Business Financing
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Lender Business Models

A lender business model, like any business model, needs to have a targeted customer base, a competitive offer that can allow it to profitably compete against known competitors, and a market large enough to provide opportunity to gain and hold market share.

For business financing companies that provide debt based solutions in Canada, we will continue to focus on the portion of the overall market place that consists of small and medium sized businesses.

Each company’s business model primarily starts with their source of capital and cost of capital.  As mentioned in previous sections, outside of an individual private lender with money sitting in their own personal bank account, every debt lender gets their funds to borrow from someone else…every single one.

And the different sources of funding available to Canadian Lenders will require a certain level of return that may or may not be backed by tangible, marketable security to manage the level of risk that is built into the pricing.

In very general terms, I believe there are only two types of lender business models in Canada.   The first one is what we see from banks and credit unions where those organizations serve both consumers and businesses. Banks and credit unions access most of their funds from deposits, but also have numerous other sources of capital available to them including their own retained earnings, external borrowings, capital markets, government programs, institutional investors, member capital in the case of credit unions, foreign exchange trading in the case of banks.

The bank and credit union business model serves both consumers and businesses and can have the size and scale to segment the market with several products including loans, lines of credit, credit cards, mortgages, and other financial services over a wide spectrum of consumers and businesses.

The second lender business model sources capital from a limited number of sources and is more highly specialized in terms of the products it offers small and medium sized Canadian businesses.  Examples would include mortgage companies, equipment financing and leasing companies, micro finance companies, asset based lenders, factoring companies, etc.

In this model, the source and use of funds are closely linked to establish the lending risk to be taken and the corresponding pricing and lending terms that match the risk.  Lending in this case is highly specialized and more targeted to specific industries and business profiles to better control risk and return.

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