More deals from south of the border

Canadian funders, particularly those with an MCA product, report that a significant amount of deal volume now arrives from the US. Vlad Sherbatov, President and Co-founder of online lending marketplace Smarter Loans, said US players that have entered Canada "are already really good at the broker channel."

Avrohom Bernstein, CEO of 2M7 Financial Solutions, said the shift is changing the business's culture. It often starts with an American broker asking to submit a few Canadian deals, he said. Lately, as many as eight brokers have been submitting the same clients, and every deal now takes real effort to win.

Stacking arrives

Competition once meant trying to be a merchant's sole funder. Now applicants often already carry several advances. Bernstein said more than three positions used to be highly unusual in Canada, but ten is no longer shocking, and that the change accelerated over roughly the past 12 to 24 months.

Jodi Levy, Head of Sales and Business Development for BizFund in Canada, said she has seen the same thing. When she started, a third position was unheard of. She attributed it to American influence. BizFund also has a large US operation and works with American brokers. Levy said what matters is whether partners have a direct relationship with their merchants, and that working with brokers demands urgency.

A thin market for alternatives

Sherbatov said a business that steps outside traditional banking is essentially in MCA territory, so new entrants are mostly leading with it. Bernstein described a market with five or six banks, a couple of credit unions and little in between.

Statistics Canada data show banks provided 68.5% of SME capital in 2023, credit unions 20.6% and government institutions 9.4%. Online alternative lenders supplied just 2.2%, in a market estimated at $94 billion. Smarter Loans CEO Rafael Rositsan said many businesses want capital and existing funders are tight, so a lender willing to take more risk has room to grow.

Sherbatov said Smarter Loans' roster of business lenders went from 10 to 20 over about 18 months, mostly from US entrants.

Brokers can stay remote, funders likely cannot

Bernstein said Americans have long entered and left Canada and that he used to believe lasting success required local presence. For brokers he is reconsidering, as the current wave looks firmer. For funders he still thinks remote operation does not really work, noting that every funder doing decent volume is based in Canada except one.

Bernstein also noted that Canadian brokers tend to specialize because there are fewer products than in the US, where many brokers also sell equipment finance, term loans and SBA products. In Canada, he said, a broker doing MCA has to commit to MCA.

Not everything flows through brokers. Some merchants go direct to funders or apply through marketplaces like Smarter Loans. Rositsan said the market has a lot more room to grow.

Source reporting: deBanked.