Last week, we got a note from Ralleigh Grandberry IV.
“Jer and Miro, why do Autotitle lenders fail? I’ve seen a few guys open up and close. What went wrong?”
Ralleigh is starting out in Payday, and wants to expand into Auto Title lending. Here are Jer’s comments, and I’ll follow it up.
Seriously, Failure? Let me count the ways… undercapitalized, poor collection skills, lack of focus, wrong state, one catastrophic error in the 1st 12 months, infighting amongst your Team, internal theft, poor customer service, failure to think long-term in all aspects of your business particularly regarding customer retention/remarketing/building referrals, not incentivizing your CSR’s in alignment with your short/long-term goals… Need I go on?
Having said this, there is serious money to be made and I like the future of car title much more than PDL’s and installment products.
I’m sure the “mercurial” Miro will COMPLETELY disagree with me on ALL my ramblings :o)
This is free counsel so implement at your peril.
Jer – Trihouse
Jer covers most of the big issues. UNDERCAPITALIZED is a big one. I had a conference call with a lady that was intending to open an auto title operation. She had $15k to open the store. I assumed that was her budget to get a small store open. NOPE. That was her entire budget PLUS her working capital. She had projected that she’s earn $3375.00 per month on that amount. This is fantasy.
If she’s extra careful, MAYBE she can open a 10×10 office with a laptop, printer and camera for $10,000.00. She’s not even considering signage, permits, 1st, last & security, etc. That leaves her $5k for the street. That’s enough for 5 customers. After that she has to turn people away.
Having deep pockets in this industry is an absolute must. You’re going to have to experiment to find your sweet spot as far as underwriting goes. It’s going to take some trial and error. That means, you’re going to give out money, and NOT get it back. Especially when you’re new. You’re going to attract every professional debtor within a 200 mile circle of your store. If your bank balance is FAT, you can take your hits, keep going, and then it’s going to magically turn around for you.
I think if I had to offer a few key suggestions:
1: Have deep pockets
2: It’s a people business. Be amazing with people.
3: Supervise and verify everything. Especially employees.
PS: My Auto Title course is going to be released very soon. Watch out for it.
Miro
We opened our first car title loan biz in Mississippi with $25K. Admitedly, it was tough slogging the first 12 months. (The costs for signage really surprised me!)
Today we have $120K on the street. We gross about $20K in fees. DOING GREAT!
Auto Title is the biggest and most important trend to Payday Loan operators. You cannot ignore this tremendous opportunity to diversity and build your portfolio. We’ve crafted this resource to help you to LAUNCH a sucessful business. either stand alone, or as a division.
Miro – I agree you have to have enough cash to come to the table. If your stake is small start in payday. But I think there are two main reasons folks won’t succeed.
1 – Desperation to get the money out. No customers and then one finally comes in! You HAVE to fund him! No you don’t. Be conservative in the beginning. Have small successes before you fund the Lamborghini loan. Hold true to your underwriting.
2 – Its a collection business. 1% lending, 99% getting the money back. Do you have the stomach for conflict, being lied to, disconnected phones, bankrupts, skips? And still be the most friendly person on the planet?
Good luck to all. After 34 years in collections I’m now taking the plunge.
Steve, good points!
I would add that there is another extreme: That is the “no-no store.” There is an abundance of operators who fail to scale their businesses. Forced to “work the counter” for years, they become jaded. Every customer touch point becomes an opportunity for them to “say no.” These owners don’t want to say “yes” to the loan because they’re already thinking about the collections “piece” that follows each approved loan.
How do you avoid this scenario? Scale your business. Build a tight, well run business money machine; literally a “recipe” you can duplicate over and over. Read “The E-Myth Revisited.” (Get it at Amazon.) Finally, keep your knowledge and skill sets up to date. Talk with your peers, industry vendors, your industry association…
An idea: Start a “Peer MasterMind Group” for owners and operators ONLY. Perhaps a monthly subscription component with 1 – 2 webinars/month. Hm…
Steve, a payday lender has a huge head start with this business. Nebraska has some tough regulations in place for this type of lending. Depending on your risk tolerance, there are some business systems that would allow you to provide this service. Contact us privately and we can offer some options.
Micro, as a payday loan lender, would be very interested in moving into the title loan side of things to offer that option to our customers. My concern is I don’t believe this option has been approved by the state of Nebraska. Do you have any insight Into this?
Steve
Hello Frank.
thanks for commenting. Usually an autotitle lending will Gross between 15-23% per month on the “on the street” base. I worked with a guy that was doing 30% loans, every two weeks, and he was getting 56% per MONTH. WOW. This operation was spectacular.
Yes, the new car manual will be released shortly. We’re going through final edits. and fact checking. (If I say it’s a fact, then it’s a fact!).
I’ve included a lot of information from the PDL advanced operations manual, and added in startups information, store opening checklists, and it’s very focused towards the auto title lending model.
Be READY…
Miro,
good points. I’m wondering if you can expand on “under capitalization.” I’m in GA. What should I expect to gross monthly on every $10K in street money? Is there a basic Gross ROI? Or should I be looking at this from a different metric?
APPRECIATE all your thoughts! So, where is your new Car Title Manual? Is it as good as your PDL Operator’s manual?
Frank