How to operate a lending business in the 21st century

Moneylenders play an important role in our economy. They generate economic growth and prosperity through various means.

Most of us will at some point obtain credit, whether it is to buy a new home, car or a business. In general we can say that banks and other credit institutions provide us with these 3 core benefits:

- Access to crucial financial products, such as mortgages.
- Monetary creation through lending.

- The ability to exchange and transact funds in a safe and comprehensible way.

The lending-business as a whole is also in-flux, caused by changing regulations and new competition. The digitalization of banking has caused tremendous change over the past decades, and more is yet to come. Meanwhile, there have been changes on the regulatory front, including the federal strangling of the payday lending niche led by the CFPB.

Roadmap to success

With an ever changing regulatory environment and increased competition, it is more important than ever to make forward looking decisions. E.g: Will the government impose new regulations that strangle growth, or will you be able to compete with the new online companies?

In order to run a loan business in the 21st century - and be successful, one should carve out a visionary roadmap that deals with these questions.

Can you raise capital elsewhere?

It would also be wise to take a close look at the new online lending business, that has sprung up over the past 5-6 years. Companies such as LendingClub and Prosper has turned ordinary citizens into micro-financiers. The business model is rather simple to understand, yet astonishingly effective. It includes the pooling of private funds, into larger loans.

Each loan is given a unique credit score, ranging from A to E (or whichever metric the lender chooses). The investor (you or me) is then able to compose a portfolio based on these credit scores, and tailored to our own needs.

Naturally, there is a direct correlation between risk and APR’s (annual percentage return). If you decide to lend out money to borrowers with the lowest credit score, you’re taking a higher risk. Yet you may see a much higher return at the bottom of your balance sheet.

The promoters: affiliates, loan intermediaries and agents

Another category worth keeping an eye with, are the companies who constitute the backbone of the lending business. One such example would be the entities specialized within loan comparison (such as forbrukslån.no/). These websites have a clear and stated goal, which is to provide their visitors with the best loans. In turn, a well informed consumer will make a better decision when applying for loans.

Conclusion
Both loan portfolios and the affiliate/marketing business, is predicted to grow at a tremendous rate in the coming years. If you’re a lender in 2017, you need to think at least 10 years ahead of time and how you can best prepare yourself for the changes that lie ahead.