Business development · 20 July 2021

How to start a non-banking finance company

How to start a non banking finance company

If you’ve been dreaming about beginning your own non-banking finance company, you might be eager to get started. However, it can feel overwhelming at the beginning, so you may be looking for helping hand when it comes to understanding how to start a non-banking finance company.

We’ve got you covered. In this article, we’ll explain the different types of non-banking finance companies, as well as how you can get started in setting up your own NBFC.

Thinking of starting your own NBFC?

So, you’re thinking about setting up your own non-banking finance company. But where do you start? The search engines can be quite overwhelming at times, with everyone giving different advice. You need one solid source of information to talk you through the facts. You’re in the right place.

We’re going to walk you through the steps of beginning your own non-banking finance company, from narrowing down your business plan through to opening your doors to customers. Read on to learn everything you need to know about starting your own non-banking finance company.

What is a non banking finance company

What is a non-banking finance company?

Non-banking finance companies, often abbreviated to NBFC, are businesses that provide financial services without holding a banking licence. To confuse things further, you’ll probably also see them referred to as non-banking financial institutions, or NBFI.

NBFIs are not required to comply with the banking regulations and are not overseen in the same way as traditional licenced banks. These financial institutions place a significant role in meeting the credit demands which are unmet by traditional banks.

Types of non-banking finance company

There are many different types of non-banking finance companies, across the globe. Essentially, any business which provides financial services but does not hold a banking license could be categorised as an NBFC.

Types of non-banking finance companies include:

  • Financial Advisors
  • Mortgage Brokers
  • Investment Management Services
  • Lending and Finance Companies
  • Investment Fund Administrators
  • Insurance Brokers
  • Crowdfunding Platforms
  • Payment Service Providers
  • Insurance Companies

The process of starting your NBFC

If you’re ready to start your NBFC, you’ll probably be wondering where to begin. Read on to discover the five simple steps to starting your non-banking finance company.

1.     Lay the foundations

First things first, you’ll need to think about the type of company that you want to set up and who your target market will be. Do you plan to create a mortgage advice company that helps first time buyers to get onto the property ladder, or an investment management service that assists wealthy business people in managing their investments?

Once you’ve established the type of business that you’ll be running, you’ll need to do your research. This means analysing the current offering and identifying your competitors, as well as ensuring that you really understand your target market. Think about exactly what it is that your ideal customer looking for and identify their main problems that you aim to solve with your business.

2.     Create a business plan

Next, you’ll need to create a business plan which details exactly how you plan to start and run your business. This business plan will be the blueprint of your company’s future, explaining exactly what it will look like and how it will operate.

You’ll also need to crunch the numbers in this step. Calculate exactly how much money you will need to begin your business and consider how you can fund your business. It’s worth consulting with an accountant here to ensure that your business is financially viable. This can help you to avoid expensive mistakes later down the line.

3.     Get on the right side of the law

Once you’ve established the type of business that you’ll be starting and got your business plan together, it’s time to think about the legalities of your business.

Firstly, you’ll need to think about your business structure. Most finance companies in the UK are registered as Limited Companies. This means that the company is its own legal entity, meaning that the company itself is responsible for any debts it incurs, reducing your liability.

You’ll then need to register your business with both Companies House and HMRC. However, before you do this, you’ll need to choose a unique name for your company which is not already being used by any other business.

Finally, you’ll also need to register your business with the Financial Conduct Authority, or the FCA. It’s important to note that this isn’t always a fast process; it can take up to six months to complete this registration process, so ensure that you leave plenty of time for your application to be processed.

4.     Cover yourself

When you’re operating in the financial services market, it’s important to ensure that you’re legally covered at all times. This means sourcing adequate insurance which covers you against any mistakes that you may make in the future. Although no one sets out to make mistakes in their work, these things do happen from time to time, so it’s important to ensure that your business is covered.

It’s also a good idea to make sure you’re clued up on the various financial regulations in the UK. This includes the legislation set out in the Financial Services and Markets Act (FSMA) 2000, as well as the Financial Conduct Authority regulations.

5.     Start trading

Once you’re legally set up as a business, have registered with the Financial Conduct Authority and have your insurance in place, it’s time to begin trading. Before you open your doors for business, you’ll need to consider whether you plan to operate online or from a physical premises, as well as whether you need to hire any staff.

You’ll then be able to start promoting your business to your target audience. You might choose to promote your website through a website, social media or printed media. With the right marketing strategy in place, you’ll be making your first sale in no time at all.

Starting an NBFI

Related questions

What is considered an NBFI?

Non-banking financial institutions, or NBFIs, are businesses that offer financial services, without holding a banking licence. This includes businesses such as mortgage brokers, insurance companies and investment management services.

Are NBFC better than banks?

Banks typically hold greater financial security than non-banking finance companies, due to their higher standards of regulation. However, NBFCs allow for a more flexible approach to finance. This means that customers with complex credit histories may find it easier to source a loan from an NBFC than a traditional bank.

Ready to take the next step with your non-banking finance company?

Starting your own non-banking finance company is both exciting and nerve-wracking. Although it is likely to be full of challenges, it’s also a rewarding opportunity for any business owner.

If you’re ready to get started as a non-banking financial institution, our simple guide will take you through the process, step by step, from narrowing down your niche to finally opening your doors as a non-banking finance company.

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