Securing access to $30 million for loans to his company’s clients was a journey fraught with closed doors and last-minute kiboshes for David Gens.
Two years ago, the Merchant Advance Capital CEO began looking for access to institutional debt in Canada, speaking to each of the big banks before going “very deep into the process” with one Gens declined to name.
“We spent seven months working with this bank trying to get credit from them, and it went through various levels of approval. We put deposits down, they flew their due-diligence people to Vancouver and spent weeks in our office combing through everything.”
Merchant Advance Capital is an alternative lender that specializes in offering loans and lines of credit over the internet to small and medium-sized businesses.
Its clients typically don’t have the collateral required by traditional banks to qualify for loans. Gaining access to a debt facility would allow the financial technology (fintech) company to grow by offering significantly more lending capital. Despite encouragement from the bank’s field examiners, Gens said the decision ultimately came down to an executive who didn’t believe the bank should be lending to an alternative lender.
“That was a bit of a painful experience going that far down the path with a Canadian bank only to eventually get turned down. In a strange way it was kind of a reaffirmation as to why our business exists,” he said.
“Banks tend to be very conservative when it comes to lending to commercial enterprises. It’s why we have a business.”
Merchant Advance Capital eventually secured a $30 million debt facility earlier this year; however, it had to do so by looking south of the border, where Gens discovered his company’s business model before importing it up to Canada in 2010.
“We reached out to 60 institutional lenders both in Canada and the U.S., and we received a lot more interest out of the U.S. than we did in Canada,” the CEO said.
“This industry is just a lot more established in the U.S., so there’s a lot more pools of capital that play in these niches that understand them.”
Adoption of these services has been slower to catch on in Canada.
According to EY’s Fintech Adoption Index 2017, 18% of Canadians surveyed have used two or more fintech services in the last six months. The global average is 33%.
But the latest Canadian figures are up substantially from the previous survey results released in 2015 that showed 8% of Canadians had used two or more fintech services in the previous six months.
Meanwhile, Progressa, another Vancouver-based alternative lender, raised $84 million in an equity and loan funding round announced in August.
Its funding round was co-led by two Canadian firms, Canaccord Genuity Corp. and Gravitas Securities Inc.
But CEO Ali Pourdad agreed with Gens’ assessment that U.S. players generally understand the space better and have more of an appetite for lending capital to other lenders.
