Forums: Discussions for entrepreneurs and small business.

I am interested in starting a pay day loan business from home.  Any suggestions on where to start?
 I have been in business for over 5 years  as a consultant/broker.  I work with private lenders who provide working capital to small/medium size businesses in the form of account receivable and purchase order  funding.  I want to extend my service by providing pay day loans to individuals.  Any advice out there?

Loan sharking is a pretty horrible business to want to get into... there are surely more constructive ways to make money.

—paula

Hi Paula,
Thanks for your response. 
What makes the pay day loan business so horrible?  I see it as giving an opportunity to people who are in desperate need and have no where else to turn due to the urgency of their situation or bad credit.  Is there something more to it that I am missing? 

A long time ago, we used one of those services a few times. It was handy, so I guess it can be a useful business. Unfortunately, I don`t have any information on it, for you.


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Fortress — the payday loan industry has been in a lot of trouble because it is a predatory rip-off of vulnerable people. The fees associated with a payday loan are typically the equivalent of hundreds of percent APR; and if someone can`t pay on time, and the fees continue week by week, the APR can rack up to thousands of percent of the original loan in just a couple months. Often people cannot break out of the payday-loan debt cycle because the fees keep racking up and up and up — and profitability for payday lending is dependent upon these people. It is, quite literally, legalized loan sharking... about the only difference is that rolling over a payday loan won`t result in Vinny coming to cut your finger off. (Payday lenders can, however, cut your credit off by ruining your credit score. Which is worse?) I have read, but can`t verify, that the interest rates payday loan places charge are significantly higher than what actual street thug loan sharks typically charge. Payday lending was banned in Georgia a couple years ago. (I don`t know if it still is banned there.)

years and years ago I went to a payday lender when I had started a new job and was in that first-paycheck-takes-a-month period. I forget what they wanted to charge me, but in addition to the fee they wanted me to leave my car title with them. It was clear the place was not there to help — it was there to rip me off.

I`m sure if you google around you`ll find a lot more information. Wikipedia`s "payday loan" page appears to have consolidated a fair amount of information about it.

—paula

Is there a requirement stating that pay day loans must charge these exuberant rates?  If this is my business and my intention is to help others while helping myself by making some interest on my money, I do not  understand why I cannot charge what I think is reasonable. Is there a regulation stating a minimum rate that must be charged by all pay day loan lender you think? 

I doubt if there is any sort of requirement, and AFAIK the only regulation is a cap on rates for lending to military personnel because payday loans ruin their finances to the point that it actually interferes with deployment. It`s just how the business model works. Profitability occurs when people cannot pay back the loans on time and the fees go through the ceiling. (Credit cards work the same way... people who pay back their cards on time and in full don`t generate fees or higher interest rates.)

I guess my point is just that if you are interested in helping people through some sort of business, you should be aware that payday lending harms way more people than it helps, and is widely recognized by the FTC and other various official sources as a predatory lending practice.

Personally, in my opinion, it seems like there would be a lot more money in angel-style microlending to would-be entrepreneurs in disadvantaged situations, rather than debt that makes it so much more difficult for them to achieve self-sufficiency. The woman whose site I linked to above was doing just that — making in her words "huge and hideous capital gains" on an inner-city venture she funded, until the people in the venture got rich enough to try to buy their building from HUD (at which point she got sued by a contractor who would have lost a ton of government contract money because of the sale, but that`s another story).

—paula

I have a strong background in this arena .. you can email me to discuss.

Please contact me @ commy819@yahoo.com.  Thank you