Lending Loop Review - Canada's First Peer to Peer Lending Marketplace

How I am Investing in Lending Loop – Canada’s first Peer-to-Peer Lending Marketplace

 

The majority of my neHow I am Investing in Lending Loop - A review of Canada's 1st Peer to Peer Lendingt worth is locked into real estate and that gets me worried from time to time.  On one hand, I love the control I have over my real estate investments.  On the other hand, I don’t want to keep all my eggs in one basket.  The current volatility in the global markets is making it hard for me to figure out how to diversify my investments and make them more passive. With the European and Chinese markets falling 20% from their highs (a signal for selling, i.e. bear market), there is a lot of anxiety and fear in the markets, which is also impacting bonds, commodities and currencies.

Attractive options for diversifying outside of real estate have been limited, until now.   I’m very excited to say that an answer to my problem came late last year – Lending Loop.

What is Lending Loop

Lending Loop is a Canadian market place that makes it simple for you to invest in small business loans for as little as $50.   Lending loop allows investors to pool their money into bigger loans for small businesses and to get a nice return.  This is very similar to hard money lending, where you become the bank, but with smaller chunks of money.  What I really like about it (other than the healthy return) is that the loan supports the growth of local Canadian businesses!

I had been patiently waiting for this type of lending model since it was launched in the US in 2006.  When it finally arrived in Canada last October, I immediately signed up, opened an account, and started lending money. I was one of the first 450 people who signed up and I was very excited to try it out.

How is this Different?

Less than a handful of niche firms offer these services, and what is really unique here is that:

1) it is available to all investors across Canada (excluding Quebec);

2) it is completely online (no bankers); and,

3) you can lend as little as $50.

Competitors like Grouplend and Borrowell are only open to institutions and accredited investors, which makes Lending Loop the first peer-to-peer lending marketplace in Canada.

What types of investments are available?

Here is a sample of small businesses on Lending Loop’s marketplace.  Loans to these businesses help them with increasing their working capital, expanding their operations, or consolidating their debt.  Since October, Lending Loop has only loaned to 12 small businesses, but a new one comes up after the last one is fully funded.

Lending Loop Marketplace

Lending Loop Marketplace

Before handing over any cash, investors get to check out the credit worthiness of the business, their financial statements, the reasons on the loan, and the return for the loan.  Returns range from 6% to 15.5%.  The loan is backed by a personal guarantee (which means you can affect their credit score).   Lending Loop takes a small cut of the returns (1.5%) and that still nets you anywhere from 4% to 14%.

Lending Loop completes the groundwork, such as checking credit ratings and determining debt-to-income ratio of the business, before approving them as a borrower.  Another minimum requirement for borrowers is that they must have been operating for at least two years, with an annual revenue greater than $200,000 per year, before an application is considered at Lending Loop.  Once a borrower is approved, Lending Loop issues them a rating from A to C+.  Lending Loop is very transparent about this information and provides this and more to the investors so that they can evaluate the risks and returns of a loan.

Lending Loop - Loan Details

Lending Loop – Loan Details

Lending Loop Loans:

Here is a snapshot of my dashboard.  I made a couple of small loans (called Pledges), but I haven’t received any payments, yet, because my loans are fairly new and it took some time before the balance of the loan was funded by other investors.  In terms of re-payment, amortizations range from six months to five years and I’m expecting monthly payments (principal and interest), similar to a mortgage.

Lending Loop Dashboard Performance

Lending Loop Dashboard Performance

Statistics

There has also been a ton of data collected on peer-to-peer lending since 2005.   NSR Invest has a great resource which highlights the performances of US peer-to-peer lending firms.  And, if you want a case study, TechCrunch has a great article, titled ‘peer-to-peer lending is profitable, even in a recession‘, about a man who has invested in peer-to-peer lending for the last ten years.  Based on my research, this is a very viable investment vehicle.

Strategy 

My current strategy is to make loans to businesses with B and above ratings.  Half of the borrowers are rated B and above.   What I’ve experienced so far is that the borrowers with A ratings get funded fast, so you have to act fast to loan money out.  Lending Loop makes this an easy process, the firm notifies you of new borrowers and with a touch of a button on your mobile device, you can make a loan to the company instantly.

What are my thoughts to Help You

To date, I found the process of signing up, linking to bank accounts and making loans to be very seamless.  Also, the customer services has been impeccable.  With time, there will be more and more small businesses signing up.

Given that I can loan as little as $50, and get decent returns, I think this is a great option for testing the waters of peer-to-peer lending.  My experiment is to spread $1000 over 10 different loans such that even if there is an occasional default, it is very unlikely that I will get a negative return overall.  If the results are promising, I plan to invest larger chunks.

As a worst case, there is always a risk that the businesses might default on payments and I would lose my money.  But sticking to a plan on diversifying my loans to many businesses will level out the risks.  And in the event of a rare default, Lending Loop manages the collection process, including negotiating payments so I wouldn’t need to worry about how to get my money back.

Thanks to Lending Loop for supporting this blog.  I’ve been waiting patiently for years for this type of lending platform to come to Canada.  I think this is a great way to invest. If you want to get started with an account of your own, be sure to hit up my affiliate link to get $50!  It is a win-win situation.  You get $50 for opening an account with a minimum investment of $500 and you also help me out by supporting this blog.

Give $50, Get $50

 

Have you ever tried peer to peer lending?  How was your performance, please share your experiences below.

10 Comments

  • Nate

    Reply Reply January 27, 2016

    Very interesting, I’ve been looking for a Canadian P2P lender that accepts retail investments for awhile. Lending Loop might need to be a bit more active in marketing to investors, I couldn’t find anything a few months ago when I looked around!

    It makes me a bit weary that P2P lending through a brand new startup (with an undisclosed level of seed funding) adds another layer of risk, but its certainly worth testing. Just signed up for an account through your link.

    • Financial Nirvana Mama

      Reply Reply January 28, 2016

      Thanks for signing up:)
      I’ll be tracking my performance to see how it pans out and reporting it out.

    • Financial Nirvana Mama

      Reply Reply February 9, 2016

      Thanks for the sign up. I’ll be posting my performance for transparency. One thing I can say about lending loop that is different from popular lending models in the US is that it only lends to small business owners with proof of revenue. I noticed in the US like Prosper lend to anyone which makes it higher risk…because it’s like another credit card model, individuals can borrow money… Only time will tell.
      Financial Nirvana Mama recently posted…How to Retire off Rental CashflowMy Profile

  • Carly

    Reply Reply April 10, 2016

    What are your thoughts on Lending Loop now that they are currently holding all new loan requests and not allowing anymore investors to fund businesses while they are in legal talks. I was very interested in beginning my investments with Lending Loop for many months, I had my account all set up and was ready to go with my first deposit when everything came to a halt.
    I am worried that once they are back up, there will be some hesitation from both businesses & investors to take part on their platform, which could inevitably see a collapse in the company.. any thoughts you may be able to share would be fantastic.

    • Hi Carly, thanks for visiting my website. Yes, I share your pain and fear. I still have deposits with Lending Loop and because this is all new in Canada, I’m patiently waiting for them to resolve this issue. I feel Canada is much more conservative and therefore everything here is slower to introduce. This concept is nothing new in the US and Europe. I’ve personally invested in small businesses through Lending Loop and still getting interest payments back + principle. So I’m patiently sitting back as long as I’m getting paid. Yes, there might be some hesitation in the beginning after Lending Loop is up and running but if they market well with a strong financial backing from angel investors, it will be a forgotten issue. I encourage you to contact Lending Loop if you have any worries.

  • Kay

    Reply Reply February 22, 2017

    Hi. How would this affect your taxes when filing your yearly CRA? Also, if you pull your money from a TSFA to invest, would that be protected from being income taxed?

  • Winnie

    Reply Reply March 15, 2017

    Hi. Can you comment about the status of the issues that were ongoing last April? Also, how flexible is Lending Loop if you want to withdraw your principle and earnings?

    • Hi Winnie, Lending loop is okayed by securities in Canada now. And I’ve been withdrawing my earnings no problem. But you can’t withdraw your principle if you have made a loan, you have to wait until the borrower fulfills the terms of the loan (pays back the loan). Hope that helps.

  • Jane

    Reply Reply April 8, 2017

    Great blog! I am a new investor. I didn’t even realize Canada had p2p until just a few weeks ago. Was so jealous of the Americans a few years back and then kind of forgot about it since nothing was available here.

    Glad you are having a good experience, and I see on reddit and other places that people are generally satisfied and that calms my nerves a bit. 😀

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