademarking.
Build your Team
Opt for team members with banking and financial experience. Also, choose a team that knows how to operate a business. People to include is an experienced attorney competent in state regulation of the lending sector. Tech assistants and software engineers are equally important and should be dedicated and swift in resolving arising problems. Other considerations are finding a marketing and advertising consultant. If you find someone with proper relations with banking and capital markets, it is an ad. They can help you acquire starting capital with less effort and help lift your business in the initial stages.
Raise Initial Capital
P2p investors may take a while before putting in their funds. While that happens, find lending money for your first P2P clients. Your credit score and history are vital elements in raising initial capital. They both determine the amount you are bound to raise and the type of investors you’ll attract. To calculate the starting capital (before securing the necessary financial support), add up the loan amount you’re required to finance.
Invest in a P2P lending Software
Although you can draft your system architecture from the ground, it’s easier if you invest in an existing program. Web development companies that offer scripts and raw codes exist. You can incorporate these into your system. More plug-and-play system solutions also exist with access to an entirely customizable platform via an open license. Zidisha is a good example. Zidisha gives access to its platform’s source code under an open-source license. Finding one of these software solutions can automate different essential processes for your business. This covers vital functions like the various applications and screening of loan applicants. Others involve offering protection and security for lenders.
Design a Website Layout
Opt for an easy-to-navigate, intuitive and understandable website design. A basic layout can do for most lenders and borrowers, but adapting and customizing your business make it unique from competitors.
Comply with Federal Regulations
Hiring an attorney is imperative for managing the complex banking regulations and securities involved in P2P lending. An attorney can offer legal help with signing your first loan agreement. Also, various transactions will involve extensive regulation. Not to mention, these transactions are regularly changing given it’s a still adapting law field.
In addition to an attorney, opt to work with financial and banking professionals. Finance professionals can facilitate proper compliance and updating of policies and procedures. The person you hire should preferably be more experienced and highly educated in the banking sector. Ideally, they should have earned a seniority or undertaken years of upper-level management in the financial field. That way, they can efficiently put-up systems that score borrowers and cut down involved risks in P2P lending. Lastly, expect to face laws like the Bank Secrecy Act, the Fair Credit Reporting Act, and the Electronic Fund Transfer Act.
Draft Anti-Discrimination Policies
Federal Consumer Credit Laws strictly forbid discriminatory lending practices. When assembling and assessing borrowers’ credit information, you must adhere to Equal Credit Opportunity Act guidelines. Your written notification for denying credit to applicants should also comply. Remember that most P2P borrowers are rejectees from traditional institutions. Engineering a screening and qualifying procedure for borrowers are vital. However, the process should not penalize or disqualify borrowers based on unlawful reasons such as religion, race, and sex.