Since the FCA took over as the main industry regulator for consumer credit and finance services in 2015, there is certainly a barrier to entry for those looking to start businesses. The average FCA authorization application can take 12 to 24 months and costs start from £1,500 to £25,000 to make an application.
However, for those looking to get their business going quicker, there are some industries which are unregulated by the FCA. This means that you can begin trading automatically and start generating income and revenue, although there are still some rules to abide by.
A business loan that invests in another business, without any security, is not regulated by the FCA. This is because you are basing your assessment on the performance of another business which may go up or down. As a result, it is almost like you are just investing in another person or business.
However, business loans do become regulated when they are secured. This could be secured against someone’s property as a second mortgage or second charge loan, or the finance could be secured against the business’s premises, inventory or valuable equipment. Since there is something with collateral and risk involved, this is deemed as regulated activity.
Invoice factoring is popular for businesses that need cash flow based on existing invoices or orders. Common for fashion retailers, fast moving consumer goods and caterers, they typically receive an order and need money to buy the equipment, materials and pay for staff before their invoice gets settled after 3 or 6 months.
Once the have provided their business or sold their goods, they receive payment from their customer and can then repay the interest on their loan in full. This is unregulated because again it is almost like investing in someone’s business or performance.
In the dark web of Bitcoin and Ethereum, you can currently buy, sell and trade cryptocurrencies online without any external regulation. Whilst this might change in the future, currently cryptocurrencies are unregulated if you want to exchange these “virtual coins” within your organisation, set up an exchange for buying and selling or even a comparison website too.
Non status lending
In the bridging and development finance industry, you can operate as a non-status lender which means a few things. You have to follow some compulsory guidelines from the Mortgage Credit Directive, but ultimately you do not have to credit check customers and instead you might make your lending decision based on the value and potential of the property. One crucial thing is that non status lenders cannot lend to someone if the property is their primary residence – so if they live there, it’s a no-go and they will have to work with a regulated lender.
What if you want to go down the regulated route but faster?
Maybe you want to offer loans or insurance products that are in the regulated space, but do not want to have to wait up to two years for a license. There are options. Firstly, you can go through a compliance lawyer or professional, such as Shipley’s, Cordium or Robert Quinn.
In addition, you could seek to work under another company’s umbrella as an Appointed Representative. This means that you can carry out regulated activity as an agent on their behalf. You may have some limitations such as not being able to manage investments, but you can still provide loans and policies as normal. You will be under the close watch of your principal because you have to maintain all laws and compliance or they will suffer the consequences.