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Ulysses101, Lawyer
Category: Canada Law
Satisfied Customers: 3501
Experience:  11 years experience in Canada family law, plus criminal, civil, and employment
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I'm an individual who's seeking to solicit creditors

Customer Question

I'm an individual who's seeking to solicit creditors for an unsecured loan. Generally speaking these creditors would be considered as private lenders, ie other individuals. Are there any constraints by law that would prevent me from doing a background
check before signing off on a loan application? For individuals to provide loans would they still need to have a prospectus filed as corporations and firms would need to?
Submitted: 1 year ago.
Category: Canada Law
Customer: replied 1 year ago.
Would individuals need to be licensed or registered in any way?
Expert:  Ulysses101 replied 1 year ago.

Hello, thank you for the question. Reading between the lines, it looks like you're trying to set up a private lending business. What province are you in?

Expert:  Ulysses101 replied 1 year ago.

There's a very similar question open on the experts' list at the moment. May I assume that this is you? You're free to leave it open for a second opinion.

Customer: replied 1 year ago.
unintentionally. I'm not looking to setup a private lending business. I want to apply for loans from other private lending businesses, these would also be other individuals. I'm in Markham Ontario.
Expert:  Ulysses101 replied 1 year ago.

Very interesting. I'm not certain I can answer you. as this is a very specific question in a very specific field, which if you're going to make this your business you should consult with an accountant and lawyer of your own. You don't want to rely on an anonymous lawyer online for this information. When CRA comes knocking, you won't be able to say "Ulysses101 on that website said it was okay".

So, you're looking to be a middleman, to arrange loans with your customers, and match them up with a lending institution? Presumably, you'll be able to charge greater interest and penalties to your customers, but get a decent rate yourself because of your situation.

It sounds good on paper, but I have concerns. What research have you done on the topic?

If this is your basic business plan, it seems legit. There are private mortgage brokers and consultants who do the same thing, but with some security. There are lots of payday loan and short term loan companies out there. But the former only make money when the second or third mortgage defaults and then the company gets the penalties after they force power of sale, and the latter on make money by charging enormous interest rates, just short of usury.

Private individuals make money off of offering private mortgages. I know a couple of real estate lawyers who set up private mortgages for a small fee, and the lender either makes better than the market, or much better if the borrower defaults or remortgages. However, in the event of a housing bubble bursting they are screwed. I'm curious as to your business model.

Customer: replied 1 year ago.
Again, I'm not looking to be a broker or middle man. Just that I'm a small business owner thinking about getting a loan as emergency reserve capital and am looking at private sources. I found sources willing to provide up to 3% interest. The advantage I see is that you can negotiate with them to keep it off of your bureau. Typically In Canada I think that brokers would have to be licensed under the trust and loan companies act. But these are private individuals who are not with any organization. And these would not be pay day loan companies. Would an individual have to be licensed and registered to be giving out a loan to someone he hardly knows? It will be like me giving out a loan to you following an application and approval processes but on my own personal account.
Expert:  Ulysses101 replied 1 year ago.

People lend each other money all the time, and if the loan isn't repaid then the lender can take the borrower to court. I don't see how you as a prospective lender would be forbidden from asking a potential borrower for references or a credit check. A landlord will do a credit check on a potential tenant when they are about to enter into a private contract, and landlords don't have to be registered with any body. Legislation applied to landlord/tenant matters however.

But it's going to be different when you set up a corporation, the purpose of which is to earn income through lending at interest.

You need to see an accountant and business lawyer near you to get information upon which you can rely. That's the best advice I can give you.

I'll opt out as your expert, perhaps another around the site can help you better.

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