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Many small capital holders are interested in participating in what is known as Payday loans. In the Payday system, a lender puts up a short cash advance to cover the borrower’s immediate expenses for a two week period, followed by another Payday payment two weeks after that. The business is highly attractive to many small business owners as it allows them to comfortably start a very lucrative loan business from home.

The process works like this: the borrower visits a Payday lending store, of which there are multiple franchises. He or she applies for a Payday loan, which is granted shortly thereafter in the amount specified as needed to cover expenses for the Payday period. (The lender can, of course, conduct this loan business from home, making it very easy and appealing) An interest rate (usually 15% to 30%) is levied and the borrower can pay the loan back with a post-dated check afterwards. When the loan matures, the borrower is expected to pay back the loan in full. If the borrower does not, the lender can extract the money from the borrower’s paycheck at a later time.

Starting a Payday business, however, is not as easy as it is made out to be. Payday lenders are expected to abide by very strict state rules and regulations. Though these rules vary from state to state (some states having mild regulations while others ban Payday outright), all states are very conscious to protect the public from usury.

Payday loans tend to attract a great deal of criticism as well. Several states have banned the outright, claiming that they are exploitative and very harmful to lower class communities. The state of North Carolina has recently taken action against Payday lenders, preventing them from issuing new loans until the businesses expire.

While it is very tempting to get involved in an easily set up business structure that allows you to comfortably start a loan business from home with a high APY, it’s also important to examine your conscience as well. Don’t try this at home.

This Business article was written by Mark Karavan on 1/5/2010