The Lowdown On Canadian Peer-to-Peer Lenders

Posted on May 12, 2015 and updated November 20, 2015 in Life Insurance Canada News 20 min read
peer to peer lenders

Peer-to-peer lending, also known as marketplace lending, is becoming a big topic in the world of personal finance. Peer-to-peer lending is where a business or private investor can lend money to unrelated borrowers without having to go through traditional financial intermediaries. Transactions take place online via a marketplace lender’s website. 

There are three marketplace lenders active in the Canadian direct consumer market so far, GrowBorrowell and Lending Loop. We reached out to Kevin Sandhu, CEO of Grow and Andrew Graham, CEO of Borrowell, to learn more about what their companies have to offer consumers. We also interviewed Cato Pastoll, CEO of Lending Loop, a marketplace lender geared toward Canadian small businesses.


 
grow financial logo

Grow Financial (formerly Grouplend) is Canada’s first marketplace lending platform. The company is currently operating in all provinces except for Quebec, Nova Scotia and Saskatchewan. 

How Is Grow Different Than Other Marketplace (peer-to-peer) Lenders?

The biggest point of differentiation for us is our technology. We have best-in-class technology built by best-in-class engineers. Our algorithms look at many different data points beyond just simple credit data. That approach wouldn’t be possible without incredibly robust systems. This commitment to technology allows us to constantly optimize our rates to ensure that our borrowers are being charged the fairest price possible. It also allows industry-leading speed of funding: our borrowers have the money in their accounts within 24 hours. We also don’t charge our borrowers fees of any kind. No origination fees; no early repayment penalties. And, best of all, applying for your personalized quote with Grow doesn’t affect your credit score.

Are You A Financial Intermediary Like A Bank?

We are fundamentally different than a bank because we don’t carry loans on our balance sheet. We pair qualified borrowers with investors looking for fair returns on their money to create a faster, more convenient, and more affordable borrowing experience. By introducing this efficiency — stripping out the branch structure, and the legacy systems — we are able to operate with minimal overhead, further reducing the costs of borrowing.

Our technology driven approach to lending also drives a very different culture than you’d find at a typical bank. We’re constantly striving for innovation and better customer experience unlike many traditional financial institutions that have become complacent and stagnant over the years, often taking their customers for granted.

Why Should Borrowers Use Grow Over A Traditional Financial Institution?

When it comes to unsecured loans, we’re the fastest, most convenient, most affordable option in Canada. Applying for a personalized quote with us only takes 1 minute, and it doesn’t affect your credit score. You don’t have to stand in line at a branch, or have a face-to-face meeting; it’s all done on your time right from your phone or computer. And because we don’t have the overhead of a traditional financial institution, we can pass even more savings onto the customer. With us, you’re funded within 24 hours, and we don’t charge origination fees or early prepayment penalties. It couldn’t be simpler.

Please Tell Us More About Your ‘Data Analytics’ And Why Should We Care?

Banks of the past were manual and people-driven. Banks of the future will be automated and data-driven. Data is central to this thesis, and its central to who we are, as well. The more data we feed into our technology, the smarter it gets. We get better at fraud detection. We constantly learn how people interact with the platform. And, above all, we get better at determining optimal interest rates.

One of our favourite quotes around here is, “all data is credit data — but we need to learn how to use it.” We look at every data point that we can possibly collect, because we think that everything is potentially impactful in determining someone’s creditworthiness. Why should your interest rate be decided simply by your credit score? Your credit score is part of a much larger mosaic of information — it’s our job to see the whole picture to get you the best rate possible.

How Do Your Rates Stack Up Against The Competition?

Our rates are very competitive against any unsecured product on the market. Many of our borrowers come to us looking to consolidate their costly credit card balances, which we are extremely competitive against. Our rates range from 6.3% to 17.5%, which is anywhere from 2.5% to nearly 13% below the average Canadian credit card. At the lower end of our interest rate range, we’re competitive against unsecured lines of credit. We’re also able to win on convenience against unsecured lines when you factor in the speed of the application process and next day funding. For many of our borrowers, the prospect of not having to stand in line at a bank or up to a week for approval on a line credit is immensely appealing. Plus, our loans offer the benefit of fixed interest rates, compared to variable-rate lines. This is especially important to our borrowers in today’s interest rate environment, where rates on things like lines of credit really have no where to go but up. Locking yourself into a fixed-rate product protects you against the inevitability of interest rates rising.

From The Time I Fill Out An Application On Your Website How Soon Can I Get My Loan?

Our borrowers are funded within 24 hours of their application. Many of our borrowers are surprised with how quickly the funds arrive in their account, but what they’re even more impressed with is the amount of active time in takes on their part. The application process only takes 1 minute. We ask for a bit of documentation to verify their identity, which doesn’t take more than 5-10 minutes to upload to us. We then have a quick 3-minute phone call with the borrower to ask a few verification questions. It takes the borrower less than 20 minutes of their own personal time to go through the process, and the money is in their account the very next day.

At What Point Does A Debt Consolidation Make Sense For Consumers?

It’s a smart choice to consolidate your debt at a lower interest rate regardless of how much debt you have. Whether you have $1,000 or $30,000 on your credit card balance, there is money to be saved if you’re paying 19.9% on your credit card. Even at our highest interest rate of 17.5%, you’ll still save over $2,600 compared to 19.9% on a credit card balance of $15,000. That’s huge. At our best rate of 6.3%, the savings are more than $5,500.

Does Grow Charge Upfront Fees? If Not, How Exactly Does Grow Get Paid?

Grow does not charge fees to borrowers, including origination fees or prepayment fees. We make our revenue from investors who fund the loans. Our mantra is refreshingly simple loans, and that can’t be accomplished by charging confusing fees to our borrowers. Our loans are as simple to understand as they are to apply for.

Your Website Makes It Very Easy To Apply For A Loan But What Is The Process For Someone Interested In Becoming An Investor/Lender?

We are currently fully committed for new loans from existing investors but plan to be able to offer new investors an opportunity to participate in loan funding later in 2015. In order to comply with relevant regulatory and securities issuance requirements in Canada, we are only able to accept accredited investors onto the platform. To find out if you qualify as an accredited investor, please contact your provincial securities commission to find out more information.

Where Do You See The Future Of The #fintech Industry Going As A Whole And Within Marketplace Lending In Particular? 5 Years Out? 10 Years Out?

Great question. Fintech is still young in terms of the impact that it’s going to have on the wider financial industry. In 5-10 years from now, the way that people interact with their banks and other financial institutions will have completely changed. In the 1990s, Travel agents were usurped by companies like Expedia. In the 2000s, appointment television was overthrown by technology like Netflix. Fintech will revolutionize finance in a similar way to usher in the age of on-demand banking. The thought of having to walk into a branch during business hours will be unthinkable.

As far as marketplace lending is concerned, thus far — especially in Canada — we’ve only conquered a small subset of the market. Today, we only offer personal loans. A few years from now, this model will likely have spread into areas like student loans, small business loans, and maybe even lines of credit, bringing with it much more affordable rates thanks to technology-anchored solutions.

Fintech is just getting started, and the decade to come is going to very, very exciting.

Where Can We Learn More About Grow?

You can learn more by visiting our website.


Borrowell

Borrowell is the second marketplace lender operating within Canada. Borrowell is working to get loans to the residents of Canada with the exceptions of the Northwest Territories, Nunavut, Quebec, Saskatchewan or Yukon.

How Is Borrowell Different Than Other Marketplace (peer-to-peer) Lenders?

The marketplace lending model has been very successful internationally. We’ve taken the best of that business model—fixed term loans, interest rates tailored to each consumer and an easy online experience—and adapted it for Canada. We’re proud to offer a large range of loan options, with fixed rate loans up to $35,000 and a choice of 3 and 5 year terms.

Are You A Financial Intermediary Like A Bank?

We provide personal loans tailored for each individual. As a marketplace lender we match institutions looking to lend with people looking to borrow. We operate exclusively online and don’t have an expensive branch network to run, so we can pass the savings onto the customer. Banks and other lenders lend from their own balance sheets. We’re doing for borrowing what companies like eBay and Airbnb do for their markets, by bringing buyers and sellers together for the benefit of both.

Why Should Borrowers Use Borrowell Over A Traditional Financial Institution?

We provide an online platform that connects borrowers with lenders, offering for many people more affordable interest rates than credit cards and banks. Before, you had to choose between the convenience of a credit card and the affordability of a bank loan. The credit card is costly and the bank loan is inconvenient. With Borrowell, you no longer have to choose between convenience and affordability. You can apply from the comfort of your own home in a matter of minutes and get an interest rate customized to you.

Please Tell Us More About Your ‘Data Analytics’ And Why Should We Care?

We use data to provide customized rates to borrowers. A customer’s credit history is central to how we underwrite our loans, and we also look at information that helps us predict how likely it is that a borrower will repay on schedule. This gives Canadians a great alternative to borrowing from a bank or using credit cards.

How Do Your Rates Stack Up Against The Competition?

Borrowell’s rates start from 5.9% APR. Credit card rates in Canada are typically 19.9% or 29.9%. Many people who qualify for our loans receive lower rates than they’re currently paying – our median offer on a 3 year loan is 12.25% APR. Borrowell rewards Canadians who’ve worked hard to build good credit by giving them lower interest rates.

From The Time I Fill Out An Application On Your Website How Soon Can I Get My Loan?

We present loan options instantly on our website. If you proceed with your loan, verification and funding can take between 2 – 4 days depending on your financial institution.

At What Point Does A Debt Consolidation Make Sense For Consumers?

Debt consolidation can be a smart move if you have any debt, including a credit card balance, and can find an alternative with a lower rate. It’s quick and free, for example, to check your rate at Borrowell.

Does Borrowell Charge Upfront Fees? If Not, How Exactly Does Borrowell Get Paid?

At Borrowell, we have no hidden fees. You can check your rate and apply for a loan in less than a minute, completely free of charge. All loans feature an affordable fixed rate, so your regular monthly payment will never increase. And you can repay your loan in full at any time – with no prepayment penalties – to eliminate future interest payments. When you apply for a loan through Borrowell, you’ll find out right away if you’re eligible to receive a loan option. Qualified applicants will find out their loan amount, interest rate, origination fee and annual percentage rate (“APR”).

Your Website Makes It Very Easy To Apply For A Loan But What Is The Process For Someone Interested In Becoming An Investor/Lender?

In Canada we aren’t able to take individual retail investors on as lenders, so we have focused on institutional lenders. We have great people and companies who have invested in us, including Equitable Bank, which is an innovative Canadian bank that’s a great supporter of what we’re building. We also have high profile individual investors, such as John Bitove, who founded the Toronto Raptors and companies like SiriusXM in Canada.

Where Do You See The Future Of The #fintech Industry Going As A Whole And Within Marketplace Lending In Particular? 5 Years Out? 10 Years Out?

Fintech is really taking off in Canada right now. We’re seeing great companies offering solutions in areas like wealth management and small business lending. For marketplace lending, technology will provide an even better customer experience – computers can check a fake ID better than the human eye. You’ll also see marketplace lenders expanding their products as they learn more about their customer – SoFi in the US has went from student loan refinancing to mortgages. A member of the Borrowell team just published a great blog post about fintech that I’d highly recommend.

Where Can We Learn More About Borrowell?

By visiting our website. Here you’ll find more info on the loans we offer and different ways to get in touch with our customer services team.


lending loop logo

Lending Loop is an online marketplace for Canadians to lend money to growing local businesses. The company is Canada’s first and only peer-to-peer lending platform with a lending marketplace open to the public and is available in all provinces except Quebec. We spoke with CEO Cato Pastoll to learn more about his company.

How Is Lending Loop Different Than Other Marketplace (peer-to-peer) Lenders?

Lending Loop is better for small business because we are 100% focused on satisfying the borrowing needs of small business. We are faster, offer fairer rates and are more flexible than the banks. Further, we’re the first and only bank financing alternative to offer rates as low as 6% with loans ranging from $5,000 to$500,000. We take this approach because we want Lending Loop to become a business’ financing partner for their complete lifecycle. Most importantly, because we are truly peer-to-peer, every business is being supported by hundreds of Canadians who want them succeed.

Are You A Financial Intermediary Like A Bank?

Actually, we’re quite the opposite, Lending Loop completely removes the bank from the equation. Banks receive deposits from customers and pay a minimal amount of interest (if any) to these savers. The banks then lend these deposits out to businesses at significantly higher rates, earning the entire spread.

Lending Loop is essentially a match making service that connects lenders directly with businesses looking for debt financing. Our technology allows us to originate and service loans that could potentially have hundreds of lenders for a very low cost. This low cost structure allows us to pass the savings on to both the lenders, who earn higher rates of return and businesses, who pay lower interest rates.

Since we are connecting borrowers directly with the lenders, we are not only creating a more efficient method of financing, we are also enhancing the business’ reputation by providing them with exposure to potentially hundreds of lenders. These lenders in turn become advocates for these business which helps them to build their reach.

Why Should Borrowers Use Lending Loop Over A Traditional Financial Institution?

Lending Loop is a faster, more flexible and more convenient than a traditional financial institution. Canadian banks are extremely slow to respond and make decisions on loan applications, in fact, most business owners we speak to say they typically wait between 8 to 10 weeks before finalizing the details of their financing with a bank. Lending Loop brings convenience to business borrowing by offering an online application that can be completed from the comfort of your desk in under 25 minutes.

Additionally, many businesses are rejected by traditional financial institutions for financing because they don’t fit inside the rigid lending requirements the banks have. Their only option after this is to go to an alternative or private lender who will often charge interest rates of 20-40%. Since Lending Loop is built for small business, we evaluate applications using a variety of different factors that are applicable to each business’ situation.

Please Tell Us More About Your ‘Data Analytics’ And Why Should We Care?

The beauty of operating a data-driven online model is that the information which drives our credit evaluation only continues to improve over time. Every day we come up with new ideas of how we can leverage different sources of data in order to validate a business’ creditworthiness.

Information about a business is everywhere, a credit score is just one input so it would be foolish to make any decisions based solely on that score. Our philosophy at Lending Loop is that if you operate a healthy growing business with a positive financial outlook, you should have no issues getting financing.

How Do Your Rates Stack Up Against The Competition?

Lending Loop offers a fair rate that fits each business’ circumstance and capacity to repay. Our interest rates are fixed over the term of the loan and range from 6% to 12% annually, which is considerably lower than what the majority of alternative lenders charge.

The rates we charge work for both the borrowers as well as the lenders and our goal is to promote healthy sustainable growth in the Canadian economy through our marketplace.

From The Time I Fill Out An Application On Your Website How Soon Can I Get My Loan?

As a true peer-to-peer lender, we can’t promise any set time frame for a borrower to receive their funds, all we can promise is that the process is extremely efficient and fast. We approve loan applications in under 4 business days and funds can be in their account within a matter of days of being on the marketplace (depending on how fast our lenders are).

At What Point Does A Debt Consolidation Make Sense For Consumers?

We do offer debt consolidation for businesses which would make sense if they are paying a higher rate to another lender.

Does Lending Loop Charge Upfront Fees? If Not, How Exactly Does Lending Loop Get Paid?

Yes, Lending Loop is completely transparent about the fees that we charge. It is completely free to apply and Borrowers pay a one-time origination fee that ranges between 3.5 – 5.5% depending on the term and the amount of the loan.

Additionally, we charge lenders an annual servicing fee that gets deducted from each payment they receive. This creates alignment between the interests of our lenders and Lending Loop because we only earn money when they do. Our fees are posted across our website and there are no hidden fees for Lenders or Borrowers.

Your Website Makes It Very Easy To Apply For A Loan But What Is The Process For Someone Interested In Becoming An Investor/Lender?

For people interested in lending on Lending Loop, we recommend they go to http://bit.ly/loopletter to sign up for updates. We’re going to be opening our lender registration in the next few weeks and people on that list will be provided with early access.

While we can’t reveal too much information beyond this just yet, the process to become a lender is very simple and can be completed in minutes.

Where Do You See The Future Of The #fintech Industry Going As A Whole And Within Marketplace Lending In Particular? 5 Years Out? 10 Years Out?

I believe classifying FinTech as its own industry is somewhat misleading because the future of all finance should be driven by technology. What we are witnessing globally right now is new players who are faster, more agile and more innovative creating new solutions for the financial system that are effectively displacing the incumbents.

With marketplace lending in particular, we see this becoming far more prevalent over the next few years, particularly with small business as a way for the population and government to act together to help grow the most important cornerstone of our economy. Within the next 5 years we hope to expand into other products, so that retail investors can start to leverage things like their TFSA allowances to invest in small business.

Additionally, we’d love for governments, both municipal and federal to get involved using marketplace-government models being launched in other countries.

Where Can We Learn More About Lending Loop?

For businesses interested in borrowing on Lending Loop they can apply today by visiting www.lendingloop.ca and completing our online loan application.

Lenders should sign up for our updates at http://bit.ly/loopletter to be notified as soon as we open lender registration.
 


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