Alternative lending bubbles up into Canadian mainstream, gains traction among entrepreneurs

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Financial Post | Sonya Bell | Jul 7, 2015

Steven Uster FundThroughThere isn’t much an entrepreneur in Edmonton, a branding specialist in Toronto, and the owner of a comics and games store in Halifax have in common. But when they recently sought capital for their growing businesses, all three arrived at the same answer — alternative financing.

“Alternative finance has really bubbled up into the mainstream in the U.S., in the U.K., in Australia – and in Canada it is now starting, finally, to bubble up,” said Steven Uster, who co-founded Toronto-based lending firm FundThrough.

More accessible than a bank loan and less complicated than crowdfunding, these online marketplace lenders use proprietary software to quickly assess a client’s loan eligibility, day or night. Like almost everything else today, it’s as easy as pointing and clicking.

“It’s pretty seamless,” Uster said. “Once you’ve filled in the application, you can get funded sometime between 24 and 72 hours later.”

Clearly there’s a lot of pent-up demand, a lot of Canadians looking for better solutions

Uster knows firsthand that time is money for entrepreneurs. Back when he launched his first online company, Zillidy, the only funding option was “bootstrapping.” But those days are finally coming to a close.

Canada’s first online marketplace lender, Vancouver-based Grouplend, launched last October, well after peer-to-peer lending had taken off in other countries. “Canada being Canada, we’re slow to innovate,” said Kevin Sandu, Grouplend’s CEO.

“We’ve got five big banks that hold the majority of the market and so we tend to get things late. It took a lot longer for us to get Netflix than our American counterparts and I think financial services is no different.”

Now that it’s available, consumers and businesses are rushing to take advantage. Grouplend, which specializes in consumer loans, is experiencing double the demand it expected at this point. Nearly 15 per cent of its customers use the loan for an entrepreneurial venture.

“Clearly there’s a lot of pent-up demand, a lot of Canadians looking for better solutions,” Sandhu said.

“It’s just not been a good fit with the traditional ways of lending.”

The success of alternative lending comes as no surprise to Sunil Sharma, a managing partner at Extreme Venture Partners, who closely watches Canada’s technology ecosystem. “I think it’s clear that traditional banks, particularly in Canada, have not been very supportive of this new generation of entrepreneurial startups,” Sharma said.

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Banks prefer larger loans, which are more profitable, effectively shutting smaller players out of the process. Even though borrowing from an alternative lender might cost more, many businesses don’t have a choice.

Banks prefer larger loans, which are more profitable, effectively shutting smaller players out of the process. Even though borrowing from an alternative lender might cost more, many businesses don’t have a choice.

“The reality is for a lot of small businesses, it’s either high interest or zero cash,” said Kyle Dutka, co-founder of PB&J in Toronto, which specializes in design work for fellow small businesses.

Earlier this year, he and his co-founder Tom Collver applied for a $23,000 bank loan so they could expand PB&J’s marketing and hire additional staff. First came radio silence. Then, the answer: no. This was despite the pair having three years running an incorporated business under their belts.

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