Competition Steps Up in Canadian Small Business Lending Market

Last week’s announcement by Funding Circle that it will establish an operation in Canada later this year is part of a trend of large non-Canadian funders entering or expanding into the Canadian market, according to Adam Benaroch, President of CanaCap, a small business funder based in Montreal.

Funding Circle started in the UK and expanded outwards to the US, Germany, and The Netherlands, but the UK still comprises of more than 60% of their global origination volume. Their foray into Canada is a good thing for small business owners and lenders, according to Paul Pitcher, founder and CEO of SharpShooter, a funder based in Toronto.

“I see it as win-win,” Pitcher said.

He said that a win for Canadian small business owners is a win for SharpShooter because it means more potential merchant clients. Pitcher said that he loves OnDeck, a rival, is in Canada, in part because OnDeck’s marketing has helped educate Canadian merchants about alternative lending products.

Similarly, Benaroch said he thinks that big companies entering the Canadian market will affect CanaCap positively. For instance, Benaroch said that CanaCap hopes to capture companies that get turned down from OnDeck. And perhaps CanaCap can also capture merchants that are declined by Funding Circle.

Funding Circle’s loan originations by country by year

Benaroch noted that not all outside funding companies have succeeded in Canada, often because they never established a physical presence there. But Funding Circle will be opening a physical office in Toronto.

“We have been evaluating options for expansion over the last year,” said Tom Eilon, who will be Managing Director of Funding Circle Canada. “Canada’s stable, growing economy coupled with good access to credit data and a progressive regulatory environment, made it the obvious choice. The most important factor [in coming to Canada] though was the clear need for additional funding options among Canadian SMEs.”

Funding Circle’s announcement comes on the heels of OnDeck’s December 2018 acquisition of Evolocity Financial Group, a small business funder based in Montreal. While OnDeck started operating in Canada as early as 2015, CanaCap’s Adam Benaroch said that the acquisition of Evolocity is a significant step for OnDeck because Evolocity has an ISO channel in Canada. That runs counter to Funding Circle’s model of mainly going direct to merchant, at least in the US.

Todd Stone was a reporter for deBanked.