Same fraud, different data

YaMing of Xuper Funding, a small business finance company operating in the U.S. and Canada, called the market "quite a wild west" and said the level of fraudulent files is almost the same as in the U.S. Jodi Levy, Head of Sales and Business Development for BizFund in Canada, guessed that it is roughly on par too, and said underwriting involves many of the same checks American firms run.

Xuper CEO Alex Xu said the process is essentially identical: it is still about revenue, fundamentals and anti-fraud checks. The challenge, he said, is that Canada's credit-reporting infrastructure is less mature than that of the U.S., and data sources and access can vary by province. Evaluation is harder still for owners who recently emigrated and have had little time to build a public credit footprint. About 23% of Canadians are immigrants, a share that could reach 34% by 2041, in a country of about 41 million.

Levy said a smaller market has an advantage: news of fraud travels quickly, especially when a broker is involved. A broker who passed along an altered financial document "would be blacklisted so fast."

Shared intelligence tools

That sharing instinct is behind Lenders API, a real-time fraud-prevention and consortium-data platform built with the Canadian Lenders Association and its small business, consumer and automotive finance members. It targets bust-out fraud, synthetic identity fraud and loan stacking. Trust Science, which describes itself as Canada's third and most modern credit bureau, acquired it in February. Not all stacking is fraud, but a recent feature reported that stacking of business loans and MCAs is rising. Lenders API co-founder Tal Schwartz said at the announcement that no single lender can solve the problem alone and that shared intelligence on compliant infrastructure is the only effective response.

In the U.S., DataMerch works on a similar principle. The platform launched in 2015 and reached 100,000 records of unsatisfactory U.S. MCA deals by January 2023. Its database now includes Canadian businesses too. Co-founder Scott Williams said Canadian searches and merchant uploads use the nine-digit Business Number, and funders can search by that or by legal name.

Not all defaults are fraud

Companies interviewed said defaults on Canadian business loans and MCAs have many causes, some fraudulent and some not. Some fraud is nearly impossible to detect because the paperwork is genuine and the business is real; the only hidden element is an applicant's intent to disappear once funded.

The market is not defined by fraud, they added, and good deals often begin with strong broker relationships. Xu said a good ISO partner is transparent, collaborative and willing to syndicate. Levy said she does the work up front when onboarding people, and that despite the vigilance, the market is fun and offers room to have an impact.

Source reporting: deBanked.