Business Lending

Making it Work: CanaCap and the Case for Canada

What leads an alternative financer to establish their own business in Canada? For Evan Marmott and his partner Adam Benaroch, it was the level of opportunity that the country offered in comparison to United States, where the alternative funding industry had become bloated and saturated with funders and brokers alike by 2017, when the pair established CanaCap.

Holding over 30 years of experience in alternative finance between them, Marmott and Benaroch founded CanaCap with the intention of capitalizing off interested Canadian merchants that were much more receptive to the message of brokers and funders. Not being bombarded by constant emails and advertisements for quick loans, Marmott says, leads Canadian business owners to be more open-minded to discussing alternative funding with brokers, resulting in both a better understanding of the conditions of the financing as well as more time on the phone to make deals. And on top of this, the lack of a dominant player within the alternative funding world of Canada leads to a divided market share, allowing small and large firms alike to succeed.

Accompanying this advantage of time and space within the market is the quality of merchants found in Canada. Claiming that Canadian merchants generally perform better than American business owners when repaying debts, Marmott explains that funders operating north of the border can expect to have a “cleaner” portfolio.

And lastly, the level of product knowledge amongst potential customers appeared to be just right to Marmott and Benaroch. With the former noting how CanaCap is unique in its willingness to offer second positions to Canadian businesses, Marmott highlights how his company benefits from larger financers, such as OnDeck, who many of their customers would go to first, learn about the funding process, be denied funds, and then be picked up by CanaCap after further researching the industry.

With offices in both Montreal and New York, the latter of these being for CapCall, the American counterpart to CanaCap, Marmott is well-attuned to the differences between the two markets. And while he concedes that the downside of brokering in the Great White North is the 30% that is clipped from commissions due to currency exchange, he affirms that the savings from reduced marketing costs, providing better return on investment rates, offset this loss.

Altogether, the CEO makes a convincing case for why one should consider alternative financing in Canada. Taking the tack that the country provides a fresh slate of sorts to financers, where merchants have yet to be inundated with offers, promotions, and horror stories about the industry, Marmott and Benaroch have enjoyed success with their model of approving over 90% of their applicants and streamlining the application process as to increase turnaround times.

With plans to stay put for the foreseeable future, Marmott says that he’s “looking forward to funding small businesses” as his company continues to service the entire country and the alternative finance industry in Canada develops. A plan that doesn’t sound too bad, especially with signs pointing towards increased growth and further interest from merchants.

2M7 Financial Solutions and the State of Alternative Funding in Canada

“What’s a cash advance?”

This is how Avi Bernstein, CEO of 2M7 Financial Solutions, recalled a typical conversation in 2008, when his company was founded in the Canadian market. According to him, customer knowledge of alternative financing methods was dismal, partly due to a handful of homogenous banks dominating the scene as well as a void of funders in the country.

Flash forward to 2019 and 2M7 is operating within a Canadian market that is much more trusting and knowledgeable of merchant cash advances, although it is not yet at the levels witnessed in the U.S.

“Low hanging fruit,” is how Bernstein describes the industry now, as small and medium-sized businesses are flocking to 2M7 and its contemporaries, which offer higher approval ratings and faster confirmation of funding than their more traditional counterparts. In fact, according to a 2018 study conducted by Smarter Loans, 24% of those Canadians surveyed stated that they sought their first loan with an alternative lender that year. As well as this, only 29% reported that they pursued funding from more established, traditional financial institutions and 85% of those that received financing confirmed their satisfaction.

Figures like these help to explain why the Canadian market has seen a rise in interest from foreign businesses in the previous five years. Greenbox Capital, First Down Funding, and Funding Circle are examples of those companies who have successfully implanted themselves within the market, a feat that Bernstein claims isn’t easy.

“It’s a different business,” he notes when comparing the market to that of the U.S. Listing the dissimilarities in market maturity levels, sales tactics, processing channels, and collection styles, as well as the currency exchange rate that’s to be considered, Bernstein says that he’s found those American funders who come to Canada unprepared never stay long enough to become a fixture of the industry.

Warning against half measures, Bernstein explains that “You’ve gotta put boots on the ground” if you want to succeed in Canada. Giving the impression that unless you’re willing to learn the rules applied in the market, hire people, and house them in an office north of the American border, Bernstein is keen to highlight what’s required of foreign companies looking with interest at Canada.

But it’s a risk-reward situation. The market is opening up as more funders enter it, and with the arrival of larger companies, such as OnDeck Capital, more resources are being devoted to raising awareness of alternative financing amongst Canadians.

Meanwhile, homogenous firms like 2M7 are continuing to grow in this developing market. Receiving an average of 200-300 applications for funds per month, 2M7 is capitalizing off opportunities by proving themselves to be open to a wider range of applications. Bernstein asserts that “we try to fund everything,” and that they keep an “open mind to every opportunity” that lands on their desk. Perhaps this is a mindset not shared by more conservative of funders in the industry, but, as Bernstein says, “we’re here, we’re funding, and we’re ready to rock n’ roll.”