Borrowell set to become second member of Canadian marketplace lender’s club

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Financial Post | Barry Critchley | Dec 3, 2014

Crowdfunding P2PIn early 2015, the second player in marketplace lending – a business that uses online technology to match borrowers seeking fixed rate term loans with institutional capital providers — is expected to be operational.

By then Borrowell will join the incumbent, Vancouver-based Grouplend — which started two months ago — in a business that’s popular in U.S., Europe, Australia and New Zealand.

On Wednesday, Borrowell announced it had received $5.4 million in funding from a group of investors. Equitable Bank and Oakwest Corporation Ltd. (a company associated with the Beutel family) are two of the institutional investors.

The $5.4 million is a mixture of debt (that will be used to fund the loans Borrowell intends to make) and equity (which will be used to fund the operation and provide a return to the investors).

“There has been a global move to changing the way in which loans are made, creating new kinds of consumer products,” said Andrew Graham, Borrowell’s chief executive.

The former executive at PC Financial, said, “technology is starting to create big disruption and big opportunities for new business models,” a development that’s already taken hold in other sectors including retail and travel.

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In financial services, consumer lending is the area undergoing the largest change. And Borrowell intends to capture some of that change by offering consumer loans to borrowers with “good credit profiles.” A typical client, Graham said, could be a person who is “employed but carrying [credit card] debt at high cost. We think [some of them] would like an alternative to paying the rates charged by the credit card providers or cards provided by the [retail] stores.”

Kevin Sandhu, Grouplend’s chief executive, said marketplace lending has developed because banks and credit card issuers have “not been innovative for decades. The result: consumers are paying far too much and settling for poor service. We use technology and data-driven systems to deliver faster, more affordable and more convenient solutions.”

Borrowell’s product will be individually priced with the rate being dependent on the borrowers’ credit characteristics. The rate would vary from “6% to the low 20s with the average in the low teens.”

The process will be done online and will take one to two days. The maximum loan is $35,000. Loans will run from three years to five years but can be repaid early without penalty.

To raise the needed capital, Borrowell will sell the loans to institutional investors and to investors who meet the accredited investor rule. (In this way there is no mismatch on term.) And Graham is confident there are enough capital providers, mainly because institutional investors can’t normally get access to consumer loans other than through securitizations.

‘We have spoken to many hedge funds which are interested in coming onto our platform,” he said, adding Borrowell will take a fee for bringing the two parties together and servicing the loan.

For Graham’s group, the pay-off, albeit a long way away, could be going public as San Francisco-based LendingClub is planning. Formed in 2006, the IPO could raise as much as US$800 million. Another option would be to sell a stake to an outside investor – the path followed by Eaglewood Capital, a New York firm set up in 2011.

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