Last week, BetaKit wrote about Toronto-based FinTech startup Lending Loop’s decision to voluntarily suspend new loan applications on its platform. The company, which describes itself as Canada’s first and only peer-to-peer lending marketplace for small and medium-sized businesses, has also begun talks with unnamed securities regulators.
The company previously told the Financial Post that it follows an American peer-to-peer lending model, allowing Canadians with $50 to pool money into larger loans for small businesses. Multiple sources confirmed to BetaKit at the time that Lending Loop’s posting of Ontario Securities Act regulations and Ontario Securities Commission warnings led to the kerfuffle.
This week, Lending Loop CEO Cato Pastoll was on BNN’s The Disruptors, defending his company’s business model in an interview with co-host Bruce Croxon (which can be viewed below).
“What I can definitely say is that for over a year we have been working with one of the best law firms in Canada to ensure that we have structured ourselves in a way that we believe would work in the Canadian regulatory landscape,” Pastoll said. .
“That being said, we’re not Uber, we’re not a company that’s just going to go out and operate on a whim. So we’ve decided to voluntarily go out of business, at least for now, by continuing to fund borrowing from our own sources of capital, but really with the intention of having a good faith discussion with the appropriate regulators.
When Croxon pushed back on the reasons for the company’s voluntary decision to halt new loan applications, Pastoll replied: “I think we’ve had some pushback from the industry in terms of how open which we operated.”
Despite Lending Loop’s current situation with Canadian regulations, Pastoll was adamant that the company’s model followed a stable and respectable trend internationally.
“I think if you look at international peer-to-peer lending platforms, the differentiation between a full buyer-focused investment and what it is is that it’s of a very stable industry,” Pastoll said. “In fact, in some countries it is even compared to deposit accounts in terms of stability. So if you look at the US or the UK, we’re looking at annual returns ranging from 6% to 9%. »
Pastoll also referenced a recent Monk report that found peer-to-peer lending in Canada lags 11 years behind that in the UK.
“Fundamentally, the main pillars of the financial ecosystem here are protecting some of the incumbents and I think it’s been very difficult for new platforms to come out and replicate those business models in the Canadian landscape.
After the interview, Croxon discussed Lending Loop’s position with co-host Amber Kanwar (video below). “I came away thinking it would be nice if the [Canadian] the regulations are gone,” Croxon said. “But the fact remains that it is not so, and we were right to challenge them.”