Now while it is true that paying in installments is a good plan, the interest rate robs us directly from our bank account or wallet. But I'm not going to talk about buy and sell in this topic. I'm merely setting an example that is directly related to the money lending business.
The term 5-6 is derived from the interest rate that has been used in money lending business for a long time. By lending 5, we receive 6 in the end, which in total is actually 20% profit.
So what are the things you should be considering? For starters, how much are you willing to risk? I'm mentioning this because money lending business does not give you a 100% chance at profit. You will have to expect that sometimes, someone will not pay.
Let's say for example you decided to venture into this business and have an excess of 5,000. Two individual come to you. Both are asking to borrow 4,000. How will you divide your 5,000?
In money lending business, it is important for entrepreneurs to diversify. Lend 2,500 to each person rather than giving the full amount to only one. By doing so, you will get a lesser chance at losing. Even if one decides to run away, the other one will still profit you.
Now the next issue is to how long will it take for them to pay? Set a limit where you and your client can meet half way. Do not impose a specific time frame just because it is how you want it to be. Be lenient. I myself tried this and gave the person 15 days to pay me back only to have me wait for 15 days more. If you can willingly wait for a month, then that would give your client an ample time to earn and pay you.
What is your preferred interest rate? You can opt for the usual 20%/5-6 but to keep your client hooked, go for lesser rates. This will separate you from other lenders and at the same time, lessen the burden of your clients.
One thing I'd like to recommend to everyone venturing into money lending business is to have your client pay in at most 3 divided payments. the first payment should be the highest amount. Once this is done, your client will feel lighter when the succeeding two payments are made.
Keep your money cycling. Your 5,000 will get far. While others prefer that you take away a small percentage for your own, my advice is to keep everything moving. Lend it to other people, keep diversifying. If I decide to offer 10% interest rate a month, that will profit me 500 from my 5,000. If I get the full one year profit, I'd have received 220%, which is 11,000 (5,000 invested money + 6,000 profit).
Now that may be just a small amount but remember, you've already gained more than double your investment in just over a year by simply doing nothing, merely lending it to your clients.
Money lending business is naturally frustrating. While it is true that the return is quite high, the thought of going from one place to another, searching for your clients to pay on time, thinking if your money will still generate you income or simply disappear into thin air is just alarming.
In this business, you have to be a patient person. Someone who can't tolerate waiting will not survive or experience wealth in this venture. Learn how to wait, and how to do it with a smile on your face.
I made mention of examples that I consider my recommendations for this type of business. Understand that they are my opinions only and that you can formulate your own means of profiting from your invested money. Some offer 20% while others 10%. I made a 30 day limit for payments as an example, you on the other hand can opt for only 15 days.
How you decide on making profit or wealth will have a direct effect on the customers you attract and serve for a period of time. Take time to think about it. Ponder on the factors that can both benefit you and your clients.
At the end of the day, it will all boil down to one important thing, will your clients pay?
It is true that when someone is in need, they tend to become too emotional and end up trying to convince everyone to help them. That is a similar concept with the money lending business. Your clients will be the kindest persons on earth just so you will let them borrow your money. The problem comes when the expected date of payment comes and they are nowhere to be found.
We can only lessen the percentage of failing but not totally prevent it. Here are some factors you should consider about the person to whom you're going to lend your money.
1. Lend money to financially capable persons. There comes a time when someone doesn't have enough to spend on a particular period. They're not poor, just financially challenged at times. These are the types of clients you want to deal with. It is likely for them to pay you as compared to those who are financially unstable.
2. Do not add burden to an already burdened man. Someone who cannot sustain a stable income is still trying hard to survive financially. It is not the right time for them to borrow an amount that has an additional interest rate. They will most likely be unable to pay and may even run away with your money.
3. A collateral will help. If you can convince your client to leave a collateral until the whole amount is paid, then that will ensure the return of your investment and profit.
Always be wise in handling your money when venturing into money lending business. The profit and wealth obtained is high but the risks are higher.
