Let the Internet provide your financing: new web loan service in Ont, Que

The Canadian Press ~ The News
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TORONTO - Canadians needing to borrow a little cash now have another option to consider besides friends, family, banks or shady loan sharks.
A community of web users will extend a hand - for a price - at least in some provinces.
CommunityLend.com is open for business in Ontario and Quebec, connecting investors who want to get into the consumer loans market with borrowers seeking an alternative to conventional loans and, potentially, a better rate.
For now, the site is accepting applications only for smaller loans, from $1,000 to $25,000, and is targeting "good quality borrowers" with "good to strong" credit (a score of about 657 or higher), said Colin Henderson, chief technology officer.
He thinks young, web-savvy customers won't be afraid to embrace the relatively new idea and will be among the first to take the plunge on the borrowers' side.
"We would expect younger, what you might call Gen-X, Gen-Y types, people who are interested in a different alternative and doing it all online as opposed to visiting a traditional bank branch," he said.
"They're more familiar with online experiences and how these things would work."
Borrowers must fill out a profile outlining their credit history and why they're seeking the money. Their application is then turned over to lenders, who can bid for the loan by setting the interest rate they're willing to lend at, which range widely between about six and 29 per cent.
On the lender side, CommunityLend is being cautious at its launch and is only accepting "accredited investors," as defined by the Ontario Securities Commission. That means investors with assets of at least $1 million and annual income of at least $200,000, or a household income of at least $300,000.
"These are people who have fairly significant amounts of investment holdings or significant amounts of income, and are in a position to make investments that could potentially lose money," Henderson said.
"The securities regulators felt it was appropriate since this is a new business to commence operations using accredited investors."
Risk also is being mitigated by splitting each loan among 10 lenders, to spread out losses if someone can't pay back their debt.
In each deal, CommunityLend charges a fee of from one to three per cent to the borrower and one per cent is taken from the lender, based on the amount they invested.
CommunityLend is the first site of its kind in Canada but others have come before it in the United Kingdom and United States.
The American sites in particular have had problems with significant numbers of defaulted loans but it looks like CommunityLend has done the right thing in starting slow and only accepting borrowers with good credit, said Rob Burbach, a senior financial analyst with IDC Canada.
While it's still too early to tell, the site may address a niche market and take a little business from the banks, he added.
"The bank doesn't want to look at anything under $25,000 for a loan," Burbach said.
"It may turn out that word spreads that you're getting a much better deal from CommunityLend than the banks. It's a potential threat to the established banks, it's not going to happen tomorrow, but on the other hand, you start going down these roads and it potentially opens up an avenue that the banks have historically controlled, having a monopoly basically."
For the site to get off the ground, CommunityLend needs to sign up a significant number of users, both borrowers and lenders, said Hasan Cavusoglu, an assistant professor with the University of British Columbia's Sauder School of Business.
"There's nothing particularly different about the U.K. and U.S. markets from Canada, the system should also work in the Canadian context. But scale is the only challenge," Cavusoglu said.
"The success of the business depends on the number of parts in the market, enough volume to sustain the business, but that might be more difficult to obtain because of Canada's population size."

Organizations: Ontario Securities Commission, IDC Canada, University of British Columbia Sauder School of Business

Geographic location: Ont, Que, TORONTO, Ontario Quebec Canada United Kingdom United States

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