New Crowdfunding Rules Bring in More U.S. Lenders to Canada

The Canadian crowdfunding scene is now becoming an even more exciting place as new investors are making their presence felt.

The new crowdfunding rules announced earlier this year provide retail investors the ability to participate in the raising of capital for small businesses.Peer-to-peer lenders typically link up borrowers who are looking for capital with investors that are looking for returns.

As regulators have provided more clarity, it has helped bring in U.S. lenders. Regulators in British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick finalized an investment dealer prospectus exemption that allows any investor who has obtained advice about the suitability of the investment from an investment dealer to participate directly in private placements.

A new offering memorandum exemption was implemented which allows retail investors to be able to invest up to $10,000 into the private capital markets annually in Ontario. The province has also introduced a crowdfunding exemption where companies are now able to raise funds from retail investors publicly online once they register a funding portal with provincial securities regulators. Investors can invest $2,500 per company and up to a maximum of $10,000 total in the same year.

These regulations have led some U.S. lenders to make new plans. InvestNextDoor is in the process of registering in Canada as an exempt market dealer. That refers to a firm that is able to sell investment securities that haven’t been qualified by a prospectus due to regulatory exemptions. Its Canadian site, investnextdoor.ca, is poised to become the next online marketplace lender for Canadian small businesses looking to raise funds, as well as for investors looking for alternative investment options.

Invest Next Door is an online marketplace that enables accredited investors to provide loan financing directly to small and medium-sized enterprises in the United States. A peer to business financial platform was launched in May 2014 allowing businesses to create listings where they set rates and terms that investors can then bid upon.

It remains interesting that the company was originally to be founded in Canada, but due to the regulatory environment at the time its founders decided to enter the “more mature” U.S market.

The peer-to-peer lending market remains a complex one; it also remains a difficult industry to navigate for new entrants. This could be as usually providers would fund loans exclusively from accredited investor who typically have a net worth of $5 million or $1 million of investable assets or going in for institutional loans.

Lending Loop is another online lender, it launched last fall prior to the new crowdfunding rules, and was the first Canadian provider to allow retail investors access to the private capital market. However, it has since temporarily halted any new loan requests on its online marketplace.

Since the scene has now changed, newer entrants will be in a much better position. . InvestNextDoor is opening a separate platform for Canadian small business and retail investors, this new platform will allow them to either invest directly to a particular company listed on an online marketplace or join a community fund.

Community funds will allow investors to select a region or city that they want to participate in and includes 50 to 100 local businesses that seek funding and help investors who want to keep their investments local.

The space for the small business market still remains undeserved, as there are currently 1.1 million businesses in the market with almost half of those looking for capital. The marketplace lending space is still only beginning to expand and new competitors in this space could drive acceleration. The small businesses eagerly await new players in the fintech arena and realize that more players there are the more they benefit from lower interest rates.

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