Legal Question in Business Law in California

Financial Services, Credit


I am interested in starting a small financial services business. The business would lend small amounts of money to individuals, something of the order of $100 to $1000 - unsecured loans i.e. after running a credit check of the prospective borrower.

Likewise I am interested in accepting deposits of small amounts from persons of general public who are interested in depositing their funds with us. I would greatly appreciate if you would please answer the following questions(in the event that the answers cannot be given out here, please do mention as to what is the fee(range) I am required to shell out for a clear and comprehensive advice).

a) As per the requirements of law am I supposed to have any particular educational qualifications for starting such a financial services company(will a bachelors in engineering be ok)?

b) Again as per the legal requirements am I required to bring in as seed capital so much of my own money? Cannot I not start off with my goodwill and my energies as the investment?

c)Are there any legal restrictions or specific approvals required for providing credit to a person and/or accepting deposits from an individual for conducting a business?

Thanks for your help!!!

Asked on 10/16/02, 4:59 am

3 Answers from Attorneys

Roy Hoffman Law Offices of Roy A. Hoffman

Re: Financial Services, Credit

In addition to Mr. Whipple's comments, I would suggest that, depending upon the exact nature of your proposed business, you may find that the Securities and Exchange Commission, as well as a number of other state regulators may become involved, and you may have to satisfy a whole host of other requirements before being allowed to start your business. If SEC involvement is required, your fees would be increased dramatically.

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Answered on 10/16/02, 5:47 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Financial Services, Credit

Your Zip code indicates Reno, Nevada but it appears you may be looking for an answer with respect to California law, which this will be. I do not practice in Nevada, but my guess would be that Nevada's laws are similar.

First, (a) I do not know of any specific educational requirements to enter the business you describe. However, I believe the chartering of banks (see below) is discretionary with the banking authorities, and they will examine the experience, education, finances and moral background of the promoters and proposed officers and directors of applicants for banking charters.

As to (b), start-up capital, banks are required to have and maintain certain financial ratios of liquidity, etc. and it is unlikely that most jurisdictions would look favorably upon an application from a promoter not bringing at least a seven-figure cash investment to the table.

Finally, and most important, the answer to your question (c) is that the business of making loans and taking deposits is banking, and you would come under (in California) the requirments of the Financial Code, which starts out by saying that a banking business can only be conducted by a corporation incorporated under the provisions of that Code. See section 102.

An application fee of $5,000 is required in California, which is followed by a thorough investigation of the fitness of the applicant. An individual with no significant cash capital and no prior experience should not waste the $5,000 application fee; he has no chance of being approved.

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Answered on 10/16/02, 12:49 pm
Nathan Drage Nathan W. Drage, P.C.

Re: Financial Services, Credit

The idea of starting a "financial services" business brings into play many areas of law, depending on how you are going to structure your business. There are fewer laws implicated when you are using your own money to lend to others. The moment you start taking money from any one else, securieties laws, and maybe banking laws, come into play. Sorry, but to fully answer your questions it will require more discussion about what your goals and resources are.

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Answered on 11/07/02, 2:54 pm

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