From Canadian to Canadian: A Look into Lending Loop

lendingloop

There are many good options out there when it comes to investing, and now you have one more. You’re familiar with the stock market, you know about robo-advisors, and you've at least heard about crypto, but what about supporting good old Canadian entrepreneurs by lending some of your money?

Enter Lending Loop - Canada's only peer-to-peer marketplace that lets you lend to small businesses and earn solid returns.

Going peer-to-peer

My Lending Loop dashboard. I have 100% exposure since I’ve only lent my money to one company, and at a 22.8% yield.

My Lending Loop dashboard. I have 100% exposure since I’ve only lent my money to one company, and at a 22.8% yield.

Lending Loop is a Canadian startup founded in 2014 that is Canada's first regulated platform for peer-to-peer lending to small businesses.

Backed by $2 million in VC funding, its mission is to connect all kinds of investors with small businesses looking for financing, an area that is currently being under-served by big banks. As of November 2017, it has facilitated more than $11 million in financing, supporting over 180 small businesses in their expansion, refinancing, and growth initiatives.

Over 8.2 million Canadians are employed by small businesses, making up almost 71% of private sector employment. Lending Loop is leading the movement in Canada by offering an innovative platform that helps everyday people make great returns and our small businesses grow.

As a strong proponent of transparency, Lending Loop publishes many of their key statistics for public access.

Other startups that lend to businesses, such as Clearbanc or Lendified, are currently limited in that they're only reserved for institutions and accredited investors. (Read: at least $5,000,000 in net assets. Jeez.)

Lending Loop evens the playing field by allowing everyday Canadians to start lending with a minimum commitment of $25.

How does it all work?

Here's how the lending/borrowing process works (from their website):

lendingloopprocess1.png

Depending on the risk rating and the loan's length (anywhere between 3 months and 5 years), the rates that you can potentially earn from lending your money to businesses range from 5.9% - 23.0%.

Last year, I put $200 into my Lending Loop account after learning about the startup from r/PersonalFinanceCanada. I'm currently earning a 22.8% annual return from an E-rated loan with a term rate of 1.5 years!

Lending Loop's due diligence process when assessing loans and assigning risk ratings involves looking at a few factors, such as:

  • business credit score

  • financial metrics (e.g. debt service coverage ratio, working capital ratio)

  • the length and requested amount of the loan (anywhere between $5,000 - $500,000)

Financial Nirvana Mama also mentions that Lending Loop has other minimum requirements for small businesses, such as having greater than $200,000 in annual revenue per year and maintaining operations for at least two years before applying for a loan. The company makes sure you're lending your money to businesses with some skin in the game.

A snapshot of the Lending Loop marketplace in November 2017. Loans begin once they’ve reached 100%, and are canceled if they do not reach the required principal by the due date.

A snapshot of the Lending Loop marketplace in November 2017. Loans begin once they’ve reached 100%, and are canceled if they do not reach the required principal by the due date.

You have access to the following information and functions from listed companies in the marketplace before deciding to loan money to them:

  • loan details (the purpose of the loan and why they're safe to lend to)

  • business profile and financial situation

  • balance sheet and income statement (from the past two years)

  • a Q&A forum to ask questions about their business

  • repayment schedule

  • a list of other lenders to the company (and how much they committing in funds)

You get a pretty comprehensive view of the companies requesting for money!

It also seems like Lending Loop does a good job of selecting companies that are solvent and can adequately pay off their debts in the near future - the default rate for loans is currently under 2%.

Let's lend

Stock market returns are volatile on a year-to-year basis - Lending Loop offers you another source of diversification for your portfolio with locked-in rates, while letting you support the local Canadian economy. Who knows, you could be lending money to your local gas station or vegan cafe!

If you're interested in joining, you can sign up for an account using my referral code C54632 and receive a free $25 when you lend more than $1500 to businesses in the marketplace!

How does lending a hand sound?


I spend my free time lurking on Twitter - let's link up!