I first heard about Lending Loop, the first and only regulated peer-to-peer lending platform in Canada, a couple of months ago. But at that time I was still living in Quebec, which does not allow such investing platforms. I’ve since moved to Vancouver and I now have access to Lending Loop as an addition to my current investments.
Most of my net worth is locked in index funds and while I do love the control and stability index funds give me, I also wanted to enjoy some really nice returns and to try out some new financial products! That’s why I started a few weeks ago to invest with Lending Loop.
Lending Loop allows businesses to access financing from lenders all across Canada (except in Quebec). At the moment, there’s about 14,000 investors using the platform and over $10M loans have already been funded. Loans yield anywhere from 5.9% all the way to over 26.5%, with most businesses paying back their loans without any problem.
So today I wanted to share my thoughts about my first few months as an investor in this Lending Loop review, where you’ll learn what are the pros and cons of peer-to-peer lending in Canada, because Lending Loop has huge advantages but also comes with some limitations.
Lending Loop Review Overview
- $200 Minimum Investment – You can invest by increments of $25 on each loan available in the marketplace, but $200 is the minimum to get started with Lending Loop.
- Potentially Higher Returns – Higher risks also means much higher returns than more traditional investments.
- Great Alternative – For those of you like me who still have all their eggs in a single basket, this is a great way to diversify your portfolio.
- Referral Program – Get a $25 referral bonus when you invite a friend to Lending Loop.
- Completely Available Online – As a recent platform, it comes with all the perks of a modern one like the complete automation and a beautiful web interface.
- Small Pool of Loans – It’s getting better month after month, but the quantity of loans is still relatively low.
- Account Type – Lending Loop does not offer registered accounts (RRSP, TFSA) at the moment.
- No Secondary Market – As there is no secondary market for you to sell your notes, you have to wait until the end of the terms (from 3 to 60 months) to get your investment back.
Table of Contents
What is Lending Loop?
Lending Loop is a Canadian peer-to-peer lending platform (headquartered in Toronto) that makes it simple for you to invest in small business loans (for as little as $25). What Lending loop does is that it allows investors to pool their money into bigger loans for small businesses. Lending Loop promises a higher rate of return than many other traditional fixed-income investments.
In other terms, you become the bank, but with smaller chunks of money. What really attracted me in the first place is that the loans aim at supporting the growth of local Canadian businesses (and also the overall much higher returns than standard investments).
It can get tough for small businesses to get funding sometimes, that’s why Lending Loop and peer-to-peer lending emerged in the first place, and it is the first and only Canadian regulated peer-to-peer lending marketplace.
Lending Loop has some competitors in Canada, like Grouplend or Borrowell but they are quite different, as they are restricted only to institutions and some accredited investors (with very high net worth), while Lending Loop is also available for more *standard* investors like you and me.
As a young company, Lending Loop is completely online based, and as such they can pass the savings over to their users. The result for borrowers is a cheaper interest rate at Lending Loop than anywhere else, and the same goes for lenders.
Here are some official statistics (updated as of January 2018).
|Loans Volume||$15 Million|
|Promotions||$25 Signup Bonus|
|Investment Length||3-60 Months|
How does Lending Loop work?
Investing with Lending Loop is a relatively simple and straightforward process and it all begins when a borrower applies for a loan.
Lending Loop completes all the groundwork, such as checking credit ratings and determining debt-to-income ratio of the business, before approving them as a borrower.
For example, a requirement for borrowers is that they must have been operating for at least one year, with an annual revenue greater than $100,000 per year, before an application is considered.
Once a borrower is approved, Lending Loop issues them a credit rating from A+ to E, A+ being the lowest risk/lowest interest rate and E being the highest risk/highest interest rate. Lending Loop uses a proprietary evaluation and scoring system to assess a company’s creditworthiness which may include:
- A business credit score obtained from a credit rating agency, which may take into account payment and delinquency history, delinquency patterns, years in business, years borrowing, size and industry segmentation, among others
- Various financial metrics such as the debt service coverage ratio, debt-to-tangible net worth, and working capital ratio, among others
Once a loan is approved, it is added to the Marketplace, where all the action happens.
Lending Loop Marketplace
Once a loan has been approved to the marketplace, if you see a business in which you’re interested to invest, Lending Loop gives you some very detailed information about the companies, including why they want the loan, and their past 3 years of financials.
This is where it gets interesting as you get to determine which loans you want to approve and which ones you want to pass on. Typical loans returns range from 5.9% to 26.5%, while Lending Loop takes a 1.5% fee which still nets you anywhere from 4.4% to 25%.Looking for an alternative to traditional investing? Meet the biggest peer-to-peer lending platform in Canada, Lending Loop.Click To Tweet
Small loans are usually funded very quickly, a few days maximum after they’re published on the marketplace. But larger loans can sometimes take weeks to fund or even fail to become fully funded.
In that case, if the loan doesn’t go through, Lending Loop may extend the period of time during which that loan request will remain open by up to 15 days (see their FAQ on funding here). If the loan still doesn’t get fully funded, Loop Funding may provide the borrower a loan in an amount less than the initial amount of the loan request if they find it would be reasonable.
But in all scenario, if the loan is cancelled, the amount you might have committed will get credited back!
Currently there aren’t any liquidity options to resell your notes as there is no secondary market. Lenders can only be fully paid back only at the time of the last payment, which makes Lending Loop a mid/long term investing option as you can’t access your money back easily.
Hopefully in the long-term there will be a secondary market available, allowing lenders to sell their notes to get back their money earlier.
Try Lending Loop!
Investing in Peer-to-Peer lending has never been that simple and everything is automated. Get a $25 BONUS to get started.Open a Lending Loop account
As Lending Loop only offers taxable accounts at the moment (no RRSP or TFSA available yet), at the end of each calendar year Lending Loop provides lenders with a summary of their income interest (a T5). So remember to file your tax return accordingly!
Lending Loop Dashboard
The overall look and feel of Lending Loop is that the site design is pretty clean and quite easy to navigate.
The main dashboard page gives a broad overview of your account situation, with information quickly available like lifetime earnings, maximum exposure in a single loan and your weighted average gross yield.
Many loans get added on a weekly basis and Lending Loop makes investing to new loans an easy process. You get notified by mail of new available borrowers and you can make a loan to the company almost instantly.
If you don’t want to get in the process of screening and choosing each time which loan you plan to fund, you can also use an interesting feature, named “Auto-Lend” (that’s a new feature launched in August 2017 after Lending Loop raised a $2M funding).
You get to choose you risk profile (which notes you want to purchase) and then your funds get invested automatically, whether it be with new funds or when you get repayments from your current borrowers.
Combined with an auto-deposit, Auto-Lend makes the perfect set it and forget it investing method and allows you to keep investing with Lending Loop on a recurring basis with ease.
With my initial $1,000 investment, and given the fact that I can loan as little as $25, and get decent returns, I’ve chosen to spread my initial $1,000 over 40 different loans such that even if there is an occasional default, it is very unlikely that I will get a negative return overall.
I also only invest in maximum 36 months loan, as I don’t want to be committed for a full 5 year. If the results are promising, I plan to invest larger chunks and choose more carefully on which business I invest my money with! I’ll update this Lending Loop review in a few months when I’ll have more statistics to share.
There are of course some risks when investing in peer-to-peer lending, like the 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.
Lending Loop Investor Statuses
To get started with Lending Loop, all you need is a $200 initial investment (even if you can fund loans in increments of $25. But this is a good thing as it allows you to be diversified!).
There are however some restrictions (which you can find in Lending Loop FAQ), regarding how much one can invest on a 12-month period, depending on your “Investor Status”. There are some extra steps required if you want to change your status (like a phone call and some proofs). Here are the three statuses available. :
- $10,000 Investment per year
- No Income or Net worth criteria
- $100,000 Investment per year
- Income over $75,000 per year or $400,00 Net Worth
- No investment limit per year
- Income over $200,000 per year or $5,000,000 Net Worth
Is Lending Loop Safe?
The funds that you have deposited but which have not been lent out are held in trust at a Canadian Chartered Bank, so your money is safely stored. All transfers and transactions are performed with highly secure and reliable institutions used by top financial institutions.
However, the nature of business lending means your investment might decline in value. But this is not something specific to Lending Loop, but to all non guaranteed investment in general. So just keep this in mind whenever you are using Lending Loop to fund loans through the Marketplace.
Are there any fees associated with Lending Loop?
Lending Loop charges two kind of fees, as part of their business model.
- The first one is a servicing fee for the lender, which is 1.5% (annualized). This is what makes the largest amount of Lending Loop’s overall revenue, so this incentives them to list and originate loans that have a likelihood of repaying.
- They also charge an origination fee for the borrower, which ranges from 3.5% to 6.5%. This is to cover the cost of everything related to the loans, like credit reports and fees. This fee is only applied if the loan is funded.
So as an investor in Lending Loop, the only fee you’ll ever pay is a 1.5% fee which will be deducted from the loans interest (like for a 16.5% interest loan, you’ll get 15%).
Feel free to head over to Lending Loop rates and fees FAQ, you’ll find all the information you will need about Lending Loop fees.
Lending Loop Sign-up Process
Setting up an account with Lending Loop is a simple process, where you just fill in some online forms and where you have to provide personal information (including Social Insurance Number for tax purposes). Then you get to complete a “Get to Know Me” survey, which identifies your investor preferences.
Finally, you have to link your bank account and initiate the minimum deposit of $200 (or more if you’d like) into your Lending Loop account. You can also choose to setup a recurring deposit to Lending Loop.
After that you’re free to head over to the Marketplace and make your selection of loans, or you can also configure Auto-Lend to invest automatically based on your risk profile.
To sum up, to get started investing in peer-to-peer lending with Lending Loop you just have 5 simple steps:
- Signup with Lending Loop and complete the application details
- Transfer a lump sum (or a recurring contribution) to Lending Loop
- Choose and invest on which notes/loans you want to invest in Lending Loop (and/or setup Auto-Lend)
- Borrowers pay these loans back each month with interest
- Lenders take these repayments back and/or invest in more notes
Simple enough? Definitely, and the process takes roughly 15 minutes (plus a 4-5 days wait for your first bank transfer to arrive).
Lending Loop Review Summary
- Lending Loop is the first and only regulated peer-to-peer lending platform in Canada. It’s a great way to diversify your investments from more traditional portfolios. As detailed in this Lending Loop review, Lending Loop features everything needed to get started quickly and easily with peer-to-peer lending in Canada. If you’re interested in diversifying your portfolio and if the great and stable returns seem appealing to you, Lending Loop definitely is a perfect way to begin investing in peer-to-peer lending!
Lending Loop is a really nice investment platform overall. The signup process, the web interface, the selection of loans as well as the high expected returns make it very appealing for people willing to diversify their portfolio and experiment with peer-to-peer lending. It’s also a much needed service in the Canadian business world to help funding and growing local businesses!
So far, Lending Loop has received over $80 million worth of loan applications, but they have only accepted about 4% of them, which shows that the Lending Loop team is fairly strict about what they allow into the Marketplace to get funding, which is definitely a good sign.
If you are looking to diversify your investments and want to get started with peer-to-peer lending, I would highly recommend using Lending Loop. Its a great way to get exposure to peer-to-peer lending in Canada. We’ll see how my first investment of $1,000 in Lending Loop goes in the next upcoming months, but so far so good!
Feel free to sign-up with my Lending Loop promo code to gain the $25 bonus when signing up to Lending Loop. Its a nice bonus to get started! I hope you liked this Lending Loop review and learned more about Lending Loop and the whole concept of Peer-to-Peer Lending in Canada.
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