Home loans FinTechs have a number of different ways of operating, but many use an online marketplace model to connect consumers to home loan lenders. As many home loans FinTechs aim to scale and grow quickly, it is useful to know what legal issues you should be aware of at each growth stage. This article provides guidance on the four key stages of your startup.

1. Research and Development

Conducting market research is vital to the success of your home loans FinTech. Not only will it allow you to clearly articulate your target market, it will be a useful resource when building your marketing strategy.

Your research may also let you identify what differentiates your FinTech from others in the home loan space, so that you can use that difference as a selling point. For example, loan agency Loan Dolphin developed algorithms that let them capture a customer’s risk profile. This profile enabled them to provide the customer with tailored home loan offers from bidding lenders on their auction platform. This tailoring differentiates the Loan Dolphin platform from other platforms which provide a similar auction-style service to consumers.

Legal Needs

As you move through your business’ life cycle, you will engage with different issues or legal requirements. The table below identifies key legal requirements at the Research and Development (R&D) stage.

 

Legal Need Purpose
Business Structuring Setting up your business structure correctly can help your company grow quickly. A good business structure can also help:

  • protect your company’s assets;
  • limit your personal liability; and
  • benefit you from a tax perspective.
Australian Financial Services Licence
(AFSL)

If you are providing lending services to consumers, you may be required to obtain an AFSL or an Australian Credit Licence.

The Australian government has a regulatory sandbox for FinTech startups. For the first 12 months of your FinTech startup, you may not need to apply for a licence. This allows you to conduct detailed R&D without having to comply with AFSL regulations.

Confidentiality Agreement In your R&D stage, you will probably talk with developers, potential investors, and other key personnel about your business. Signing a confidentiality agreement with these parties can help protect your innovative ideas in these initial conversations, since you do not yet have formal intellectual property protection.

 

2. Pre-Minimum Viable Product (Pre-MVP)

At this stage, focus on engaging developers to develop your consumer lending platform and software. Once you have finalised your branding and set up protections for your intellectual property (such as your business logo), you can set your marketing campaigns in motion.

Holding a soft launch with a few select lenders and consumers will let you work out any issues with how the platform and model operate before a full-scale launch.

Legal Needs

The table below identifies key legal requirements of the MVP stage.

 

Legal Need Purpose
Trade marks A trade mark lets you build brand identity and loyalty. Registering a trade mark gives you the exclusive right to use your mark for a renewable period of time. It also protects your mark from being used by your competitors.
Development Agreement If you are engaging an external developer for your website and software, you should have a formal agreement in place with them. A development agreement should detail:

  • the scope of work;
  • payment;
  • the assignment of the IP to you on completion (otherwise the developer may own the IP); and
  • cancellation rights.
Employment Agreement If you are planning to hire employees, have a formal employment agreement in place. As an employer, you will need to comply with the National Employment Standards and any relevant awards.

 

3. Launch

At this stage your product is completed and you are ready to start lending to consumers. Having all your paperwork in place at the time of launch will ease the strain when large numbers of customers start to visit your website. Additionally, ensure your terms and conditions and loan agreements (if you provide them) are easily automated to allow smooth processing for large volumes of customers.

Legal Needs

The table below identifies key legal requirements of the launch stage.

 

Legal Need Purpose
Website Terms of Use This document protects the intellectual property on your website. It also limits your liability in regards to the content on your website.
Website Privacy Policy This document ensures that your business complies with the Privacy Act. Having a privacy policy on your website is highly advisable if you are solely operating online. It is also particularly important for lending FinTechs, as you will be storing large amounts of data with personal information.
Loan Agreement Your loan agreement should detail repayment terms and the consequences for non-repayment. This document should also reflect your Product Disclosure Statement.
Terms and Conditions A Terms and Conditions document contains standard financial services clauses and details consumer payment terms. You should have this document if your platform does not provide any ongoing software, but is a sign-up and on-boarding tool.

 

4. Growth Stage

Once your home loans FinTech is in the growth stage, you may be considering raising capital. High-growth startups usually do this by seeking equity investment from venture capital funds and other professional investors. Investment helps you inject capital in the business to scale and grow quickly compared to organic growth. For example, startup FinTech Joust secured equity funding from investors to allow them to expand their operations to NSW.

Legal Needs

The table below identifies the key legal issues of the growth stage.

 

Legal Need Purpose
Capital Raising When seeking investment to raise capital, you may need to:

  • finalise a pitch deck or information memorandum;
  • negotiate a shareholders agreement; or
  • draft or finalise a share subscription agreement, SAFE note or convertible note.

 

Key Takeaways

Each stage of growing your home loans FinTech is accompanied with specific legal steps and documents. Knowing what you need to do, and when, can ensure continuing success for your business.

For further advice on how to start up your business, or help with meeting legal requirements, contact LegalVision’s startup lawyers on 1300 544 755 or fill out the form on this page.

Sam Auty
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