Business Overview

Micro-lending is the practice of lending smaller sums of money, typically to those who are unable to obtain funding through an established federal institution. Micro-lenders typically don’t request any type of collateral before loaning out the money. For-profit institutions may charge a high rate of interest to mitigate financial risks should the borrower default on their loans.

Micro-lending has had a lot of traction overseas in developing nations, and most are non-profit ventures. Money is lent to people who need it to start a small business in their area. Would-be entrepreneurs can get the cash they need to fill a vital need in the community, and lenders can contribute in their own way to helping individuals find their niche and lead more productive lives.

Who is this business right for?

This business is excellent for 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 micro-lender will need an excellent balance between helping others and remaining financially solvent.

What happens during a typical day at a micro lending company?

Micro-lenders must do a number of things to prepare to lend money:

  • Research target client/demographic
  • Screen clients
  • Create reasonable billing plans for pay back
  • Comply with all state/federal laws for financial lending
  • Study lending practices in different areas.

What is the target market?

If you're hoping to make a social contribution as much as an economic one, an ideal person to lend a small sum of money to may be a woman in a third-world country, for example. She may be smart and capable of running a small family farm, but she lacks the resources to get started. A small sum of money may buy her enough for a few animals, which she can then raise to provide for her family. She may use the milk from goats or eggs from chickens to both nourish her family and sell to others in her community.

If you're hoping to make money on your loan, you may want to consider lending to young go-getters who lack the credit history they need to get a conventional loan. There are a number of reasons why people may need a small amount of money, so do your research first before you decide which areas need your assistance the most.

How does a micro lending company make money?

Micro-lenders make money by charging people interest on their loans. You may lend out $500 at a 20% interest rate, meaning the debtor will owe $600 by the time all is said and done.

What is the growth potential for a micro lending company?

Micro-lending has done well in Latin American countries and third-world nations because there are a limited amount of ways to obtain conventional funding. If you wish to open a for-profit business, you may want to concentrate on these areas as opposed to lending within the US.