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International Money Lending License and Operations

A fairly new offshore business opportunity is available in a number of jurisdictions. This is the business of furnishing small loans in amounts of at least $100 and no more than $5,000. A business of this type may operate internationally but must be headquartered in the jurisdiction where licensed. The majority of on site employees must typically be residents of the host country but no loans may be made to residents of the country. A typical limiting interest rate is 48 percent, and not compounded, per annum. A typical limit to these loans will be one year with refinancing available.

These loans can be collected by a number of 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 agreement and an ACH authorization agreement.

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 loan business.

Opportunity of an International Money Lending License

The possibility of gaining a 48 percent annual revenue stream on invested capital speaks for itself. In addition to charging interest a company may charge additional fees and penalties as allowed by local law. For the interested investor with experience in the loan business this can be a potentially very profitable undertaking.

Although these loans are typically not secured by property they are collectable by ACH transfer. Although such a business will not grant loans to residents of the host country it will be able to function across the globe.

Nature and Scope of Business

Such a business will typically be limited in how much it loans out by how much capital it has in reserve. Typical upper limits to a loan will be $5,000 but may not exceed 30 percent of the borrower’s monthly net income. All borrowers will be residents on any nation except the host nation. A majority of company employees will typically be from the host nation. Any and all work in excess of legal requirements of the license can be outsourced to reduce overhead and promote profits.

Starting Out

An international money lending operation with limits as discussed above will usually cost around $27,000 to set up and about $12,500 annually, including the cost of application, licenses, and other legal requirements. The scope of the business will determine extra capital requirements. Because more business means more money loaned out the company will need to increase financial reserves as more money comes in. As the annual license fee is typically tied to the previous year’s outstanding loan balance a very successful business will pay a higher license fee. For a very small operation there is typically an upper limit to loans of 15 percent of paid up capital of the company.

In applying for an international money lending license all officers, shareholders, and directors of the company will need to disclose financial and personal information.

In setting up advertising and a web presence the company will often wish to take advantage of the business of experience of the advisory company in the jurisdiction in question in order to effectively enter the lending market and to make sure that all is done in compliance with the requirements of the international money lending license.

Why These Licenses are Available

In most jurisdictions offering money lending licenses the specific law is clear than the purpose is to bring capital and employers to the country offering the license. Because the loans are made entirely offshore to what the investor will already consider an “offshore” location the issue is not one of providing credit to the country in question. However, the company providing loans under the government issued license will commonly bank in the same country.

Rules and Limitations

By in large the rules and restrictions on setting up a money lending operation in an offshore jurisdiction are similar to those seen elsewhere. For example, loans may not be provided to minors. Age 18 is a typical cutoff.

The company will need to comply with minimum capital requirements, provide evidence of doing due diligence of the creditworthiness of borrowers, maintain operations in the host country, employ a specified percentage of employees from the host country, not loan to residents of the country, and operate under the laws of the jurisdiction that provides the license.

Although the business requirements of setting up and running business offshore are typically less intrusive and expensive than those of working in ones home country there are still rules. The company will need to maintain loan records, typically for five years. The company will need to submit current fee schedules to the appropriate commission and comply with local rules as to the content of loan agreements. This specifically has to do with clear statement of lending rates and repayment conditions and amounts as well mechanisms for dispute settlement and late charges.

The company will need to publish lend fees and have written proof of collection practices. Commonly borrower confidential information will need to be kept confidential unless the lender has written confirmation that the borrower will allow their information to be used for purposes other than the loan in question.

Summary

An international money lending license for unsecured loans outside of the licensing country is a relatively new business opportunity. It is most probably a business meant for someone who has worked lending money before or who is willing to hire competent personnel for all critical aspects of their operation. As with all potentially lucrative businesses there will be paperwork and management responsibilities.

Limiting factors to such a business is that the majority of office work will need to be done in the country where the license is granted and that a majority of employees will need to be residents of the host country. Not being able to offer loans to country residents where licensed is a small limiting factor considering that the rest of the world is open for the company to do business in.