Peer-to-Peer Lending in Canada

goPeer

goPeer is Canada’s first peer-to-peer lending platform for consumer loans after it received regulatory approval in 2020 from Autorité des marchés financiers (AMF) in Quebec and the Ontario Securities Commission (OSC). goPeer now operates in all provinces in Canada, allowing individuals to invest in loans and earn returns while helping other individuals access alternative borrowing options.

Eligibility Criteria

To be eligible for a P2P loan with goPeer, you must meet the following requirements:

• Be 18 years of age or older
• Minimum credit score of 600
• Minimum annual income of $35,000
• A maximum debt-to-income ratio of 35%
• Canadian resident for at least three years
• Have a Canadian bank account
• Have at least three trades on your credit file, such as a credit card and mortgage

Eligibility for Multiple goPeer Loans

You may have more than one goPeer loan at the same time, and even refinance your goPeer loan, but you will need to make a new application for each loan. This means that there will be another hard credit check for each goPeer loan. In addition to the eligibility criteria above that all new goPeer borrowers must meet, you will also need to meet these additional requirements:

• You cannot have more than two active loans at the same time
• You must wait at least six months after applying for your last active loan
• Your goPeer loans must be in good standing and never late within the past 12 months
• Your combined goPeer loan principal cannot be more than $25,000
• You have never had a serious delinquency with goPeer

How Are Loans Funded?

After submitting your application, you’ll receive a loan offer within 24 hours. Some users may receive an instant decision. After selecting a loan offer, your loan will need to be funded by individual Canadian investors.

Once your loan has been fully funded, the money will be deposited into your bank account. It may take 2 to 4 business days to receive the funds in your bank account. It’s not guaranteed that your loan will be fully funded. The funding period for loans on goPeer is 30 days. If your loan hasn’t been fully funded after 30 days, you can extend your loan’s listing on the marketplace for another 15 days, accept the partially funded loan, or cancel your loan request. You have two days to accept a partially funded loan before it is cancelled.

For example, if you had requested a loan for $5,000 but only $2,000 has been funded, you can accept to borrow just $2,000, or you can extend the funding period for another 15 days to wait for additional investors, or you can cancel your request.

How Do Borrowers Make Loan Payments?

Loan payments are taken automatically from your bank account by direct debit. You can choose to make bi-weekly, semi-monthly, or monthly payments. You can also make additional one-time payments to pay down your loan, allowing you to save on interest costs, without any prepayment penalty. If you think you might miss a payment, you can request a payment deferral.

goPeer Fees for Borrowers

There’s no fee to get a quote or to request a loan. Instead, goPeer charges an origination fee once you receive a funded loan, with the origination fee taken out from the loan proceeds.

Unsuccessful payments come with a $50 fee, while late payments come with a fee of 5% of the unpaid amount, or $25, whichever is greater. goPeer payments are considered to be late after 15 days following your payment due date.

With no prepayment penalties, you can partially or fully pay off your goPeer loan at any time without additional fees. This saves you money on interest.

goPeer Loan Rates

goPeer loan interest rates currently range between 8.99% and 34.99%, with it varying based on your credit risk profile, which considers factors such as your income and credit score.

When you first get an instant quote for your desired loan amount and term length, you’ll receive an estimated interest rate for your loan. After applying, you will receive a loan offer that you can customize and accept. That loan is then listed in the loan marketplace to be funded by investors. goPeer loan interest rates are fixed, which means that your interest rate won’t change during the duration of your loan term.

Am I Eligible to Invest?

Any resident of Canada can invest in goPeer loans. You don’t need to be an accredited investor or have a certain amount of assets.

The minimum investment amount is $10 in each loan, while the maximum amount that you can invest is $10,000 in a 12-month period.

Accredited and eligible investors can invest larger amounts by providing proof of their eligibility. Eligible investors, who have a net income of over $75,000 or $125,000 with a spouse in the previous two years, or net assets exceeding $400,000, can invest a maximum of $30,000 in a 12-month period. This can be increased to a $100,000 limit if they receive advice from a portfolio manager, investment dealer or exempt market dealer.

Accredited investors have no maximum investment limits. Accredited investors are those that have at least $1 million in financial assets, or $5 million in net assets, or make at least $200,000 per year, or make at least $300,000 combined with a spouse in the previous two years.

How Do I Invest?

After signing up for an account, you’ll transfer funds to your account through EFT. It can take 2-4 business days before you can use the funds to invest. Once your funds are cleared, you can start investing!

The marketplace lists all open loan requests from borrowers. You can filter them based on risk grade, interest rate, borrowing reason, and more. For each loan, you’ll see details such as the borrower’s income, credit score, debt-to-income ratio, employment category, and location. For example, you might see a borrower is a software engineer from Edmonton, who owns their own home, has a credit score of 800-848, and has an annual income of $118,000. They’re looking to borrow $25,000 to make home renovations, and they’ll make monthly payments for a term of 3 years. You can choose individual loans that you would like to invest in.

Instead of individually going through loans, you can also automatically invest through Auto Invest. With this feature, you will specify how much you want to invest per loan and what range of risk grades you want to invest in. Auto Invest will then automatically invest in loans that match your criteria. For example, you might want it to automatically invest in loans risk grade from A+ to B-, with $10 in each loan. Auto Invest will invest once daily, in loans that have been listed for at least 24 hours.

Your dashboard shows your portfolio’s performance, allowing you to easily track how much you’ve earned or lost. You can also view your portfolio’s average interest rate, the number of notes you have invested in, and more.

You can’t sell your P2P loan early, so you will need to be prepared to hold it until maturity.

goPeer Fees for Investors

There is a 1.5% servicing fee charged on the unpaid principal balance, which is deducted from borrower payments. This means that the servicing fee is taken out before it reaches investors, so investors do not pay a fee if they are not making money. This fee helps cover the costs of managing and servicing loans on behalf of investors. With monthly payments, the monthly servicing fee is 0.125%.

For example, let’s say that a borrower has a loan with a current principal of $25,000 and a $1,000 monthly payment. For this month’s payment, the servicing fee would be $31.25. Taken out of the $1,000 payment, $968.75 would be paid to investors.

goPeer Investment Returns

The returns for goPeer investors vary based on the loans they choose to invest in. The average net annualized return at goPeer has been 9% since 2018. On average, investors can expect an annual return of around 9%, but this may be higher or lower depending on the risk profile of the loans in their portfolio, as well as loans that get charged off.

The net charge-off rate at goPeer is roughly 4%. This means that out of every 100 dollars that get lent out, about 4 dollars will not be paid back. This rate includes all loans that default and go through the collections process.

Investors have the flexibility to choose which loans they want to invest in, with detailed information provided for each loan opportunity. This allows investors to diversify their portfolio and manage their risk according to their own preferences.

To date, over 13,000 investors have used goPeer to originate over $33 million in loans. Most goPeer loans are for debt consolidation, with home renovations and bills and expenses being other common loan purposes.

Delinquencies and Charge-offs

goPeer's recovery team will try to communicate with the borrower, such as emails, calls, text messages, messages on social media, mail, as well as contacting their place of employment and family members. goPeer may go to small claims court or send the delinquent loan to a collections agency. goPeer doesn’t charge any fees on amounts recovered.

How is goPeer Regulated?

goPeer is registered as an exempt market dealer in all provinces and territories.

Lending Loop

Lending Loop is a trailblazer in the Canadian P2P lending space, Canada’s first and most prominent P2P marketplace for personal loans, and now connecting small and medium-sized businesses with investors who are looking to earn attractive returns. In 2019, Lending Loop stopped personal loans in favour of focusing on small business P2P loans.

Today, it operates as a marketplace for business loans, making it easier for companies to access the necessary capital while offering investors the chance to diversify their portfolios beyond traditional asset classes. Parent company Loop Financial also owns Loop, which offers multi-currency business bank accounts, Canada's first no-fx fee credit card, as well as other business payment and borrowing solutions.

Eligibility Criteria

To be eligible for a P2P loan with Lending Loop, you must meet the following requirements:

• Your business has been operating for at least 1 year
• Minimum $100,000 annual revenue
• Minimum credit score of 600

Lending Loop conducts thorough checks, such as information about the owners, the business’s online presence, and other risk factors. Lending Loop accepts about 10% of business loan applicants.

Express Loans

Lending Loop offers “express loans” for smaller loan amounts, making it easier for businesses to qualify and get funded. Express loans are for businesses looking to borrow between $1,000 to $40,000, and are available to those that have a credit score of at least 600, have been operating for at least two years, and have at least $30,000 in annual revenue. Express loans are available to sole proprietorships.

Standard loans, for up to $500,000, are only available to partnerships and corporations that have positive cash flow.

How Do I Borrow Money?

After submitting your online application, which includes information such as your business details and requires submitting financial statements and corporate Notice of Assessments for the past two years, you’ll receive a decision on your loan application within two days. If approved, you’ll be given your loan details, which includes your interest rate and repayment schedule.

If you accept the loan, your loan is ready to be funded by investors. To make your loan listing attractive, you will upload your company logo, a display image, and a description of your business. Your listing will stay on Lending Loop’s marketplace for up to 30 days. After a loan has been fully funded, you’ll receive the funds in one business day.

How Do I Make Loan Payments?

Loan payments are automatically made monthly through pre-authorized debits from the same bank account that received the loan proceeds. Payments are withdrawn from your bank account three business days before the repayment date of your loan.

You can fully pay off the loan early without penalties, but you cannot partially pay off the loan. For example, if you have an outstanding principal balance of $10,000, you must pay off the entire $10,000 if you want to make a prepayment.

Lending Loop Fees for Borrowers

Lending Loop charges a one-time origination fee to borrowers, which is deducted from their loan. This fee ranges from 3.5% for borrowers with a loan grade of A+ to B for a 3-12 month term, to 6.5% for E+ to E loan borrowers for 37-60 months.

Lending Loop Origination Fee

For example, if a company has a loan grade of A and is looking to borrow $10,000 for a 24-month term, the origination fee would be 4.5%, or $450. After their loan is funded, they will receive $9,550.

A business’s loan grade is based on their credit score, debt service coverage ratio, working capital ratio, debt-to-tangible net worth, amount of the loan, term length, and other information.

Loan grades at Lending Loop range from A+ as the best grade, to E as the lowest grade. Your interest rate will be guided by your loan grade, and shows the risk of the loan to investors.

For missed payments, a late payment fee of 15% of the late loan payment is charged after 7 days past the original due date. There may also be a $25 non-sufficient funds (NSF) fee.

Am I Eligible to Invest?

Any resident of Canada is eligible to invest with Lending Loop, except those residing in Quebec. Similar to goPeer, the maximum amount that you can invest is based on your investor status. Lending Loop may also adjust your limits downwards based on your assets and income.

Lending Loop Investing Limits

• Non-Eligible Investor: $10,000 per 12-month period
• Eligible Investor: $100,000 per 12-month period
• Accredited Investor: No limit

The minimum amount that you can lend in each loan is $25. Lending Loop recommends that you don’t invest more than 1% of your portfolio in any single business loan.

Lending Loop Fees for Lenders

Lending Loop charges an annual servicing fee of 1.5% on the outstanding principal balance at each monthly payment.

If Lending Loop needs to recover a loan, a 35% collection fee on the amount recovered will be charged.

Auto-Lend

You can easily diversify your loan portfolio by using Auto-Lend. You can choose to target a Conservative portfolio, with loan grades of A+, A, B+, and B, an Aggressive portfolio with loan grades of C+, C, D+, D, E+, and E, a Balanced portfolio of all loan grades, or setup your own Custom plan.

Some examples of estimated net return are:

• Balanced: 7.9%
• Aggressive: 9.0%
• Conservative: 6.7%

How do Taxes Work?

Lenders that have earned at least $50 per year will be issued a T5 statement, while all lenders will also receive an earnings statement. You are responsible for reporting your interest income on your tax return. Defaulted loans may usually be reported as a capital loss.

Lending Loop Statistics

About 7.2% of Lending Loop loans have defaulted. The most common loan purpose is for working capital, expansion/renovation, refinancing, and inventory purchase. As of the end of 2023, Lending Loop has originated over $86 million from over 12,000 investors.

Charge-Off Rate by Loan Grade

Source: Lending Loop

How is Lending Loop Regulated?

Lending Loop is registered as an exempt market dealer in all provinces and territories.

Peer-to-peer lending presents a myriad of benefits for both investors and borrowers. From new investment opportunities to lower borrowing costs, P2P lending has the potential to democratize access to finance in Canada.

Diversification Opportunities

Investors can diversify their portfolios by adding P2P loans, which often have a low correlation with traditional assets like stocks and bonds. Diversification can reduce overall portfolio risk and smoothen out returns over time.

Competitive Interest Rates

Borrowers, especially those with good credit ratings, might benefit from lower interest rates in the P2P lending market. This competitive advantage compared to traditional bank loans can translate to significant savings over the life of the loan. However, those with poor credit will face significantly higher interest rates.

Access to Capital for Borrowers

For small businesses and individuals with non-conventional credit profiles, P2P lending platforms offer a lifeline. Direct access to a network of individual lenders widens the spectrum of eligibility for obtaining financial support. P2P loans can be an alternative for businesses that don’t qualify or have been rejected for a loan from a bank or other traditional lender.

While peer-to-peer lending holds promise, it is not without its challenges. Risk management, default rates, and market volatility present real concerns for both lenders and borrowers in the P2P lending ecosystem.

Risk Management

P2P platforms must enforce stringent risk management practices to safeguard investors' funds. This involves credit risk assessment, loan diversification, and the implementation of appropriate recovery processes in case of defaults. As an example, Lending Loop’s checks are so stringent that they only accept 10% of applicants.

Default Rates

Defaults can erode the returns for lenders. P2P loans have relatively higher rates of default compared to other loan types. For example, the default rate at Lending Loop is roughly 7.2%. That’s quite higher than the 0.4% arrears rate for mortgages by mortgage investment companies and private lenders, as reported by the CMHC. In addition to a lower default rate, mortgages are also secured against property, making them easier to recover.

Market Volatility

The P2P lending market isn’t insulated from the economy and can be subject to the same economic and market forces that influence other investment and lending sectors. A downturn in the economy can cause borrowers to lose jobs or businesses to fail, making it more difficult for them to repay their loans. This can lead to higher default rates and lower returns for investors.