Ethical short term loans - is it possible ?

Dexter2

I am looking into the concept of setting up a short term loan company. As we all know, many of the players in this market are predatory at best and the decent operators are less common than they should be. I don't intend this to be advertising, and indeed won't be advertising. Rather, what I am trying to do is fact and opinion find as to what the market thinks would be 'ethical', 'decent' and or 'reasonable' in terms of short term loans. I've sat and seen and had to deal with people who have been utterly fleeced by short term lenders, and also those who have fleeced their lenders, by taking the cash and simply spending it all (and not disclosing their debts fully etc.) and being men of straw when it comes to repayment time.

I don't want to be a man who has some bouncers looking for cash work enforcing for him, rather I am looking to deal with decent people, who simply want a hand at a time when they are vulnerable, at fair and equitable rates and it all being fully licensed, approved and above board (and eventually, I'd hope a reputation for being decent would get me eventual acceptance, if not approval/endorsement (!) by debt management charities etc.), i.e. a fair system for lenders and the customers.

By short term, I mean loans in the order of £1,000 to £25,000, which would be repayable in short order, typically less than 3 months (though maybe more in exceptional circumstances).

At the moment, I think the basic points boil down to:

Availability - who should these loans be available to - should some people be told straight, look, this really isn't for you, you need to try somewhere else as it's just not going to do you any good ? Would you support variable lending to homeowners, tenants or those with little credit record (or a shocking one) ?

Terms - the range of short term loans is currently anywhere up from just above high street lending rates, through Zopa style entities to 25% per month for stuff like logbook loans and the like. I have no intention of competing at the lowest end of the market, because the proportionate admin costs mean that the borrowers are always going to end up hurting in terms of repayments and not least because it seems to be saturated with providers. Would you prefer a higher rate of interest and no charges/facility fees, or would you prefer to see it all broken down and charged individually (or at least explained individually).

Security - what do borrowers think is reasonable to offer, if at all, as security.

Information - would you, as a potential borrower, be happy to pay less interest for full disclosure of your finances, or would you prefer to keep it quiet and let the lender price in the higher risk ?

Other - what do you, as potential customers, think is fair and reasonable to be able to expect from such a lender ? And what practices do you think are worst and unacceptable (being sensible) ? Would you like to be able to approach direct, or be restricted in any way to introductions from IFAs and the like ? Where do you stand on payment of commissions to introducers ?

Again, this is not meant to be advertising, I am simply looking for people's views in order to assist in formalising a nascent business plan... and the biggest UK place on the net for people for looking for and giving advice seemed to be a good independent (and honest !) place to add to the 'loaded' research I've already done.

Thanks in advance.

Emmzi

Dex, let's start with, what experience do you have in lending?

Have you investigated the licences you would need?

You have talked to people who have been "fleeced" by lenders, have you talked to lenders who have been left high and dry by people not repaying loans?

The typical model you are looking at is "large overdraft" and there is a reason the high street banks dont think theey will make money out of your target market.

Dexter2

I've spent 15 years dealing with corporate lending and corporate finance, ranging from small one man bands to multibillion multinationals. Mostly equity, borrower and bondholders (in solvent and insolvent situations). As an advisor.

I've also done debt advice (admittedly a while ago) for individuals in CAB centres. As such, my experience of the current pure retail market is less !

I fully understand and am all over the licensing requirements, ongoing CCA requirements and dealing with our friends at the FSA etc. The detail and technicalities of the loans etc. are something that is my bread and butter.

I see a lot of people struggling because cashflow is king and their established lenders simply won't provide it - not because of the individual business or individual, but because of a sweeping missive from on high. I also know that the same is true for individuals. Anbd being blunt, because I see the markets getting a whole lot worse before they get substantially better.

Hence, I am feeling out the gap in the market, which is for those who need cash now and are not ready or willing to swim in the murkier depths but where the banks at the surface are only line fishing and so can't or don't want to catch people - part of this process is working out where to pitch..... the preference is to avoid, if possible, becoming a remora.... - it's very easy to sit in ivory towers and simply do desktop analysis of raw numbers, but it misses part of the point and doesn't ID a USP - I have a rate, terms and margins etc. in mind, clearly, what I am trying to see is whether the potential market agrees/disagrees (obviously I can't post up those potential terms at the moment...., so please forgive me for not doing).

Thanks for your input.

Emmzi

Having been a retail banker, I'd say even in times of plenty money I'd lend to maybe 10% of the people who post on here for loan advice. Most others look to be a) already over-lent or b) have no tangible income. And the reality is that non-mainstream lenders attract poorer credit risks. In business terms, you *are* going to identify them on percentaage terms and broad generalisations, because you need something to base your rates on.

I have no idea how you would size out the realistic market of the 10% or so who look like a reasonable risk, but cannot get credit because of 1 or 2 minor errors.