Personal finanace service.. Is it good biz?

I'm looking to start personal finance service to lend a small amount in the form of unsecured loan. I'll start within friend circle who are always interested to borrow.
Do we need any special license for providing financial service like this or is it just registering a business entity and start lending?
Any pros, cons advice will be much appreciated.
Thanks,
Kevin

 

Hi Kevin,

What happens if your friends can't repay the loans? It'll ruin the friendship...

Cheers,

Dan

 

Hi Dan,

I'm thinking to target overseas students. Most of these guys are not close friends, so not to worry about spoiling friendship. From my experience I realised these students come with lot of expectations that they will start earning money as soon as they arrive in Australia to cover up their fees and living expenses etc. But in real life it's not so simple specially in economic condition like this.

It's very much possible if they can't pay off.... I'm thinking to setup a limit say like maximum they can borrow $1000 per person. We could do employment or credit history checkup as well but most of potential customers will be unemployed or newly arrived.

I believe I can only attract customers if I keep the process simple and lower interest than banks, c/cards etc and at the same time maintain sense of security for myself.

Probably I can provide an option with lower interest rate for secured loans and high interest for unsecured loans to reduce my risk factor.

Thanks for your thought anyway.
Kevin.

 

Hi Kevin,

Sounds interesting. Make sure you are charging a rate relevant for the risk you are taking...With small loans you will be competing against GE Credit and other small loan providers (small loans, not small lenders ).

Good luck with it all and let us know how it goes.

Cheers,

Dan

 

Sounds like micro-lending

Hey Kevin

What you are proposing sounds like micro-lending also known as person to person or peer to peer lending.

There are sites such as Zopa - Loans from people not banks and also Kiva - Loans that change lives which is more for business.

There is an Australian company called igrin.com.au which is similar I think.

These services may be a better option for you as your risk is spread across more lenders. Maybe there is a business opportunity there if you think you can set it up in a better way, or piggy back off it some how.

You may even be able to use Paypal to set things up and request repayments etc. If you are targeting foreign students then they will likely be familiar with that kind of service.

I would also see a lawyer and get some solid finance contracts drawn up for you to use.

Regarding the licensing, I think it will depend on the scale of lending. Please check with ASIC.

Also, you want to be careful you are not to be seen as being a 'loan shark'

I agree with ASX Broker - ensure your interest rate is right - don't sell yourself short.

Good luck with the idea.