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How to set up a loan broker business

In many cases, acting as a broker and introducer for a business can be more profitable than being the company that actually lends the money.

Typically, there can be 5 or 10 times more brokers than there are lenders in an industry and they will usually receive a fee for every application, or a commission on the funded sale.

Financial brokers operate in a number of industries including:

  • Loans
  • Credit cards
  • Mortgages
  • Business funding
  • Bank accounts

To act as an introducer in the UK, you need to abide by certain regulatory requirements and ongoing compliance. Failing to keep up with the regulation can lead to heavy fines, company closure and even imprisonment.

Regulatory requirements

One important step to take is to check you have the right license authorisation from the relevant governing bodies in the UK.

Currently you can apply for FCA authorization through the FCA website, which can take between 3 months to 18 months depending on your application and services you offer.

Any individual can apply for FCA authorization and the process is made faster with the help of a solicitor or consultant who has been through the process already and knows what information is required.

Typically, you cannot be authorised if you have been in breach before or have a recent criminal record.

There are some industries where regulation is very strict such as personal loans and credit cards, and there are products where no regulation is required such as non-status lending, business loans and invoice finance.

Some industries are currently free of regulation, although this may change at any point. In business loans, you are taking a much greater risk by lending to a business (since you do not have an indication if it will be successful) and non-status lending means that you could be lending to people with very poor credit.

What is your unique selling point?

Before taking the steps to set up your company, you should consider what you makes your firm different from others already available on the market. This will be your unique selling point, or USP.

For example, will you only offer loans to a specific demographic or profession in the UK? e.g self-employed, young people, over 65s.

Will you focus on benefits such as speed of application or finding the lowest cost product. Will you be a bricks and mortar brokerage that you see on the high street or will you be completely online such as My Financial Broker and Badger Loans.

There are always opportunities to take advantage of growing industries such as equity release, bridging finance or business loans – things which people often struggle to get from high street banks.

Or you can look at working in a mature, saturated market, with the knowledge that there is a high consumer demand such as credit cards or personal loans.

Do you search for high volume or low volume deals? With mortgages, you may only need a few deals per month to make a good living, but with credit cards, you will probably need thousands of sales per month to make a good return.

Many brokers and comparison sites focus on added benefits which customers cannot get elsewhere such as:

  • Cashback
  • Introductory offers
  • Air miles
  • Free vouchers
  • Group discounts

Get the best commercials

When acting as a broker, you need to find different partners, lenders and financiers to send your enquiries to and earn commissions.

You may decide to focus on a product because the commercials and commissions are high and then base your strategy on that e.g equity release and mortgages.

Making sure you attract the right business partners and have good commercials in place will be key to running a profitable brokerage.

It is important to have contracts and good reporting of any leads you send through. You should keep things open in case you are delivering results and have the option to increase commissions.

Will you work on a flat-fee or commission basis? These are key things to consider and negotiate with partners.

How do you bring in customers?

Online methods such as pay-per-click advertising (PPC) and search engine optimization (SEO) are popular ways to get customers already searching for your products.

Otherwise, using social media such as Facebook, Instagram and LinkedIn can help you build up a following and can be targeted to different demographics based on age, gender, income and location.

Other marketing forms include; creating partnerships with other similar companies, referral schemes, SMS and email marketing too.

Customer support

When creating a loan broker firm you need to make sure you are providing excellent customer service for your customers. Simply being available by phone and email and being able to answer questions quickly can help build up your reputation and often lead to sales.

There are different customer support team options available to you. Many businesses will provide service support by email, phone, and increasingly chat boxes on the screen.

If you are setting up on your own, you can probably handle all customer service calls or queries initially, but as you grow, you may need to hire someone for this particular job.

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