A car title loan business can be profitable for you, however, there are a few steps to consider in the process. Aside from obtaining experience, licenses and creating a plan, you must understand how obtain capital and on which cars to lend.
Do Research on Title Lending
Obtain as much knowledge as you can about title lending before starting a title loan company. Some title loan companies hold just the title to the vehicles they lend on while others hold the vehicles and titles until loans are repaid. If you are unfamiliar with the how the industry works, going to work for a successful lender for at least 1 to 3 years is recommended.
If you are a seasoned pro, decide which type of title lending makes the most sense for your company. If you are unsure, contact other companies outside your market and ask them for inside information about how to make money lending on car titles.
Create Title Loan Business Plan
Create a business plan that will allow you to map your your goals and objectives. A good business plan will include detailed financial reports, such as profit-loss statements, list of assets and expenses and a marketing plan. A business plan can be created with the help of an accountant or by using a template or kit.
Seek a Business Location
Shop for a suitable location. Before you apply for license, incorporate your business and apply for financing you should have a location in mind. Title loan companies do best in fairly busy retail areas.
Choose an office with enough space for your clients to complete applications in a clean reception area. Install a service counter for easy transactions with your clients. Ask a real estate agent to show you what's available in your area.
Obtain the Necessary Licenses
Contact your secretary of state's office to find out what licenses you need to open a lending company. Some states require only a business license, while others require a specialized permit.
Your state may require loan companies to meet minimum asset requirements (liquid assets of $25,000 or more is common), have background and credit checks done on owners, be incorporated and show proof of working capital. When your state office directs you to the regulatory agency, download the application package or have one sent to you. Complete each form carefully.
You'll also need to incorporate your company. Some states require loan companies to be incorporated and form a Limited Liability Company (LLC), partnership or traditional corporation.
Obtain Sufficient Funding
Obtain working capital to make loans and pay start-up expenses. Most loan companies obtain lines of credit from commercial banks. To apply, submit your business plan to a commercial banker. Your qualification will be based the strength of your plan and your credit report.
If you can't get a line of credit or bank loan, you will likely need to seek investors to help you. You will also need to buy or lease a space, outfit your office, pay a staff and take care of licensing fees. You should secure a credit line of at least $50,000 and expect to spend about $10,000 to get your license and your location fit for business transactions.
Screen Customers and Understand Collateral
Screen your customers wisely and know your collateral well. Utilize the "Kelley Blue Book" to check used car values. Consult with an experienced used car dealer to help you determine condition on each car you wish to lend on before making loans. Price your loans wisely and research your market before setting interest rates.
You should always have clearly-written contracts to avoid taking possession of cars without legal rights. Contact an attorney to help you and never violate predatory lending laws.
- Incorporate your company. Some states require loan companies to be incorporated and form a Limited Liability Company (LLC), partnership or traditional corporation (see Resources). Build a website. A website will expand your marketing opportunities and allow customers to apply for loans online.
- Never operate without a license. Always have clearly-written contracts to avoid taking possession of cars without legal rights. Contact an attorney to help you. Price your loans wisely. Research your market before setting interest rates. Never violate predatory lending laws.
Jim Hagerty is a writer and journalist who began writing professionally in 1996. He has had articles published in the "Rock River Times," "Builder's Journal" and various websites. He earned a Bachelor of Science in public relations and journalism from Northern Michigan University in Marquette.