Many finance companies are founded by former employees of existing companies. For example, former loan officers, underwriters, and broker associates create new mortgage brokerage firms specializing in a specific type of loan (commercial or residential) or working with a single lender. Consider the business specialty that attracted you initially. Why were you attracted to the business? Does the business require substantial start-up and operating capital? Is there an opportunity to create the same business in a new area? Will you be competing with other similar, existing businesses?
Identify your target market, or the specific customers you intend to serve. Explain their needs and how you intend to meet them. }} Describe your area of specialization. For example, if your market research indicates a growing number of small start-up companies needing loans, describe how the financial products and services you offer are strong enough to gain a significant share of that market. Consider the companies already in the competitive space. Are they similar in size or dominated by a single company? Similar market shares may indicate a slow-growing market or the companies’ inability to distinguish themselves from their competitors.
Mortgage brokers act as intermediaries between borrowers and lenders, sometimes with discretion up to a dollar limit. Factors typically leverage their own capital by borrowing from larger financial institutions.
The Chief Executive Office leads the “executive suite” of other company officers. The Chief Operating Officer manages the activities of the lending, servicing and insurance and investment units of the company. The Chief Administrative Officer’s responsibilities include marketing, human resources, employee training, facilities, technology, and the legal department. The Chief Financial Officer ensures that the company operates within regulatory parameters. This person also monitors the company’s financial performance. In smaller companies, executives may fill more than one of these roles simultaneously.
For example, if your target customers are small business owners, describe how the financial products and investments you offer to help them run their businesses.
In most cases, equity in the company is used primarily for the company’s operations, rather than the source of loans to customers. Secondary lenders provide funds to the finance company that is subsequently loaned to customers; the customers’ loans collateralize the lenders’ loans to the finance company. This is because profit is made in the spread, or the difference between your cost of acquiring capital and profit from lending it out. Any funding request should indicate how much you need, how you intend to use the money, and the terms of the loan or investment. [5] X Trustworthy Source U. S. Small Business Administration U. S. government agency focused on supporting small businesses Go to source
Promotional strategies include advertising, public relations, and printed materials. Business growth opportunities not only include building your staff, but also acquiring new businesses or beginning to offer different kinds of products. The sales strategy should include information about the size of your sales force, procedures for sales calls and sales goals.
Prospective financial data should provide monthly statements for the first year and annual statements for the next two years. Standard financial ratios include Gross profit margin, ROE, Current ratio, Debt to Equity. Ratio and trend analysis data helps you document whether you will be able to continue to serve your customers over time, how well you utilize your assets and manage your liabilities, and whether you have enough cash to meet your obligations. [9] X Research source
Be aware that corporations pay double federal income tax, meaning taxes are assessed when profit is earned, and then again when it is distributed to shareholders. You should seek legal advice to determine the best structure for your business.
You will have to register with your state as a corporation. The exact registration process varies by state and type of corporation you decide to form. Since your business name is one of your most important assets, protect it by applying for trademark protection with the U. S. Patent and Trademark Office.
Due to the incredibly complex and constantly-evolving nature of the financial services industry, it is advised that finance companies hire and retain expert legal counsel to guide them through these regulations. [11] X Research source
Federal financial regulation agencies include the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration and the Securities and Exchange Commission (SEC). State regulatory agencies may have additional requirements that are even more stringent than those set by the SEC. [13] X Trustworthy Source U. S. Securities and Exchange Commission Independent U. S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges Go to source With the help of your legal counsel, investigate reserve and initial funding requirements for your company. This will determine how much startup money you need.
Be aware of Federal and State laws regulating the private solicitation of investors. Adherence to securities laws regarding the information provided to potential investors and the qualifications of the investor will apply in most circumstances. Sources of debt financing include loans from the government and commercial lending institutions. Money borrowed with debt financing must be paid back over a period of time, usually with interest. [16] X Trustworthy Source U. S. Small Business Administration U. S. government agency focused on supporting small businesses Go to source The Small Business Administration (SBA) partners with banks to offer government loans to business owners. However, these loans can only be used for the purchase of equipment, not lent out to others. The SBA helps lending institutions make long-term loans by guaranteeing a portion of the loan should the business default. Finance companies face the problem of having to raise large amounts of initial funding to be successful. They also often have to deal with a slew of other challenges before they become profitable. Without accounting properly for issues like fraud, it’s very easy for a finance company to go out of business. [17] X Research source
If you are not sure, contact your local planning agency to find out if your desired location is zoned for commercial use, especially if you plan to operate out of your home. [19] X Trustworthy Source U. S. Small Business Administration U. S. government agency focused on supporting small businesses Go to source Leasing commercial office space is expensive. Consider your finances, not only what you can afford, but also other expenses such as renovations and property taxes. In today’s connected world, it’s also possible to run a finance company online, without a location for physical interaction with customers. While you’ll likely still need an office for your employees, not having a retail location can save you some regulatory hassle expense.
Perform pre-employment background checks to make informed decisions about who you hire. Financial planners and advisors require a specific educational background and are subject to rigorous certification requirements. [21] X Research source . Consider obtaining credit reports to show how financially responsible a candidate is.
Recognize that your loan offerings, rates, and terms will need to be constantly reworked with the changing loan market. Some of these items may also be subject to various regulations, so consult your legal counsel before finalizing your offerings.
