Lending Loop Review
I don’t work for or receive anything from Lending Loop. I just really like their platform and think they are a solid company, so I want to promote them. Any time you see Lending Loop (referral link), it is, as you can imagine, a referral link. If you us the link and lend a total of $1,500 then we each get $25 added to our accounts.
I’ve been using Lending Loop as part of my investment portfolio since May 2018. So far, I have had no issues and am very satisfied with this company on multiple fronts. I figured now is the time to do a Lending Loop review to pass on what Lending Loop actually is, how to use it, what I’ve learned and my strategy that has kept my account steadily growing.
What Is Lending Loop?
Lending Loop (referral link) is a Canadian Peer-to-Peer (P2P) online lending platform that enable anyone to invest in small Canadian companies. There are restrictions with regards to account size depending on your investor tier, but we’ll get into that after.
If you’re unfamiliar with P2P lending, it is basically a platform that allows multiple investors to pool their money. The money is then lent out with interest.
They are headquartered in Toronto, Ontario and are fully regulated. The Ontario government has partnered with them on a pilot project in order to boost loans.
The partnership was my queue that this company was something special.
After lots of research, I discovered that most P2P lending companies typically only deal with institutional investors, so those with large sums of money. I am not one of those people…and here’s where Lending Loop comes in.
Lending Loop allows anyone to invest up to a $10,000 account. Beyond that you must apply for a higher tier. For me at the time, that was good enough to trial it.
So How Does It Work?
Well, I’ve got an answer for that…
A Canadian business (minimum of a year old and over $30,000 in sales) submits an online application for a loan. Rates are lower than many other financial institutions, so from what I’ve seen, there are steady requests for loans.
Lending Loop (referral link) then grades the business based on many factors, including credit worthiness, age of the business, financials, etc… Grading ranges from A+ (lowest risk, lowest returns) to E (highest risk, highest returns).
If the company qualifies for the loan, Lending Loop will then publish the loan to its marketplace and investors can now allocate money to it. Loans will remain active on the marketplace until it is fully funded or until it expires after about a month, at which time it will be withdrawn.
Loans are made in increments of $25 or multiple of that amount up to the full funding amount needed. So that means a minimum of $25, but you can do $50, or $75 or $225, etc… Multiples of $25.
Is My Money Safe?
You must not forget that this is an investment like any other and it has some risks associated with it.
Based on their information, investors’ deposited funds are held in a trust with a Canadian Chartered Bank. Another bit of warm and fuzzy for me.
There is always the possibility of late payments and even defaults. You can see the statistics of each grade with regards to this. Obviously, A+ graded businesses have a far less probability of default than an E, but there is also less return.
In order to mitigate defaults, Lending Loop (referral link) suggests diversifying by investing in lots of businesses with smaller amounts of money. This is a strategy I use with my trading as well. Lots of positions, but they are all small positions. With this type of money management, a default will do far less damage to your returns.
Although I’ve yet to experience any defaults (I’m very selective with my loans), I’ve had late payments. This is all part of the business, just like any other investment.
What Are The Fees?
When you see the returns for a loan, you have to consider that this does not include the fee they will charge. Lending Loop will charge the borrower a fee, and will also charge the investor a relatively small fee of 1.5%.
So I invest in a C graded business with a return of 16.96%; Lending Loop will take 1.5% of that. My end return on my investment would then actually be 15.46%. Still pretty good I must say.
How Do I Get In On This?
The application process is extremely quick and easy. There are some documents that must be provided, and you must provide a Social Insurance Number for tax purposes.
There is a minimum initial deposit of $200 to activate the account. After that, you can deposit anything over $50. You must have a bank account to fund your Lending Loop account from though.
After you’re approved (which is pretty quick) and funded, you can go off and begin investing in Canadian businesses through the Marketplace.
Let’s See The Platform
Lending Loop (referral link) is solely online and has both an app and a website. Both are simple and easy to use/navigate, but I find the website slightly better. All the screenshots in this post are from the website.
There are just a couple of tabs:
Dashboard – Your main page with an overview of investments, funds, exposure and commitments. On the left of the page is a series of links to different actions you can take. Some are portfolio analytics, transactions, add funds, etc…
Marketplace – Your page where you can find businesses to invest in. This includes details like business type, loan grade, time left, % of loan funded, etc… One thing that is in the website which is not on the app is the loan term. You can find it in the app, but you have to click into the business details to find it.
FAQ – Frequently asked questions…self explanatory.
To Auto-Lend Or Not To Auto-Lend?
Auto-Lend automates the lending process so long as there are enough funds available to do it. You just need to set up which grades to invest in and how much for each loan. That’s it. Easy.
But guess what…
I don’t use it and I don’t like it.
There is most definitely not enough criteria to select from. It will just invest the amount I dictated into any available grade I chose. But that’s it. There is more to it than that for me to invest in something.
It’s my hard earned money; why add to the risk if a little extra work will help prevent losses. And preventing losses is a big part of my strategy (which is coming…I promise).
I invest manually, picking and choosing where my money goes based on multiple criteria that auto-lend just doesn’t use at this time.
Alright, so here we go…my strategy for using Lending Loop (referral link). Keep in mind that I’ve been using this since May 2018, so not really all that long. It is consistent, and since I’m also a Forex trader and investor, consistency is paramount for me.
With this strategy, I’m at about 12% return annually, and this includes the 1.5% fee taken off. I’m shooting to always stay over 10% including some defaults. Now remember, I have yet to have a default, but 1 or 2 will still keep me over that 10%.
Grade – I normally only invest in A – C grades. Statistically they offer the best returns with the lowest default rates. A+ returns are too low for me, and anything below C is too risky. (I have just a couple of lower than C investments, but I had other criteria that they met at the time).
Security – Once I’ve found a business with a grade I’m willing to invest in, the next step for me is how many people / corporations are guaranteeing the loan. I require a minimum of 2 guarantors for me to look at the loan. In my eyes, the probability of default goes down substantially for each guarantor.
I have invested in single guarantor loans, but only because it was high grade and the financials were solid. I don’t recommend this, but it is something I have done in the past.
Financials – The next thing I look at are the financials of the business. I want to see all positive numbers in Net Income and if there is steady growth. This is the ideal situation of course.
I will still invest if there is a negative year, but I will dig deeper to find out why in the Q&A section for the business. If there is a good reason for the negative year, then I will still consider the business for investment.
Business Type – I always read up on what the business is and how it operates. One business type I try to stay away from is construction. I do have loans out to some of these companies, but they are few and far between.
My reasoning is this…
There are tons of construction companies out there that operate for a few years and then fold. Some are very impressive on paper, but are not a solid business at all.
Don’t get me wrong, if a construction company is solid, has good financials and has been around a long time, then I will gladly risk my money to invest in them. I just tend avoid construction companies unless they are, in my eyes, a solid investment.
Timeframe – The last thing I look for, and this is not necessarily as important for which company I invest in, but I look at how long the loan is for. I want my money tied up for as little time as possible, so the shorter the length of the loan, the higher the priority for me.
I want my money back as soon as possible, so if I have a 2 year and a 4 year loan that I can invest in, but can pick only one, then the 2 year wins (if all other criteria are met of course).
So there you have it, my review and my strategy for Lending Loop (referral link). This is one of those companies that can really add a dimension of diversification to your investment portfolio.
The platform is super easy to use, there is decent functionality to determine appropriate loans within your risk tolerance and, with the backing of a chartered bank for deposited funds, I feel deposited money is safe even if the company goes under.
There is always risk to investments of any kind and by no means am I giving investment advice. This is solely my view on Lending Loop based on my experiences.
I use it and it has worked well for me so far based on my chosen strategy. If you have experiences with it that you wish to share, or any other questions, please comment below.
As of March 2019, Lending Loop now offers what it calls “Express Loans” in addition to its Standard Loans. Express Loans are loans below $40,000 for much smaller businesses (sole proprietorship) than previously allowed to borrow. Risk grading is the same but some criteria may be different.
- I am an avid Forex trader and multi-tiered investor. Over the years I've learned many money management lessons. It took hitting rock bottom, but I took my lessons and persevered. Today I am debt free (mortgage aside) and can enjoy what I have. I believe our money should work for us and is only a tool to enjoy the life we want to live.