As the cost of living rises, millions of Americans find themselves sinking further and further into debt, which necessitates the need to have debt consolidation experts to help them resolve their debt burdens. As a result, the debt consolidation industry is one that is growing, though not without its risks. As more and more consumers face debilitating monthly repayments, many turn to debt consolidation to relieve their overstretched pockets.
While the debt consolidation programs have in the past been taken as the preserve of low-income earners, changing economic times are driving even middle-class earners to look into debt consolidation services for their financial management.
As a debt consolidation business owner, your goal will be to consolidate clients’ multiple debts into a single consolidation loan that has a lower interest rate and monthly payments than their existing loans put together. This is usually done by combining the lower interest rates and unsecured consolidation loans with repayment over a longer period, which is where most of the risk lies.
Step 1: Find your startup financing
There are many different options if you’re looking to finance your startup. Naturally, the best option is to have the capital yourself, or come together with a couple of trusted people as business partners to put up the necessary capital. In the absence of this capital, you can turn to the following lenders:
- Direct lending – in this financing method, you will raise the capital yourself so that your own business consolidation loans are lent to consumers directly, rather than organizing for third-party lenders. It goes without saying that you’ll need a huge amount of startup capital, which you can raise using your own savings, partners’ savings, seeking venture capitalists and angel investors, family and friends among others. Having a solid capital base will keep the business going in the interim between lending and recovering loan amounts.
- Margin lending – if you can’t raise the capital, you may begin by taking out your own long-term credit line with an established lender so that they fund your lending as well as monthly operational expenses. You will use monthly payments from clients to repay your own loan. While this makes the work of starting out easier, it is also riskier since you place your business on the line in case clients still default on their loans. In addition, this method is subject to thorough regulatory scrutiny.
Step 2: Create a business plan
The business plan for your debt consolidation business must be carefully drafted to reflect your professional and personal business goals, while simultaneously preserving consistency in format with normal business plans. This is especially important for business plan-critical elements that are studied by most business experts.
Ensure that your business plan covers every element comprehensively, including the marketing plan and research and executive summary, so that you can give your startup a real survival chance. You will also need to carry out a PEST analysis, which covers the effect of external factors on your startup’s survival (PEST – political, economic, social and technological).
Step 3: Study your competition
Before you start a debt consolidation business in your locality, it is important to find out who and how strong your competitors are. You can use online resources to start your search for debt consolidation experts within your area. You can go through their profiles online, as well as their ratings and reviews using the Better Business Bureau to find out how reliable they are.
Knowing how tough the competition is will not only help you to prepare an appropriate counter-strategy, but you can also use the negative reviews/gaps previous clients report to improve your own service and offerings to woo more clients your way. If the competition is tough – such as a big, reputable businesses or too many similar businesses near you – you may have to relocate your business to a less congested area, or drop the idea if this isn’t possible.
Step 4: Market research and analysis
Competitor analysis is technically part of market analysis, since the number of clients you might attract is dictated in part by the existence of similar businesses nearby. The next step is to understand how the business operates in your area. Speak to somebody with whom you’re not in direct competition, e.g. someone in another town. After all, you can’t expect your local competitors to teach you how to beat them.
Ask them as many questions as you need to; it’s better to find someone that has been in the business for some time. You can cruise online Las Vegas consolidating companies to find out which ones have been around longest and work best. Reach out to them and see if someone is willing to meet with you. Fellow entrepreneurs will be more receptive if you’re polite and endearing. Nonetheless, be prepared to talk to many owners before you find one that is willing to share the tricks of the trade.
Conclusion: Other avenues for acquiring a debt consolidation business
Instead of expending all the time and energy in establishing and running a startup from scratch, you may choose to identify an established business whose owner is looking to sell. If you do this, however, ensure you have done your due diligence. Seek the professional opinion of a qualified accountant/financial advisor/auditor to look at their books and go further to hire a lawyer to go through the sale agreement so that your interests are covered.
The advantage of acquiring a going concern, particularly where you’re turning to lenders for your financing, is that lenders are more open to financing established businesses since they can analyze their track records and judge accordingly.
Franchising also makes the startup process easier and is an option for those that want to build their businesses from scratch, but ease the process. In a franchise, you’ll be exposed to working formulae and business models as well as gain clients as a result of the reputation the franchise has acquired over its time in practice. You can look online for franchising opportunities before reaching out to potential businesses with your idea. It is better to find a business that doesn’t have a branch close to you.
Isabella Rossellini is a qualified financial expert and a contributing writer in a number of financial information websites. She has extensive experience in financial services management, including debt consolidation and settlement among others.