Ontario government invests in fintech to boost small-business lending

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The Globe and Mail | Clare O'hare | May 2, 2018

The Ontario government is turning to Canada’s financial technology sector to help small businesses get better access to financing.

On Wednesday, Lending Loop, a peer-to-peer online lending platform for small-business loans, announced a pilot project in partnership with Ontario that will provide $3-million of loans over the next two years. The government will boost Lending Loop’s loans by 10 per cent, which will help fund more than $30-million of loans to businesses across Ontario. The government will receive a full re-payment of the loan plus interest at the end of the loan terms.

“This pilot program is important as it will significantly benefit small businesses, accelerate Fintech adoption, and provide new opportunities for financial institutions,” Jeff Leal, Minister Responsible for Small Business, said in a statement.

Small-business loans are seen as risky, with borrowers facing annual interest rates between 8 per cent to 40 per cent as a result of challenges such as absence of collateral, a lack of operating and credit history, unaudited financial information or an absence of steady cash inflows.

“The new lending commitment from the province recognizes the contribution that non-traditional channels can play in improving businesses’ access to capital,” says Cato Pastoll, co-founder and CEO of Lending Loop. “This partnership is a major step forward for peer-to-peer lending in Canada. Globally, over $40-billion has been lent to businesses through the peer-to-peer model, and we are incredibly excited to see the Ontario government involved in helping support the growth of businesses across the province.”

In Canada, there are a handful of online lenders offering small-business loans. The majority of the platforms are fintech start-ups that have been looking to address challenges many small businesses face when accessing financing from traditional sources – such as Canada’s five big banks.

As part of Ontario’s strategy to support small businesses, the 2017 Fall Economic Statement included a commitment to establish a pilot project to address small-business financing challenges.

In early 2018, the ministry held a number of consultations with representatives of lending platforms, credit unions and large financial institutions to determine the best approach. The government found that many businesses struggle when it comes to securing loans between $500,000 and $1-million.

See:  Lending Loop launches “Auto-Lend” after raising new round of funding

“Peer-to-peer lending platforms play an important role because they increase the amount of capital for small businesses by creating new sources of loan capital, more sophisticated credit models, and efficient access,” said a spokesperson for Mr. Leal’s office. “Platforms in other markets have proven that lending to small businesses with affordable, long-term capital not only benefits the small businesses but is also a highly attractive investment for investors.”

The three-year “access to capital” pilot program also includes a commitment to provide a grant of up to $750,000 to the Toronto Financial Services Alliance to promote awareness of alternative forms and sources of lending programs available to small businesses.

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

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