Lending Loop is the first unaccredited investor-serving peer-to-peer platform to open in Canada. This being a significant step in the development of Canadian alternative finance, we decided to discuss the news with Lending Loop Co-Founder Brandon Vlaar.
As the latest platform on the scene, we started by discussing what stage of development Lending Loop was at:
“Lending Loop is fully operational...We launched our loan application to businesses in early June to gauge interest and to add the first few businesses looking for financing to the marketplace. More recently, we’ve opened lender registration to our early access list and have been on-boarding lenders for the past two weeks and are constantly facilitating pledges from lenders to loan requests.”
“At the end of September, we will be opening Lending Loop to the general public in nine of the ten provinces across Canada.”
The development of peer-to-peer in Canada is significantly behind that of other developed markets. Whist the neighbouring US has been rolling out the JOBS Act, access for unaccredited investor access has remained limited in Canada. The reasons for this may not be immediately apparent, but Mr Vlaar explained:
“We’ve seen peer-to-peer platforms evolve into marketplace lenders for the past few years, but not in Canada. Peer-to-peer networks in areas such as the U.K. and the United States have shown the peer-to-peer model works and it’s possible to grow them faster with institutional and accredited investors’ capital.”
“In Canada, entrepreneurs have witnessed this evolution in other markets and have made the decision to leap-frog the peer-to-peer component of the model and go directly to the institutional and accredited market.”
“The costs and regulatory compliance required to open a peer-to-peer lending marketplace are substantial and are nearly prohibitive to the model. With that being said, we’ve decided that it is critical to have non-accredited investors on our marketplace and we will add other sources of capital down the line on an as-needed basis.”
With these comments in mind, it was clear that we needed to delve deeper into the regulatory environment that governs Canadian financial services:
“There isn’t a lot of precedence in the industry. The similarity between Canada and the U.S. is the fragmentation – each province or state has their own securities regulator who is responsible for creating and enforcing securities laws.”
“We see the UK model as exemplary of how to let a new financial model, such as peer-to-peer lending, quickly develop and thrive. The UK regulators allowed the early innovative platforms to find their feet and establish themselves early on, and, more importantly, worked with them to develop proportionate regulation. We believe this openness to innovation is one of the key reasons behind the industry being so much more advanced in England.”
Mr Vlaar’s assertion on the development of the UK industry is on point – as made clear by AltFi Data’s latest figures.
Despite the UK’s development, public knowledge of alternative finance still has a long way to go. However, the issue is multiplied many times in Canada. On this issue, Mr Vlaar commented:
“There is a lack of awareness around peer-to-peer lending in Canada, making educating both borrowers and lenders critical. Educating lenders, specifically, is integral to achieving mainstream adoption. Our early adopters are financially savvy, have a strong understanding of how lending works and understand the risks associated with small business. Acquiring lenders in the early majority will require proven credit models, the development of a number of resources to help lenders understand how to lend, diversify and prosper on our platform.”
To wrap things up, we discussed the benefits that alternative finance – in particular the online aspect of alternative finance – could bring to Canada. Mr Vlaar emphasised the low population density of Canada, making branch access for challenging and increasing the footloose benefits of online access:
“Only two of the five big banks in Canada allow small businesses to apply for financing online, and even then, require them to go into a branch to complete the process. This bodes well for us in rural areas because generally only one bank or credit union is present in these communities. Lending Loop if fully accessible online, offering these small business owners the alternative they’re looking for.”
There is undoubtedly room for the service that Lending Loop provides. From Mr Vlaar’s comments, it is clear that traditional banks are underserving the population, and given the geography of the country, there is tangible advantage in taking an online approach. AltFi has investigated the restrictive nature of Canadian regulation before. If companies such as Lending Loop can deliver attractive returns without posing undue risks to customers, then perhaps they will win the support of the regulator. To finish, one last comment from Mr Vlaar:
“There is real momentum in Canada around financial innovation, and we are really excited to bring Lending Loop and peer-to-peer lending to Canadians and helping small businesses across the country.”
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