Borrow / lend investment model?

Has anyone started a company based almost solely on borrowing at a lower rate and lending at a higher rate? It looks like one late fee will destroy your revenue.

The spread you've identified is called the "Net Interest Margin" - its the core business model of traditional commercial banks. Indeed in most jurdisdictions it would be illegal to carry out the activity you describe without a banking license.

That is the business model of every bank in the US. They borrow from people and the US government at low rates and loan it out at higher rates. The key to their success is volume and being able to make the payments even if a certain percentage of their clients do not pay.

In private lending late fees need to be past on the client with a profit and the interest margin should be significant enough to be worth the risk of nonpayment. Also the payments should be significantly higher than the minimum you need to pay to allow you some cushion.

Also the key is knowing your risk, if other people wont lend money to your potential client at the rate you are offering them find out why and see if they are right or if you are. If you know something they don't they you are good otherwise they probably know something you don't.

Commercial banks operate this way. They do have some requirements to equity though...

Try the links in http://www.freewebs.com/efinans/