The Blog

Only a few months since my last update and there are two new entrants into the space and a third one aiming for a 2015 start as well. GroupLend and Borrowell are the first two online lending platforms. Both provide consumer loans. I covered them last time. In February, Toronto-based Fundthrough opened for business as an alternative source for financing small to medium-sized businesses in Canada. It makes factoring or account receivables loans. Instead of basing the loan on your credit, it bases it on the credit worthiness of your customers amongst many other factors. So in the application, it is the list of customers and the current outstanding invoices that are most important. In April, OnDeck, a US online lender to small businesses, announced

Collateral mortgages are increasingly popular because it makes it harder for you to change lenders at the end of your term. The banks will tell you that this will allow them to extend different loans to you without additional legal fees. This is true, but at the same time it prevents anybody else from lending money to you based on the equity of your home. These mortgages are sometimes registered to 150% of the value of your home. If your home is worth $1,000,000 and you borrow $650,000, they can register a charge of $1,500,000 against your house. This means it will prevent you from getting a loan elsewhere based on the equity of your house now and far into the future. It is not

The First Entry into the P2P lending space in Canada is Grouplend out of Vancouver. In October 2014 Grouplend became the first company that has jumped through all the regulatory hoops so as to be able to offer peer-to-peer lending in all provinces except Nova Scotia and Quebec. And quickly following behind Grouplend is Borrowell, a Toronto peer-to-peer lending firm. The company is headed by Andrew Graham who led the insurance business at PC Financial. They received significant seed funding last year and plan to launch in Spring of this year. Both lenders seem to target people with good credit. This makes perfect sense for a business model that relies on steady pool of investor money. If the investors start loosing money, the pool of

The alternative lending space in the US has been flourishing for years. There are hundreds of companies that have popped up in the last few years. There are ones that lend based on assets, on cash flow of businesses, on incoming account receivables and peer-to-peer lending. In Canada there are only a handful of such companies. A few years ago, Michael Garrity tried to operate a P2P lending company, CommunityLend, in Canada, but due to the regulatory red tape, he suspended operations and instead formed FinanceIt, a point-of-sales lender. The company allows small to medium size businesses to offer financing to their customers for more expensive items. Analogous with the banking systems, in Canada we are much more conservative than the US. So while we

With the recent rule changes the government has imposed in the last few years, more and more people cannot get mortgages at a bank. One group, the self-employed was hit particularly hard. This group has not lost its ability to service a loan in the last few years but they have been pushed into the subprime lenders. The word subprime inevitably conjures up images of the US financial crisis and all sorts of irresponsible behaviours by government, bankers, brokers, insurers and the rest of the financial world. That was a horrible event. I am still furious about it and I am not even an American taxpayer. Just because we use the same word “subprime” it doesn’t really mean the same thing. This is why I

There is a very important development in the world of alternative lending. Peer-to-peer lending or what is now more popularly called “marketplace lending” has hit the big times. In December of this year, two of the biggest players in the US have launched their initial public offering. The IPOs of Lending Club and OnDeck have signaled a new era of non-bank lending. These companies has been around for over 6 years and since then the market has ballooned in the states. Since 2012, there have been over 100 new entrants in the US in this space. It is very new in Canada and there is only one player at this point. By looking at the US, we will get an appreciation of what can or

I have in the past gone over how the banks charge a much larger payout penalty for fixed rate mortgages [see related articles below]. I pointed out that going to a straight mortgage (monoline) lender will save you a lot of money should you need to payout your mortgage early. Those of you who are in love with the banks said the solution would be to go with a variable rate, because everybody charges 3 months interest as a payout penalty. As a result, you get the benefit of staying with an organization you know, and having the same payout penalty. Well, not so fast. Even though both monolines and banks charge 3 months interest, the banks’ 3 month interest is more! How can this

Instead of listing off a bunch of reasons, I am going to use two real world examples from people I spoke to today. Case 1: About 10 months ago, my client had a couple of unsecured lines of credit she wanted to consolidate. Her house is paid off, and only need to take a small amount of equity to pay off the line of credit. She walked into CIBC to seek help. What she got was a cash back mortgage at 3.65%. This does not make any sense. Why would you get a cash back mortgage? The rates are higher and the amount you get back has to be returned if you ever pay off your mortgage early or do anything to the title or

Another recent news article on outrageous payout penalty: http://www.cbc.ca/news/canada/edmonton/td-bank-client-devastated-by-17-000-mortgage-penalty-1.2790108? The subjects in the article went to CBC Go Public to get their payout penalty lowered at TD after their efforts were fruitless. The public pressure got them an undisclosed offer, which they accepted. Not all borrowers will be this lucky. Some readers commented that they should have read the contract and some said they signed for a 5 year fixed for a lower rate and should be held responsible. I think it comes down to whether the contract was explained to him. Whether you go to the bank or a broker, these key points of a mortgage should be explained to the borrower. If not, I think they have a legitimate complaint. Well, if they