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Money Lending business?

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moneymaker

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Jan 5, 2012
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Although I haven't started my Fastlane business yet, I've made a decent amount of money at a regular job and through several properties, which appreciated 200% during the past 10 years. Since I have a decent amount of cash I've been doing a lot of reading about investing. Like others here, I've noticed that it can be very difficult to find ways to preserve your wealth. I'm a bit pessimistic against the dollar and other fiat currencies because of central bank inflation and would certainly not hold my assets in cash for the long term. Gold and silver seem like the best thing currently, at least as a store of value and more than likely a good way to continue growing your wealth for the next few years. A person definitely needs an exit strategy with gold or anything else I suppose, because of the cyclical nature of these markets.

Anyways, I got to thinking about how banks just keep making huge profits and how a person could legally become a private money lender. I believe it is illegal to lend money at interest as an individual, but does anyone know how companies like Money Mart or Payday start out? Can I start a small business lending out my money to people with interest? If not, why? Seems like a good business to be in judging by the banks insane profits! Being a bank seems like a Fastlane business.
 

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V8Bill

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It's the second oldest game around and I guess setting up the financial guardrails will be the tricky bit. Risk will be high because you'll be lending to people who can't get loans anywhere else but if you can pull it off it would be a simple business to understand. "I lend you money, you pay it back or I get sad. Then I'll get mad and then I'll tell on you." The administration would (obviously) need to be tight as a drum but I just did a quick search and found these two guys who are trying to marry web 2.0 and online auctioning and money lending in a new way.

It's an interesting article...

Got Cash? You Can Loan Money Like a Big-Time Banker

On one hand...

"We're imposing Web 2.0 concepts on a very old-guard business," says John Witchel, chief technology officer and co-founder of Prosper.

Prosper's marketplace is a blend of eBay-like bidding auctions and social networking, and is conceptually related to the emerging world of microcredit.

But unlike microcredit ventures such as Grameen and Kiva, Prosper is aimed at U.S. borrowers, not the developing world.
But on the other hand...

Jonathan Hoenig of Capitalistpig (lol - Bill) Asset Management in Chicago. "I manage money for other people," he says. "I like to keep my cards closer to the vest." He has loaned around $150,000 to nearly 1,500 people.

Additionally, the number of loans that have gone bad is higher than what was initially predicted. Because of this, Bequette, Boon and Hoenig are holding off investing fresh money.

Bequette, who expected an 18-percent return, is now concerned he won't beat the 11 percent he had with his mutual funds. His guess is that as a new market, Prosper has attracted people who couldn't find loans anywhere else, thus driving up the default rate and hurting overall returns.

Hoenig says Prosper's interest-rate caps of 30 percent aren't high enough to compensate for the dangers of lending to high-risk borrowers.

To keep bad loans from poisoning the well, Prosper blocks borrowers who have defaulted on their loans. Over half the company's engineers work on anti-fraud measures, according to Witchel, and Prosper insures lenders against money lost due to identity theft. Working with federal law enforcement, the company had its first arrest a few months ago. "Criminal communities tend to chat about who is weak," says Larsen. "We think it is very important to put a line in the sand early on."
The related article Top 10 Lessons From a Microlending Pioneer also has some great tips for people like you who are wishing to become Micro-Lenders.

HTH
 
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moneymaker

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I like their idea. A lender can diversify by lending smaller amounts to many different borrowers, rather than loaning a large amount to just one borrower. Thanks for the article!
 

GlobalWealth

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Being a bank seems like a Fastlane business.
Without having a bank charter, it would be impossible to generate the same level of profits. Banks leverage as much as tenfold on their deposits due to the fractional reserve banking system.

Here is a simplistic example:

Consumer deposits $10,000 into his account at a commercial bank.

The commercial bank now has the ability to lend out $100,000.

They pay you 2%, which equals $200 per year.

They collect 5%, which equals $5,000 per year.

Not a bad spread.
 
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moneymaker

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Without having a bank charter, it would be impossible to generate the same level of profits. Banks leverage as much as tenfold on their deposits due to the fractional reserve banking system.
Yes, that is true. Having the legal right to counterfeit definitely helps!
 

sharky

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A good book to read is The Richest Man in Babylon. Regarding a fastlane business, you would have to check your countries/states laws in regards to private lending. Most likely they have a minimum threshold of a certain number of loans per year that you could do without being licensed, and also whether or not the loans are secured or unsecured. So you could probably do a certain number without being licensed or regulated if you keep it private.
I have lent $$ in the past and it has worked well lending to people I know and trust however once it got beyond the personal connections and I started lending to complete strangers is where it got a little dicey and had some issues. Overall, it worked out well, but just beware of who you lend to.
 

JEdwards

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Here in Texas at least, you could get a regulated loan license and be open for business tomorrow, loaning money..

I used to finance cars at 26.74%.. Not a bad gig..
 

tchandy

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You could also be a hard money lender for someone looking to buy real estate. There are some investors looking for money for their next real estate deal. You can negotiate on the terms but make sure you have the proper paperwork. Not every deal is worth it.

You could also lend money online. I know there are others but one site is proper.com. You can look at the financial rating of the person and offer to loan as little a few dollars. I haven't used this but someone I know uses this is one of his side ventures.

Tom
 

Sasha

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My sister and I are starting a money lending biz in Jamaica right now. We will be finishing up all our paperwork and handing out loan applications by the end of the week... Different market, business regulations, and all that jazz, but I'll be glad to let you know how it's going if you're interested.
 
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moneymaker

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but I'll be glad to let you know how it's going if you're interested.
Sure, I'd be interested to hear more when you get going. Thanks.
 

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moneymaker

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As an update to this thread, I was checking out prosper.com and that led me to a couple others. Lending Club ( Personal Loans & Investing with Peer Lending - Lending Club ) is something that people here might want to check out if they're looking for business loans or alternative ways to invest. Also, IOU Central (Small Business Loans), which is strictly business loans. Lending Club sounds quite interesting because the default rates are relatively low and the interest you can earn on your money is quite decent compared with a lot of other investment options. Being from Canada I wasn't sure on their policy, but I emailed and they told me that it's typically $100,000 minimum investment.
 

cashflow3000

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The idea that always tickles my brain is playing a spread.

You can go on one of those sites like prosper or lending club, borrow money, then lend it back to someone on the same site.

You are taking a risk, but its an infinite ROI if you pull it off.
 
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moneymaker

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You can go on one of those sites like prosper or lending club, borrow money, then lend it back to someone on the same site.
I was actually thinking of this the other day and trying to weigh the pros and cons of investing borrowed money. What does everyone else think about it?

My reasoning was that people borrow money all the time for things that are purely expense and/or only depreciate in value. (vehicles, vacations, etc.) While it may be necessary to have a vehicle, it is not necessary to spend thousands to have the newest model. If a person borrows to invest then at least they have a reasonable chance of their investment appreciating. Sure you could lose it all, but what is the difference if you borrowed money for some other unnecessary reason?
 

Sasha

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People who borrow for vacations, cars and etc. typically consider what they can afford to pay now, given their current income.

People who borrow for investment typically consider what they think they'll be able to pay, based on what they think they will make in the future... as a result of what they are investing in.

You're "thinking" you can borrow, say, 100k @ 5 interest and make back 100k @ 11% so that you can cover the loan payments you have and still profit. However, you may very well invest the 100k and have everything go bust and not profit a dime... or not even make enough to cover the loan payments.

Now you're stuck paying off a loan that you can't afford or shouldn't have gotten in the first place... with no car or vacation pictures to show for it.

That's the difference.
 

mlangley

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A better route for the "spread scenario" might be to borrow a large amount from a single source and make several smaller loans to diversify the risk. That way if one person defaults, you still have the income from your other loans to cover you.
 

Mason

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The idea that always tickles my brain is playing a spread.

You can go on one of those sites like prosper or lending club, borrow money, then lend it back to someone on the same site.

You are taking a risk, but its an infinite ROI if you pull it off.
Were you able to do this? Did it work? That is actually what brought me back to this forum the because I thought of this exact thing. Thanks for any feedback!
 

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