The alternative segment and the current rate-hike environment

"It's just going to push more and more borrowers into the alternative space as they struggle to qualify with the banks"

The alternative segment and the current rate-hike environment

Amid a volatile economic and financial environment, the alternative lending sector now plays a significantly more important role for Canadian consumers.

“I think a common misconception is that alternative or private lending is really designed for people with poor credit or bruised credit, and that’s really not the case anymore,” according to Lisa Stewart, chief revenue officer at Neighborhood Holdings.

The expansion of the alternative/private space comes as borrowing rates continue to rise, particularly with the Bank of Canada’s latest 100-basis-point hike and the subsequent increases in major lenders’ prime lending rates.

“It’s just going to push more and more borrowers into the alternative space as they struggle to qualify with the banks. So we’ve seen the credit quality of our portfolio really rising as more borrowers are pushed into the alternative space to qualify at the higher rates or also to get a transaction done in a relatively short time frame,” Stewart said.

Read more: What’s the best way for brokers to source alternative clients?

“The market has been quite hot for the past few years, so it seems like every deal is a rush deal today and that can make it kind of tricky to go with a bank. So really there’s a number of different borrowers that come to the alternative space for a short-term solution or to get a deal done quickly,” Stewart added.

The alternative lending sector is also ideally positioned to respond to problems that major banks simply can’t address, by the nature of their organizations.

“Our teams are used to dealing with unique scenarios, [not needing] to be something that’s completely down the fairway. Call it out and ask your underwriters for their help, their opinion, work with your sales teams,” Stewart said.

“Our sales team is really a resource. They’re there to help educate you. They’re open to answering questions. That’s actually what they love about their roles. So just getting those things out in the open, right out of the gate so that you can document and tell the right story and make the process efficient that way.”

Stewart offers more insights into the Canadian alternative lending market here.

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