Canadian Business | Steven Uster | June 15, 2015
Financial technology companies are shaking up banking—especially for entrepreneurs seeking fundingPity the entrepreneur seeking a bank loan. A Harvard Business School report noted that it takes 25 person-hours to fill out the necessary paperwork, and it can take four to six weeks for the bank to make a decision. At the end of that painful process, the answer is quite likely to be no.
Since the financial crisis, North American banks no longer consider loans under $250,000 to be profitable, according to Steven Uster. As the founder and CEO of Toronto-based FundThrough, Uster aims to help these beleaguered business owners find the financing they need. FundThrough is a marketplace lender, a strictly digital platform that connects prospective borrowers and investors, promising lower rates. It’s one of many Canadian startups in the financial technology (fintech) space deploying low-cost, Internet-only business models to disrupt the way bricks-and-mortar banks operate. Incumbent players have so far had little incentive to change.
The biggest sources of customer complaints, such as transaction fees, are also where banks make their biggest profits, after all. But while Canada’s banks are focused on prying customers away from one another, they risk losing important parts of their business to upstart firms. “A bank is always going to be there to hold your money,” Uster says. Fintech firms might do everything else. “You may not go to the bank for much more than deposits.”
Fintech ventures attracted $12.21 billion in investments in 2014, according to Accenture, a management consultancy. Canadian startups have been particularly active, staking claims to every function of traditional banking, from personal lending (Borrowell) to payments (Payfirma) to investment portfolio management (Wealthsimple).
Vancouver’s Koho, set to launch in August, is targeting retail banking. “We issue you a card, a web app and a mobile app, and effectively this account does everything you could do with your regular bank account,” explains co-founder and CEO Daniel Eberhard. “On top of that, we strip away all the fees.” Instead of charging the customer, Koho plans to make money with a cut of the interchange fees merchants disburse when processing payment cards. Deposits will be held by a federal financial institution, meaning that Koho isn’t a bank but a new service layer atop existing infrastructure.
Koho is aimed primarily at generation Y, a demographic with little patience for the delays and high fees of traditional financial institutions. A Google consumer survey last year found that Canadian millennials were more likely to switch banks (22%, compared with 14% for the general population), and 47% would switch for a better mobile experience. “With a lot of the ways banks have traditionally embraced the relationship-management side of business, they just can’t reach these younger kids,” says David Unsworth, co-founder at Information Venture Partners, a Toronto fund specializing in fintech. “They have a high distrust for big banks, and they don’t like the user experience.”
But big banks are in no danger of being replaced by fintech startups altogether. Unlike other sectors disrupted by technology, like print media or music, the financial industry is subject to heavy regulation. Many fintech firms avoid legal issues by never handling consumers’ money. FundThrough, for example, simply facilitates the contact between lenders and borrowers.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1100+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
Lending Loop Release | June 11, 2015
TORONTO, June 11, 2015 /CNW/ - Lending Loop has opened its doors to businesses across Canada, aiming to be the first Canadian platform that connects businesses seeking capital with Canadian lenders. The financial technology start-up received its first round of financing from the Kirsh Group, and intends on using the seed capital to kick-start a Canadian peer-to-peer lending marketplace.
Lending Loop has been quietly developing its technology over the past year, with an intense focus on both simplifying and optimizing business financing for lenders and borrowers alike. As of today, businesses across Canada are able to complete a loan application on Lending Loop's website. The company says the lending component of its marketplace will be rolled-out in the coming weeks, and interested investors are encouraged to sign up for updates at www.lendingloop.ca.
The past five years have witnessed the dramatic global ascent of an industry commonly referred to as "marketplace" or "peer-to-peer" lending. While many platforms have gained traction internationally, the Canadian market remains untapped. Lending Loop hopes to bridge that gap, helping promising and rapidly growing businesses to obtain flexible financing at fair rates, while giving lenders the opportunity to earn attractive and transparent fixed income returns through a diverse set of lending opportunities.
"We are confident that our platform will prove to be a compelling alternative to high-cost private lenders and overly conservative Canadian banks for small businesses that are looking for flexible financing at fair rates," says Cato Pastoll, CEO of Lending Loop. "We are starting to witness the displacement of the traditional high-cost and highly cumbersome lending model by a twenty-first century online structure that can both stimulate local economies and put money back into the pockets of all Canadians. Small businesses are the backbone of every healthy economy worldwide and our goal at Lending Loop is to champion their growth across Canada through our innovative and user-friendly platform."
About Lending Loop:
Lending Loop is an online marketplace for Canadians to lend money to growing local businesses. The company was born after the founders became frustrated with the inefficiencies and imbalances of traditional banking which has created an environment where small businesses struggle to access affordable financing. Having observed these issues in business borrowing, the domestic need for new technology became readily apparent.
Lending Loop aims to solve this problem through its innovative marketplace that efficiently connects lenders and borrowers, resulting in a fairer outcome for both. The online model allows businesses' loan applications to be evaluated using sophisticated decision models supported by hundreds of data points. Using this technology, Lending Loop aims to advance the Canadian lending ecosystem into the twenty-first century by providing accessible capital at fair rates to promising SMEs while simultaneously improving fixed income returns for lenders. More information is available at www.lendingloop.ca
SOURCE Loop Financial Inc. 
For further information: please contact media@lendingloop.ca; Cato Pastoll, 647-501-5747
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
The Globe and Mail | STEVEN USTER | June 2, 2015
Steven Uster is co-founder and chief executive officer of FundThrough, a marketplace lender that provides loans to small businesses.
Peer-to-peer lending may be the biggest innovation in financial services since the invention of the ATM. P2P lenders offer what is often referred to as a marketplace platform that matches borrowers with lenders who get access to a new asset class: small business or consumer credit.
Through these platforms, lenders invest in loans and earn a return greater than their bank savings account, while borrowers gain quick access to capital at a risk-appropriate rate.
Marketplace platforms (see Canadian Crowdfunding Directory) make economies more stable by eliminating the “too-big-to-fail” risk associated with traditional banks. These platforms have no leverage and no balance sheets. They simply facilitate borrowers and lenders coming together
P2P also makes the economy more liquid and fair. Peer lenders increase borrowing capacity by providing a broad range of investors to fund loans, improving the availability of credit for high-quality but underserviced borrowers.
For example, new Canadians overindex in small-business ownership yet underindex in loans from traditional banks. Through marketplace platforms, they can now access the capital they need to grow.
Marketplace lenders are more efficient than traditional financial institutions. Why is it that a small-business owner who sells to Wal-Mart or other similarly high-quality companies often can’t get working capital funding at reasonable rates, if at all? Why is it that a prime-quality borrower pays 20 per cent to hold a balance on their credit card? Meanwhile, investors are earning almost nothing in their savings accounts. P2P platforms are able to price loans more efficiently, and therefore more appropriately, for borrowers.
Although prevalent in the United States, Britain, Europe and Australia, marketplace lending is a new and unproven concept in Canada, and therefore has few specific regulations.
In order to foster innovation that will benefit all stakeholders and the Canadian economy as a whole, regulators should focus on four areas as they consider regulating this game-changing industry.
First, adopt a presumption of permission, instead of a presumption of prohibition. Former U.S. Treasury secretary Larry Summers recently compared the evolution of marketplace lending to the evolution of the Internet. When the Internet was starting to take off in the 1990s, U.S. president Bill Clinton created a task force of advisers to make recommendations on how it should be regulated.
After much debate, they decided that as long as basic principles on privacy and illegal activity were adhered to, the government would step back and let the Internet develop. A similar approach would be appropriate with marketplace lending.
Second, insist on full transparency and disclosure and then let borrowers decide. Regulators should insist on a standard presentation of rates, terms, structure, fees and prepayment penalties across platforms.
Borrowers need to clearly understand what they’re signing up for and what their recourse is, and should then be able to make their own decision based on business or personal needs.
Lenders should have full access to data and the ability to diversify portfolios in order to make investment decisions with confidence that the data being presented are accurate and free of manipulation.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
Calgary Herald | Mario Toneguzzi |May 28, 2015
With more companies turning to an online tool for capital, ATB Financial plans to launch its own crowdfunding portal for Alberta entrepreneurs next month.“Anyone in the world can boost a business on Alberta BoostR but only Alberta entrepreneurs and small businesses can actually launch a campaign,” said Neetu Sidhu, manager of ATB’s Alberta BoostR.
The beta stage of the platform’s development ended in November and several businesses are poised to launch fundraising campaigns when the platform goes live, she said.
“We got a lot of positive reception from business owners saying this is not only a great platform for me to raise money to either launch or grow my business but also a great marketing tool,” said Sidhu.
She said ATB is taking a different approach to the typical crowdfunding sites which are primarily based online. Events are also being created where companies can pitch their ideas to an audience who will be given ATB BoostR dollars to distribute to companies they like. An expert panel will also offer feedback to the companies.
Brenda Mahoney, an owner of Vin Gogh Paint and Sip Studio in Calgary which offers social evenings of painting and wine, said the Alberta BoostR program could be “fabulous” opportunity for her young business.
“When we started this we didn’t know that we had to have a kitchen for a liquor licence. So we did not have that in our business plan or our budget. So we took a loan out for the kitchen equipment. We’re hoping to raise some money to cover the costs of the kitchen equipment. We’re hoping to raise between $10,000 and $15,000,” she said.
The Calgary Chamber of Commerce hosted an informational event this week for companies to learn more about the growing crowdfunding trend.
Scott Crockatt, spokesperson for the Chamber, said another event involving the Chamber and ATB is planned for later in June where companies can pitch their idea to a crowd of about 200 people.
“We’re going to give everybody in the crowd a $20 voucher to put this towards the best business you think there’s a crowd fund to sort of help boost them up,” said Crockatt. “I think crowdfunding is catching on as another tool in the entrepreneur’s tool box of ways to source capital.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1100+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
Stikeman Elliott | Vincent Laurin |
As discussed in a post last week, the securities regulators of British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia (the "Participating Jurisdictions") have implemented registration and prospectus exemptions intended to facilitate the ability of Canadian start-ups and early stage companies to raise capital through crowdfunding in the Participating Jurisdictions. These exemptions, enacted through local blanket orders (the “Blanket Orders”) in the Participating Jurisdictions, are further to the comments received as part of the consultation held in March 2014 and will expire on May 13, 2020. The conditions related to the prospectus and registration exemptions, summarized below, are outlined in Multilateral CSA Notice 45-316 – Start-up Crowdfunding Registration and Prospectus Exemptions – the Blanket Orders of each Participating Jurisdiction should be reviewed for the precise terms and conditions applicable to the use of the exemptions in such jurisdictions.
The prospectus exemption allows a non-reporting issuer, that is not an investment fund and whose head office is located in a Participating Jurisdiction, to issue eligible securities through online funding portals. The funding portals may either rely on the registration exemption contained in the Blanket Orders or they may be operated by a registered dealer that has provided certain written confirmations to the issuer. While issuers are exempt from the prospectus requirement under this exemption, they must produce an offering document in the prescribed form, which contains basic information about the issuer, its management and the distribution, including risk factors, how the issuer intends to use the funds raised and the minimum offering amount. Following the closing of the offering, the offering document must be filed with the participating regulator along with a report of exempt distribution.
This exemption applies only if certain conditions are met. In particular, issuers cannot raise aggregate funds of more than $250,000 per distribution and are limited to a maximum of two such distributions in a calendar year. Moreover, no investor will be allowed to invest more than $1,500 per distribution. Each investor must have a contractual right to withdraw a subscription by delivering notice to the funding portal within 48 hours of either the purchaser’s subscription or a notification by the funding portal of amendment to the offering document. The funding portal must return the funds within five business days of receiving notice from the investor. The distribution may remain open for a maximum of 90 days. Importantly, none of the principals(a promoter, director, officer or control person) of the issuer may be a principal of the funding portal. Finally, since the exemption is only available to non-reporting issuers, the eligible securities are subject to an indefinite hold period and can only be resold under another prospectus exemption, under a prospectus or four months after the issuer becomes a reporting issuer.
The registration exemption permits funding portals with a head office in Canada and a majority of Canadian residents as directors to facilitate distributions under the prospectus exemption without being formally registered, subject to certain conditions.
Notably, funding portals must deliver an information form and individual information forms for each of its principals to the securities regulatory authorities of the Participating Jurisdictions at least 30 days prior to facilitating its first start-up crowdfunding distribution. Furthermore, funding portals must not provide any advice to the purchasers and are not allowed to collect fees or commissions from investors. Additionally, the funding portals must not allow a subscription until the purchaser confirms its understanding of the offering document and the risk warning, both of which must be disclosed on the funding portal’s website. Other conditions required by the instrument include that the funding portals: (i) receive payment from investors electronically through its website, (ii) maintain books and records for a period of eight years from the date a record is created (which may be inspected by a participating regulator), and (iii) either release funds to the issuer after the minimum offering amount has been reached and provided that all 48-hour rights of withdrawal have elapsed, or return the funds to the purchasers if the minimum offering amount is not reached or if the start-up crowdfunding distribution is withdrawn by the issuer. A participating regulator reserves the right to notify the funding portal that it cannot rely on the registration exemption because its principals or their past conduct demonstrate a lack of integrity, financial responsibility or relevant knowledge or expertise.
This week:
May 26 (Webinar): Learn how to build a crowd and nurture a customer and capital raising network
May 28 (Toronto): NCFA Summer Kickoff Fintech Crowdfunding Networking Event!
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
Dentons | Andrea Johnson | Last modified May 20, 2015
The Canadian Securities Administrators (“CSA”) and securities regulators of British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia (the “participating jurisdictions”), announced on May 14, 2015, the adoption of a start-up crowdfunding exemption (the “start-up exemption”) in each of the participating jurisdictions. This exemption is aimed at helping start-ups and early stage companies to raise capital, and represents an important step in modernizing the Canadian securities regulatory regime to reflect changes in technology and the growth of social media.
The start-up exemption permits funding portals to facilitate the offering of securities by way of crowdfunding, subject to a number of conditions. The start-up exemption actually compromises two separate exemptions: (1) an exemption from the requirements to file a prospectus when issuing securities; and (2) an exemption from the dealer registration requirements for funding portals. Certain key elements of the start-up exemption are as follows:
The major changes to the start-up exemption since it was originally published for comment in March 2014 are: (1) an increase in the maximum offering size from CA$150,000 to CA$250,000 per offering with a limit of two offerings per year; and (2) allowing registered dealers to operate a funding portal. The start-up exemption will expire in five years on May 13, 2020.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
Enterprise Toronto | Chris Rickett | Apr 24, 2015
Darrell Bricker
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit ncfacanada.org.
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