CommunityLend, Lending and Being/Becoming an Accredited Investor
Basically, the government tries to protect you from doing what you want, because in theory, that could be bad, but in reality, probably isn't. Don't take any of this as legal advice!
When someone wants to sell a security (and the "notes" from CommunityLend is a security), they have to get them authorized in order to sell to "retail" investors, ie: regular people. Usually this means they have a prospectus. Publicly traded companies fit into this, as do Canada Savings Bonds etc. Shares of private companies do not, so they can't publicly advertise that their stock is for sale, since they aren't a "public" company that has to do things like quarterly reports, etc, etc.
But there is an exception for "Accredited Investors". These are essentially people (and other people-like legal entities) with a lot of money. And because they have a lot of money, the government considers them to be good at handling their money and doing their own research and allows for these prospectus-free securities to be marketed to them and them only. In theory, there is a greater chance of losing your money with these investments because the companies themselves don't do the same degree of reporting of their records to the public and the securities commissions.
The regulators are requiring any lender in CommunityLend to be an accredited investor. I am unsure if lenders from BC or Quebec have to follow the Ontario qualifications for an accredited investor, or Ontario's, or if they're even different at all.
It is hard to say if CommunityLend will allow non-registered users to browse listings for curiousity's sake or not.
My hope is that when CommunityLend's Securities Legislation exemption comes up for renewal in 2011, they're able to, in some way, allow non-accredited investors to lend funds. Well, their exemption doesn't really come up for renewal, more like it expires and they better be able to get a new exemption :)
Now, of course, just because you have money, that doesn't mean you're good at handling it, you may have been lucky, born into it, made your money in some completely non-money related field etc. Which is why it's all stupid. There's no test of financial literacy to become an accredited investor. A wealthy author could qualify while a Bay Street analyst or junior lawyer would not.
From the Ontario Securities Commission:
Who qualifies as an accredited investor?
- An individual who, alone or together with a spouse, owns financial assets worth more than $1 million before taxes but net of related liabilities
An individual, who alone or together with a spouse, has net assets of at least $5,000,000.
- An individual whose net income before taxes exceeded $200,000 in both of the last two years and who expects to maintain at least the same level of income this year;
An individual whose net income before taxes, combined with that of a spouse, exceeded $300,000 in both of the last two years and who expects to maintain at least the same level of income this year
- An individual who currently is, or once was, a registered adviser or dealer, other than a limited market dealer
- Financial institutions
- Governments and governmental agencies
- Insurance companies
- Pension funds
- Registered charities
- Certain mutual funds, pooled funds and managed accounts
- Companies with net assets of at least $5 million
- persons or companies recognized by the OSC as an accredited investor
The law assumes that accredited investors do not need the protections offered by a prospectus because they can:
(a) get and analyze the information needed to assess an investment without a prospectus; and
(b) handle the loss of their entire investment, if things go wrong.