By Staff
October 22, 2015
BURLINGTON, ON
A pretty smart guy from Hamilton and a partner from elsewhere in the province have come up with what they believe is a better way to borrow and a smarter way to lend.
Their initiative is not quite crowd funding – they call it debt funding which is a process that allows local small business to borrow from people in their community at decent rates – and at the same time allows people to invest in small businesses in their community.
The invest made by a lender can be as small as $50.
A small business can borrow as much as $500,000
Cato Pastoll and Brandon Vlaar call their business the Lending Loop.
Here is part of how hey describe their operation:
Traditionally, Canadians have had little choice when it comes to investing their money. Purchasing stocks requires substantial capital, time and knowledge. Mutual funds make hard earned money less accessible. Bonds pay little in the way of interest and bank savings accounts yield even less.
Today is a brand new day for Canadians and small businesses across the country, explains Lending Loop CEO, Cato Pastoll. With as little as $50, Canadians can lend their money to the thriving local coffee shop that needs new equipment to grow or the farm around the corner requiring staff to develop a farm-to-home produce delivery program.
Lending Loop co-founders Cato Pastoll and Brandon Vlaar. They created the first peer-to-peer lending operation.
Lending Loop was founded by entrepreneurs Cato Pastoll and Brandon Vlaar who, after witnessing firsthand the difficulties their friends and loved ones experienced as small business owners dealing with big banks, realized the need for a new financial model for small business to have fast and easy access to the capital needed to grow in a global economy.
Lending Loop believes they offer small business a better chance of getting the funds they need. While small businesses are believed to be the backbone of the Canadian economy, the traditional lending model offered by big banks often makes it difficult to access the capital they need to compete against global conglomerates and big-box stores.
Small and medium sized businesses employ nearly 90 per cent of Canadians working in the private sector and produce 40 per cent of the country’s GDP. Yet many are rejected by traditional financial institutions when seeking financing because they don’t fit the lending requirements of big banks. Too often, this means their only recourse is to source alternative or private lenders who charge rates well in excess of 20 per cent.
Canadian-owned and developed Lending Loop is leveraging technology to make the financial sector work more effectively for all Canadians, and small businesses in particular. It is the first peer-to-peer platform in Canada, and offers small businesses a better way to borrow, with a quick and easy application, flexible repayment options and considerably lower interest rates than alternative lenders. By using Lending Loop to access the capital they need to grow their business and expand their market, small business will be able to compete and win.
Lending Loop’s borrowers also have built-in advocates for their business – the lenders who want to see the company succeed because it helps their community and investment grow.
Lending Loop brings Peer-to-Peer lending to the Canadian market place; it is the first peer-to-peer platform in Canada. Investors who don’t have or want to put a lot of money into a local organization can get into something with as little as $50 and earn attractive returns commensurate with risk.
To protect the hard earned money of lenders, Lending Loop uses an all or nothing funding model, where loans only come into effect if the borrower receives the full amount of their loan request in total pledges.
The Gazette talked to Brandon Vlaar to get more detail on what looked like an intriguing idea.
Let’s look at this from a lenders perspective. Ideally a lender could allocate $5,000 and spread it over a dozen small businesses in different communities across the country.
What if the local business goes “belly up”?
The Lending Loop then moves in and does everything it can to recover as much of the asset as possible. If a baker bought an oven and the business doesn’t succeed the Lending Loop goes in and repossess the equipment and re-sells it distributing the amount recovered to the investors.
For borrowers there appears to be a pretty rigid set of criteria to borrow. They use the same forms that bankers use to approve a loan; they do credit checks, they go over financial statements and make sure the company doesn’t have any outstanding legal claims.
The two partners also put some of their own money into every loan that gets approved – and these are real loans. The difference is that the money being loaned comes from small local investors. This gives an investor an opportunity to get into the butcher, the baker and the candle stick maker – and you have the Lending Loop vetting the investment and going after your investment if anything goes wrong.
You don’t get that kind of service from your financial planner.
The Gazette wants to do a little more research on this idea and get a sense as to what the rates are for the borrowers; what the returns have been like for the lenders and what there might be in the way of fees.
It does look interesting. The Lending Loop: click here.
