A relatively new offshore business opportunity is available in a number of jurisdictions. This is the business of making small loans in amounts of at least $100 and no more than $5,000. Such a company can operate internationally, but must be based in the jurisdiction in which it was licensed. Generally, the majority of on-site employees must be residents of the host country, but loans cannot be made to residents of the country. A typical cap interest rate is 48 percent, and not compounded, per year. A typical limit for these loans will be one year with refinancing available.
These loans can be collected by various means, including ACH transfer, but are not secured by title to real property, a motor vehicle, tangible personal property, or any other type of collateral other than the loan contract and authorization agreement. ACH.
Such an international money lending license must be carried out by a company with a designated number of employees with clear proof of having worked in the short-term lending business.
Opportunity for an international money lending license
The possibility of obtaining an annual income stream of 48 percent on the invested capital speaks for itself. In addition to charging interest, a business may charge additional fees and penalties as permitted by local law. For the interested investor with experience in the lending business, this can be a potentially very profitable venture.
Although these loans are generally not secured by property, they are collectible via ACH transfer. Although such a business will not provide loans to residents of the host country, it will be able to operate all over the world.
Nature and scope of business
Typically, such a company will be limited in the amount it lends by the amount of capital it has in reserve. Typical maximum loan limits will be $5,000, but may not exceed 30 percent of the borrower’s net monthly income. All borrowers will be residents of any nation except the host nation. Most of the company’s employees will normally be from the host country. All work in excess of legal license requirements can be outsourced to reduce overhead and promote profit.
starting
Setting up an international money lending operation with the limits mentioned above will cost about $27,000 and about $12,500 a year, including application fees, licenses, and other legal requirements. The scope of the business will determine the additional capital requirements. Because more business means more money borrowed, the company will need to increase financial reserves as more money comes in. Since the annual license fee is usually tied to the outstanding loan balance from the previous year, a very successful company will pay a higher license fee. For a very small operation, there is usually an upper limit on loans of 15 percent of the paid-up capital of the business.
When applying for an international money lending license, all company officers, shareholders and directors will be required to disclose financial and personal information.
When establishing advertising and a web presence, the company will often want to take advantage of the advisory firm’s business experience in the jurisdiction in question to effectively enter the lending market and ensure that everything is done in accordance with the requirements of international money lending license
Why these licenses are available
In most jurisdictions that offer money lending licences, the specific law is clear that the purpose is to bring capital and employers into the licensing country. Because the loans are made entirely offshore to what the investor will already consider an “offshore” location, providing credit to the country in question is not the problem. However, the company providing loans under the government-issued license will typically have banking operations in the same country.
Rules and limitations
In general, the rules and restrictions for setting up a money lending operation in an offshore jurisdiction are similar to those seen elsewhere. For example, loans cannot be granted to minors. The age of 18 is a typical limit.
Company must meet minimum capital requirements, provide evidence of having performed due diligence on borrowers’ creditworthiness, maintain host country operations, employ a specified percentage of host country employees, not lend to host country residents and operate under the laws of the licensing jurisdiction.
Although the business requirements for setting up and running businesses abroad are often less intrusive and expensive than those for working in your home country, there are still rules. The business will be required to maintain loan records, typically for five years. The company must submit current rate schedules to the appropriate commission and comply with local regulations regarding the content of loan agreements. This specifically has to do with clearly stating loan rates and repayment terms and amounts, as well as dispute resolution mechanisms and late fees.
The company will be required to publish loan rates and have written proof of collection practices. In general, the borrower’s confidential information must be kept confidential unless the lender has confirmed in writing that the borrower will allow the borrower’s information to be used for purposes other than the loan in question.
Summary
An international money lending license for unsecured loans outside the country of the license is a relatively new business opportunity. Most likely, it is a business intended for someone who has worked in lending money before or is willing to hire competent staff for all critical aspects of their operation. As with all potentially lucrative businesses, there will be paperwork and management responsibilities.
The limiting factors for such a business are that most office work will need to be done in the country where the license is granted and most employees will need to be residents of the host country. Not being able to offer loans to residents of the country where they are licensed is a bit of a limiting factor considering the rest of the world is open for the company to do business with.