How Lending Loop is using technology to help small businesses escape the financing crunch
Canada’s first regulated peer-to-peer lending platform focused on small business is changing the game for entrepreneurs
We want to be a reliable source of financing for these businesses. Even more, we want to be supportive of them throughout their life as a growing business.
Small businesses are facing a financing crunch. Their aspirations are too large for the owners to finance by themselves, but too small to attract the attention of traditional lenders. The Canadian Federation of Independent Business reports that firms with fewer than five employees are nearly six times as likely to be rejected for a loan than midsize firms of 50 to 499 employees.
Enter Lending Loop, Canada’s first fully regulated peer-to-peer lending platform focused on connecting willing lenders with small businesses requiring capital.
“It can be difficult for many Canadian small business owners to access capital through traditional sources, such as banks or credit unions,” says Cato Pastoll, founder and CEO of Lending Loop. “Traditional lenders are driven to generate profits and increase operational efficiency and it isn’t profitable for them to have an individual sit down with a business owner and underwrite a $30,000 business loan. Often, the only options left open to borrowers include credit cards, costly merchant cash advances or high-rate loans from private lenders.”
Lending Loop bridges the gap between businesses and lenders by using technology to take the friction out of the no-cost, no-risk application process.
Applicants can apply online by connecting thirdparty services such as their accounting software and bank account. That eliminates the need for business to spend hours on preparation and paperwork by allowing the company to draw on actual data for analysis. Lending Loop then quickly underwrites a potential loan by placing applicants into a credit grade that determines the interest rate assigned to them.
“Once a loan is approved, lenders can then visit the Lending Loop Marketplace and choose which loans they want to finance, and how much they want to commit to a particular borrower, with the ability to diversify across many different loans. Borrowers make fixed monthly payments which are provided directly back to the lenders who helped to fund them.”
Lending Loop borrowers range from mom-and-pop shops to trades businesses, small manufacturers, craft brewers, e-commerce and retail stores. The typical borrower employs as many as 20 workers and generates between $500,000 and $2.5 million in annual revenue. Their projects include anything from financing a new patio for a restaurant to buying new equipment or getting working capital for a new project.
Lending Loop works hard to differentiate itself from alternative lenders typically associated with payday loans, predatory rates and high-pressure sales tactics.
“We’re fundamentally different from those types of companies,” says Pastoll. “Our fees, rates and requirements are entirely transparent, as we provide them up front and throughout the application process. We quote a true interest rate, just as a bank would, rather than basing the loan on deceptive terms involving a percentage of sales or a percentage of the loan amount. There are no hidden costs such as annual maintenance fees, application fees or early repayment fees.”
Businesses are typically offered an interest rate based on their past performance and ability to repay. The online marketplace linking borrowers and lenders operates much more efficiently than the traditional lending sector, further reducing the cost of a loan for businesses. Borrowers and lenders choose the terms they want to commit to, and that helps ensure all parties achieve the best deal possible.
The Lending Loop website offers transparent insight into the terms of various loans the company offers, although the names of the businesses are withheld to protect their privacy.
“We are currently the lowest-cost alternative lender in the country,” says Pastoll. “Our highest rates are below the rates at which most alternative lenders start lending. In fact, we often help businesses refinance expensive credit cards or private loans they’ve received from higher-cost lenders.”
He notes that his company isn’t simply a lender that companies turn to when banks say no. Lending Loop has positioned itself as a long-term financial partner that can provide capital quickly to the businesses it serves.
“We want to be a reliable source of financing for these businesses,” says Pastoll. “Even more, we want to be supportive of them throughout their life as a growing business. We often see businesses come back for support, guidance or additional funding. Many customers have returned for second, third and fourth loans as their businesses have continued to grow and expand.”