Starting a lending company is one, sustaining it is second. Few regulators in Asia and USA understand the challenge, as the process is the same. By the end what matters is:
a) *portfolio income* - that composes of interest, fees, penalties, late charges and other income like merchant repayments (f.e. in a credit card business), marketing income (selling aggregated data or data from source), other income from cross selling and so on
b) *portfolio provisions* - following the performance of the portfolio in previous months. It is important to have a proper write-offs setup (as portfolio shrinks and therefore provisions are lower, usually 180 days after DPD)
c) *cost of funds* - where is calculated not only interest paid to depositors, but also costs connected with transferring the costs (tax, withholding tax, bank fees, ....)
d) **net lending result** - has to be maintained positive, as this is allowing company to sustain costs, otherwise they to be supplemented by strong enough own equity (own capital, funds, convertible notes, profits/losses from previous years...)
e) *administration costs* - to run the whole operation including of employees, rent, sundries, travelling costs and so on. It is challenging for company to keep them low, as every process could take 5 or 10 people depending on atomization, processes, management responsibility, enforceability and motivation
f) *depreciation* - is used for long term investments that decrease in value like computers, hardware, software,.....
g) *write-off* - of DPD 180 loans enetering that partical month
h) *sale of portfolio income*
i) *marketing costs*
j) **operating profit or loss** - is the good indicator of the general position of the company. Sometimes it is interchanged by EBITDA - CAPEX.
k) financial costs - from running business
l) financial costs - from exchange
m) ***profit or loss before taxes***
n) ***profit or loss after taxes***
Keeping the track of each item & following the pattern allows the lending company to seek the perfect stage. Cost of funds for such a company could be from 2% in bank to 35%+WT+Bank charges+local income tax a year for a startup. As it is 17.5x more expensive for a startup in lending to borrow money it is a good decision to make a proper management decisions and follow mitigation of risks and volatilities.
