How Can You Become a Lender for Businesses?

The trend of business loans has become very popular, as most of the organizations spanning from small and medium to large ones have developed their business by availing fund from banks and other capital investment firms.

However, if you want to establish yourself as a lender for any business, you need to know that banks are the major players in this sector and many organizations always prefer banks as their first choice. Along with this, several investment companies are doing business in the market by offering fund to needy business owners.

Before going further, you should know that there are two types of business loans available in the market. The first one is the straight loan, where the loan providing company earns back by availing the principle amount with interest and the second type of loan is like a security based investment contract. However, here are some steps to follow that can help you to become a lender for business.

Raise Adequate Fund to Lend

The more funds you raise as the capital for your business, the more you will be able to provide to your clients. However, small business loans may ask you to provide near about $500 to $1,500, but if you are planning to offer loans for large-scale business, then you have to be prepared with thousands of dollars.

Set Your Own Interest Rates

In order to attract clients, most of business loan providing organizations try to provide loan with fewer interest rates. However, based on some specific conditions, the government might have set a scale of interest rate, but you can also set your own interest rate for your clients. If you are going to lend fund to small businesses, then you should charge higher interest rates, because most of small-scale businesses pose the risk of nonpayment.

Become an SBA Lender

You should know that all the banks, credit unions or any other financial institution that lend money to the business organizations participate with SBA (Small Business Administration) to provide loans, which is regulated under 7(a) guidelines.

After receiving a loan application, SBA’s lending partners apply to SBA for a guarantee. However, the loan application must be certified by the SBA, before the lender approves it for the applicant.

The SBA imposes some specific conditions on local lenders and borrowers while offering guarantee for the loan application and both parties must agree to these requirements. Here are some criteria that your organization should have to become a partner of SBA.

•    Should have the ability to evaluate, process, execute and close small business loans

•    Should have reputation of providing efficient service

•    Should be examined and licensed by Sate of Federal Regulatory Authority

Create a Specific Schedule for Repayment

You should allow the borrowers to select a convenient schedule for the repayment. You can offer weekly, monthly, quarterly or yearly option to your clients. In addition, you should also offer to your client whether he or she would like to repay the total amount of loan when the required fund is available to him or her.

Collect Defaulted Loans Effectively

It is not that every borrower will follow the exact process of repayment, as you may find many defaulters. However, you will have to find an effective way to collect defaulted loans. You can do it on your own or can hire an agency to collect the fund from your defaulted customers.

However, a legal lender for business should have license provided by the government-authorized department. In order to become a legal and authentic financial organization, it should follow rules and regulations set by federal government.