Starting a money lending business in India requires careful planning and budgeting to establish and operate your company. While a money lending operation promises lucrative returns, the upfront costs and regulatory requirements should not be underestimated.
This guide will educate readers on all the key expenses involved so you can make informed financial decisions and set realistic budgets from day one. Whether you aim to focus on payday lending, title loans, pawn loans or installment loans, you will encounter many of the same startup and ongoing costs covered in this post.
We will specifically dive into these 7 critical costs categories:
- Business Registration & Licensing
- Office Space
- Renting vs. Buying Considerations
- Equipment
- Staffing
- Legal & Accounting
- Miscellaneous Overhead Expenses
Gaining clarity on these expected costs based on your operational scale will help set your money lending business up for success.
Average Money Lending Business Costs By Type
| Business Type | Average Startup Costs |
|---|---|
| Small Loan Office | $50,000 to $75,000 |
| Medium Lender With Multiple Locations | $150,000 to $300,000 |
| Large Finance Company | $500,000+ |
Now let’s explore these costs categories and considerations in more detail…
Business Licensing & Registration Costs
In India, securing the right licenses, permits and registrations serves as an important initial step when setting up a money lending or finance company. Overall, you should expect to spend $1,500 to $3,000 to fully comply with ongoing business regulations. However, business structure, area and size will determine your exact expenses.
Specifically, here are the three key costs to factor in:
1. Company Registration
Registering your lending organization as a business entity through the Ministry of Corporate Affairs comes first. This is mandatory for liability protection.
The most popular options include:
- Private Limited Company: Most formal registration provides full limited liability. Expenses include:
- Fees: Between ₹13,000 to ₹15,000
- Professional charges: Around ₹3,000
- Limited Liability Partnership (LLP): Provides liability protection while avoiding some Private Limited compliance. Costs entail:
- Fees: ₹2,500 to ₹4,500
- Professional charges: Around ₹3,500
- One Person Company: Simplest business structure allows a sole owner. Requires:
- Fees: Around ₹13,000
- Professional charges: About ₹3,500
Overall, setting up a Private Limited Company sees the highest expenses of ₹16,000 to ₹18,000. However, this provides the most credibility with customers.
2. Operational Trade Licenses
Next, your money lending business must legally register under:
- Shops & Establishments Act: Mandatory for all offices/commercial places. Renewal required annually. Fees based on size & location.
- GST Registration: For financial services, an 18% Goods and Services Tax applies. One-time registration fee is ₹500.
- MSME Registration (Optional): Register as a Micro, Small or Medium Enterprise for benefits/schemes eligibility. Free registration.
These licenses typically cost between ₹500 to ₹25,000 depending on the region. Consult your local authorities to determine exact figures.
3. Finance Company Certification
Finally, all lending businesses in India looking to offer small size loans must obtain an NBFC registration and license. Costs include:
- RBI certificate fees: ₹5,000 to ₹10,000
- External auditor charges: Around ₹3,500 per yearly audit
- Legal charges: ₹1,500 and up for drafting paperwork
- Recurring fees: ₹1,000 to ₹1,500 yearly
Together, NBFC registration may cost ₹15,000 to ₹20,000 depending on the legal and professional fees in your state.
In summary, startup lending companies should budget ₹20,000 to ₹50,000 to formally register their business entity, acquire operational licenses, and gain NBFC certification.
Carefully exploring all regulators and requirements in your region remains essential. With the right business structure and permissions secured first, you can then shift focus to other functional costs like real estate, systems, and staff to commence money lending operations compliantly.
Office Space Costs
One of the biggest startup costs for a money lending business in India are real estate expenses to set up physical branch locations. While the rise of digital lending allows some operations to be online-only using cost-effective cloud solutions, having local storefronts remains important for attracting new customers across metro, urban and rural areas.
Below we explore typical real estate costs in two ways – renting or buying.
Renting Office Space
Most new lending companies in India rent retail spaces for higher flexibility and lower upfront investment. Average monthly rental rates by city for commercial locations include:
- Tier 1 Cities:
- Mumbai – ₹150 to ₹300 psf
- Delhi – ₹100 to ₹200 psf
- Tier 2 Cities:
- Bangalore – ₹50 to ₹125 psf
- Pune – ₹40 to ₹90 psf
- Tier 3 Cities:
- Ahmedabad – ₹25 to ₹60 psf
- Jaipur – ₹15 to ₹50 psf
So renting commercial space for money lending in Mumbai of 1,000 square feet costs around ₹150,000 to ₹300,000 per year. In smaller cities like Ahmedabad budget approximately ₹300,000 to ₹720,000 yearly for the same area. These figures provide a framework to forecast yearly costs by locality as you explore appropriate branches based on customer demand.
Buying Office Space
Alternatively, some established Indian finance companies invest in owning their premises. Average commercial space purchase prices across India include:
| City | Cost per Square Foot |
|---|---|
| Mumbai | ₹32,100 |
| Bangalore | ₹9,500 |
| Kolkata | ₹5,700 |
In addition to these base prices, you must also budget for:
- Legal fees
- Registration charges
- Taxes and duties
- Maintenance charges
- Renovation costs
This easily adds 30% or more to the total cost. So for example, buying real estate for a lending business in Bangalore would cost around ₹12,350 per square foot all-in.
In summary, finance companies should budget ₹500,000 to ₹2,000,000 or more for real estate needs depending on:
- Metro vs. small cities
- Rent vs. buy decisions
- Location preferences
- Number of branches
Carefully projecting location costs based on outlet sizing, number of required offices, and ownership models will help accurately forecast this critical spend category.
Equipment Costs
While not as expensive as real estate, money lending operations in India do require investments in key hardware and software to manage critical financing, records and security functions.
1. Core Hardware
Essential computers and equipment with average pricing:
- Work desktops – ₹35,000 to ₹60,000
- Laser printers – ₹18,000 to ₹35,000
- Document scanners – ₹22,000 to ₹55,000
- Safes – ₹10,000 to ₹50,000
- Security camera system – ₹35,000 to ₹1,50,000
So budget ₹150,000 to ₹400,000 for critical systems. Scale up for multiple locations.
2. Management Software
Robust lending management systems help automate origination, underwriting, disbursement tracking and collections. Costs include:
- One time fees – ₹50,000 to ₹500,000+
- Monthly charges – ₹5,000 to ₹50,000
- Custom integration – ₹200/hour
Evaluate options matching your operational requirements.
3. Auxiliary Tools
- Payment processing systems
- eSigning platforms
- Credit check services
- Communication tools
- Productivity software
Allocate another ₹100,000 to ₹300,000 for ancillary capabilities.
In summary, new Indian lending companies should earmark ₹400,000 to ₹1,500,000+ for critical IT infrastructure, systems and services supporting efficient operations at scale.
Staffing Costs
Employees represent the engine of any money lending business directly interfacing with customers. Staffing remains one of the largest recurring costs.
Here are typical Indian lending business roles and salary expectations:
| Position | Average Salary |
|---|---|
| Business Development Manager | ₹400,000 |
| Loan Officer/Account Manager | ₹250,000 |
| Credit Analyst | ₹180,000 |
| Collection Agent | ₹120,000 |
| Clerk | ₹100,000 |
Additionally, leadership positions like branch managers and CXOs command ₹700,000 to ₹1,500,000 or more in compensation.
When forecasting payroll, remember to account for:
- Base pay
- Commissions
- Bonuses
- Payroll taxes
- Healthcare
- Retirement accounts
- Leaves
This can add 15% to 25% on top of base salaries.
Finally, staffing needs directly correlate with lending volumes. So model employee expenses based on:
- Size of portfolio
- Number of locations
- Stage of funding
Using salary benchmarks and headcount models, finance firms may spend ₹5 million to ₹15 million or more on talent.
Carefully projecting organizational design and compensation norms allows for accurate budgeting as you scale your Indian lending startup.
Now that we have covered major cost categories like real estate, equipment and payroll, next we will explore critical operating expenses around legal, accounting and miscellaneous overheads.
Legal & Accounting Costs
Running a compliant money lending business in India requires working with professionals to manage necessary legal and financial governance. While not as expensive as real estate or staffing, legal and accounting still represent key operational costs.
Legal Expenses
Lawyers help handle contractual paperwork, disputes and lawsuits around lending activities. Average legal costs include:
- Advisory charges: ₹3,000 – ₹5,000 monthly retainer plus hourly fees
- Compliance audits: ₹10,000 per annual review
- Loan agreement drafting: ₹1,500 – ₹2,500 per contract
- Litigation charges: Hourly fees if any legal disputes
Based on lending volumes, operational complexity and risk appetite, most Indian finance companies budget ₹200,000 to ₹500,000 or more for legal expenses.
Accounting & Tax Costs
Chartered Accountants (CA) manage taxation, compliance, financial reporting and advising for optimal profitability. Standard accounting fees:
- Consulting & FILING: ₹3,000 – ₹10,000 monthly
- Taxes prep: 1% – 3% of total tax liability
- Auditing: ₹50,000 – ₹150,000 per annual audit
So most small lending firms pay ₹100,000 to ₹300,000 for accounting annually. Tax payments come on top based on income.
In summary, plan around ₹350,000 per year or more to partner with legal counsel and CAs ensuring smooth finance company operations.
Miscellaneous Startup Costs
Finally, some other key expenses that add up when establishing a new Indian money lending business:
Office Furnishing
- Desks, chairs, cabinets etc
- Partitions & cubicles
- Workstation computers
- Waiting room seating
- Water dispensers & supplies
Budget ₹500 – ₹1,500 psf for barebones to luxury fit-outs.
Marketing Collateral
- Branding – logos, stationery, brochures
- Online – website, digital ads
- Physical – signboards, pamphlets
Allocate ₹250,000 to ₹1,000,000+ based on channels.
Insurance Policies
- Office insurance
- Cyber insurance
- Key employee insurance
- Business interruption
Expect to spend ₹100,000 to ₹250,000 on premiums.
Travel & Comms
- Company vehicles
- Telecom expenses
- Postage & delivery
Project ₹250,000 per branch annually for transport/coordination.
| Cost Item | Budget Range |
|---|---|
| Office Furnishing | ₹250,000 – ₹1,500,000 |
| Marketing Collateral | ₹250,000 – ₹1,000,000+ |
| Insurance | ₹100,000 – ₹250,000 |
| Travel & Comms | ₹250,000 per branch location |
So in total budget ₹1 million to ₹3 million+ to cover your bases on miscellaneous launch overheads.
Carefully projecting all one-time setup and ongoing operational expenses – from staffing to facilities to professional services and more – remains crucial for Indian lending companies to maintain healthy cash flows while responsibly growing your book.
