How to find a profitable lending niche and target the right borrowers

As a loan business owner looking to succeed, scale and stand out in the lending ecosystem, you must discover a profitable niche that targets the right borrowers whose risk level fits your loan business model. At the same time, the temptation to cater to everyone’s credit needs is understandable. 

You must recognize that you can’t lend to everyone; not all sectors yield the same results. For example, if you’re extending loans to sectors heavily reliant on foreign exchange, there’s a slim chance you can thrive profitably, especially with the Nation’s current hyperinflation. If you’re just starting as a digital lender, now would be the best time to discover the right niche for you. Luckily! We’ve highlighted several ways to target the right borrowers and find a profitable niche. 

Never lend to a sector you don’t understand

Before you start lending, ask yourself, “What industry am I very familiar with?”. Never lend to a sector you don’t understand. Let’s say you have experience in Agriculture and are familiar with that sector’s inner workings. It would be an anomaly and, quite frankly, a disservice to yourself if you decide to lend to borrowers in the technology sector. Remember, sticking to what you know best not only minimizes risk but also maximizes your chances of making informed lending decisions.

Lend to sectors as an intermediary

This means you’re extending loans to individuals but not directly to them, but instead to a third party on behalf of the borrower. This sector is always profitable because, a lot of times, cunny-minded borrowers are unable to divert funds, which makes for a better-performing loan with a clear and trackable trail of use. Find out how Lendsqr lenders use the third-party disbursement feature to maximize profitability. 

Provide Buy-Now-Pay-later (BNPL) loan options

Another profitable lending niche is the BNPL loan sector. However, to truly profit from this lending niche. It’s important that the loan is sent to vetted and verified third parties, AKA Sellers. As much as possible, maintain KYC standards by extending BNPL loans for products that get delivered to an address. That way, you can verify the address details provided by the borrower.

Featured article: Device finance in Nigeria: A case for BNPL

Collaborate with stakeholders to expand credit access

For instance, if a business needs a loan for operational costs like buying diesel, think about exploring collaborations with suppliers or distributors. This way, you offer financial support and create a space to earn extra fees by bringing both parties together. 

Value chain lending

Extend credit not just to a company but its entire ecosystem: distributors, suppliers, and partners. Imagine financing a pastry manufacturer’s expansion with a loan for a piece of factory machinery, then granting credit access to their flour, egg, and sugar suppliers. And when you lend to a value chain system, you stand to profit a lot with a minimal amount of marketing while generating profit.

Start lending to the right niche for you!

Forget surviving, thrive! In this industry, finding your sweet spot and attracting the perfect borrowers isn’t just important. It’s the launchpad for the success of your loan business. When you lend to sectors you understand, collaborate with stakeholders, and support the chain of businesses, you set yourself up for growth and success in the lending industry.

If you need more information on starting as a digital lender and finding your niche, just send us a message at [email protected].