Do any of you have that one special restaurant, mom and pop shop, or local hidden treasure in your neighbourhood that you’ve always enjoyed? Your parents have gone there for as long as you can remember and the store always seemed like a popular place to be. Unfortunately stores like these are starting to disappear with the bank’s increasingly higher interest rates, rent hikes, hydro prices and the need to update old equipment. Soon after they leave, they are replaced by corporate franchises like Subway, Tim Hortons, or something similar that can afford those increased prices. But what if you were able to support your favourite local business and those like it across Canada? By helping small businesses consolidate their debt, open new locations and purchase new equipment in order to stay competitive in todays market. That is what Canada’s first and only regulated peer-to-peer lending marketplace, Lending Loop, offers for those small shops looking for a hand.
*For this review I will be looking at it from a investor’s perspective as that is how I went through the process of signing up and have used Lending Loop to date.
If you are a business looking for a loan click here!
What is Lending Loop?
I discovered Lending Loop when I was looking for alternative methods for investing my money, rather than using the stock market, as a means for diversification. I actually stumbled upon the United States company Lending Club first and was attracted to the aspect of being able to support local businesses however it was for Americans only. The returns weren’t so bad either! I immediately began a search for a Canadian version and quickly found Lending Loop.
Lending Loop is Canada’s first and only fully regulated peer-to-peer (P2P) marketplace that connects Canadian businesses looking for a loan, with Canadian investors looking to invest in local businesses while also earning a profit. Businesses come to Lending Loop looking for a loan that they could not normally get at a large bank for varying reasons (i.e. Banks not seeing enough profit margin). Lending Loop then analyses the type of loan, amount, risk, and term, grades it and presents it to the investors. From there, it is similar to crowd funding, where you can choose to support the business and assist in funding the loan with as little as $25.00 per loan or find a different business to invest with instead. It is completely up to the investor.
If this appeals to the investor in you then keep reading!
How to Set-Up An Account
To set up my account was a simple process and goes as shown below. I was sent this information by one of Lending Loop’s reps as I forgot some of the steps and didn’t write them down, as I normally do.
- Start the account by providing basic contact information such as full name, email, and password.
- Provide secondary personal details such as phone number, address, age, and SIN.
- Complete our “Get to Know Me” survey, which identifies your investor preferences.
- Connect your bank account and initiate the minimum deposit of $200 (or more if you’d like) into your Lending Loop account. You must provide a bank verification document such as bank statement, void cheque, or screenshot of your online banking interface.
The account setup should only take you about 15 minutes. Then the account needs to be verified which is done when Lending Loop receives the $200 from your bank account. This should only take about 5 days to a week. If it takes longer make sure you contact Lending Loop customer service and check the progress of your account.
I joined as soon as Lending Loop became available to the public for a second time so there was an influx of new investors trying to start-up their accounts which delayed the account processing and verification. My account set up and verification time took almost a full month but I do not believe that will be the case any longer.
How Does It Work?
Once your account is funded and verified you are finally able to turn to the Marketplace and start investing your money. Once in the Marketplace you will see the currently available loans, their risk band (grade), as well as the details of the loan.
If you see a business you would be interested in lending too, simply click on the loan and you will be taken to that loan’s page where you can learn more about what your money will be used for (consolidating debt, increase capital, etc), can ask the business questions, view their past financials and make a more educated investment.
If you like what you see then you can choose to invest your money with that company. Set your amount (min of $25.00) read the risk acknowledgement and you are almost finished. Now all that needs to happen is for the rest of the loan to be filled before you start receiving monthly payments.
There is a time limit on how long a loan can be filled for but I haven’t seen one reach that limit yet.
That basically sums up the whole process of filling a loan and investing your money!
As with any financial service, Lending Loop needs to make a profit somewhere. Lending Loop charges a service fee of an annualized 1.5% but only when the investor receives a payment (If the loan says 9.5% return it really means 8.0% once the fee is taken out). They may also charge a Collection Fee which is explained in Risks in the case of a defaulted loan.
Lending Loop is a little different from an online bank or investment account where they only hold your money until it is lent out as a loan. Due to this any money that you have not invested with Lending Loop is held in a trust at a Canadian Chartered Bank.
As with any form of investment, there is going to be some risk. The biggest risk associated with investing your money with Lending Loop is a business defaulting on a loan. In that case Lending Loop will make “commercially reasonable effort” to get the money back. However it could take several months and the investor may not receive all of their money back! Lending Loop may also charge a collection fee to pay for the methods used to recover those funds. This fee can range up to 35% of the amount recovered if required. In my opinion though, some money returned is better than no money returned.
There are also ways to minimize the risk of a default however and I highly believe everyone should be taking these steps to protect themselves.
- Only invest money you can afford to lose
- Choose only the highest graded loans (A-B) unless comfortable with more risk
- Diversify your investments amongst several different loans to minimize the chance for a complete loss.
- Take the time and ask the businesses questions and get to know who you are giving your money too.
Another thing to be aware of is that any interest you make will be taxed as income. Make sure you keep track of all of your payments and set some money aside to pay your taxes at the end of the year! Lending Loop does send you documents containing the necessary information and also allows you to export your payments to Excel in the Note Payment tab on your Dashboard to track on your own.
Here are a few more things I would like to mention before you start investing.
Lending Loop has limits on how much an Investor can lend in a 12 month period. These Limits are:
- $10,000 for a Non-Eligible Investor
- $100,000 for an Eligible Investor
- No limit for an Accredited Investor
- No limit for Non-Individual Investors
- http://support.lendingloop.ca/customer/en/portal/articles/2535479-what-are-the-different-investor-statuses-Lending Loop requires your SIN to open an account for tax purposes.
I have had an account with Lending Loop for a few months now and have been happy with the services so far. They offer a better return than a savings account or a GIC and I am able to help small businesses. Once I found I shop that I had actually visited in BC a few months prior which was awesome to see. Their loan had already been fulfilled so I couldn’t invest in it but if I had the chance I would have. When I started investing with Lending Loop I was looking for another investment piece to add to my portfolio and Lending Loop filled that role for me. Hopefully it can work for you as well!
If you know of or are a business looking for a loan to expand, refinance or anything else check out Lending Loop!
I hope you enjoyed this review!