A practical guide to starting private lending in Canada: choose your lane, understand the rules, build underwriting, price risk, and set up operations safely.
Getting into private lending in Canada can mean three very different things: lending your own money, running a lending business (origination + servicing), or raising money from investors to lend at scale. The fastest way to get it wrong is to skip the “rules + risk” layer and jump straight to marketing rates.
This guide is written for Canadians who want to become private lenders (not just borrow). You’ll learn the practical pathways, the compliance guardrails that matter most, and the underwriting process lenders actually use so you can start safely and build something durable.
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Search intent promise: After reading this, you’ll be able to pick the right private-lending lane, understand the key Canadian rules that apply, and follow a step-by-step plan to underwrite, structure, document, and service loans responsibly.
Private lending is a category, not a product. Before you spend a dollar, decide which lane you’re entering—because licensing, paperwork, and risk look totally different.
A clean rule of thumb: the more “retail/consumer” your borrower is, the more likely you’ll face specific consumer-protection rules. The more “investor capital” you raise, the more likely you’re in securities-law territory.
If you remember nothing else, remember these four. They’re where new lenders get hurt: legally, financially, or reputationally.
Your pricing must respect Canada’s criminal interest rate rules. Section 347 of the Criminal Code defines the “criminal rate” as an APR exceeding 35% and defines “interest” broadly to include many fees, commissions, and similar charges—not just a stated rate. (Department of Justice Canada)
Practical lender takeaway: you can accidentally break the rule by stacking fees (broker fees, “admin” fees, renewal fees) and not calculating true APR properly.
If you’re lending on real property or “holding yourself out” as doing regulated mortgage activities, your province may require licensing. For example, Ontario regulates mortgage brokering activities under FSRA’s framework (with licensing requirements unless exempt). (FSRA Ontario)
Practical lender takeaway: don’t assume “I’m just a private lender” means “no licensing.” Mortgage is its own world.
In Canada, mortgage administrators, mortgage brokers, and mortgage lenders have anti-money laundering and anti-terrorist financing obligations under FINTRAC’s guidance (effective October 11, 2024). (FINTRAC)
Practical lender takeaway: if you’re in mortgage-lending “as a business,” treat AML like a core operating function, not a checkbox.
Once you pool investor money (MICs, syndicated mortgages, private credit funds, “loan notes,” etc.), you’re often dealing with securities law and prospectus exemptions. NI 45-106 is a central Canadian instrument that governs prospectus exemptions. (OSC)
Canada’s regulators have also specifically focused on syndicated mortgages as an area requiring harmonized investor-protection rules. (Securities Administrators)
Practical lender takeaway: raising capital “from friends” without a real securities plan is one of the fastest ways to create a serious compliance problem.
Most new private lenders should start in one of these “lowest-regret” ways:
This means investing in established vehicles (funds, MICs, private credit funds) where someone else handles underwriting and servicing. Your job is diligence and risk selection.
Best for: people who want exposure to private credit without building an operating business.
Start with small, secured transactions in one niche you understand (e.g., equipment/vehicles with strong resale markets, or conservative mortgage LTVs if you have proper compliance).
Best for: people who want control, want to learn, and can handle illiquidity.
This is the “real lending business”: sourcing deals, underwriting, closing, collecting, enforcing, renewing.
Best for: operators who want to build a long-term business and can build process + compliance.
Private lending is not “charging high rates.” It’s pricing and controlling risk.
Most lender decision-making can be explained using the 5Cs of credit: character, capacity, capital, collateral, and conditions.
And under the hood, lenders are managing:
Character: Do they tell the truth early? Are documents consistent? Any undisclosed liens/tax issues?
Capacity: Can the borrower actually service payments from cash flow (not optimism)?
Capital: How much equity/cushion exists? Is the borrower absorbing real downside?
Collateral: If it goes wrong, what can you recover—and how fast?
Conditions: Industry risk, economic sensitivity, and deal structure (term, amortization, covenants).
Contrarian but defensible take: New private lenders often obsess over collateral and ignore capacity. Collateral is your seatbelt. Capacity is your brakes.
Structure is how you reduce risk without pretending risk disappears.
Before funding, lenders use conditions precedent (what must be true before money goes out). After funding, lenders use covenants (what gets monitored).
If you don’t build these in, you’re relying on hope.
Pricing is not just “rate.” It’s rate + fees + structure + monitoring + enforcement reality.
If a borrower can’t comfortably service payments in a normal month, you’re betting on:
That’s not lending. That’s speculative bridging.
If you’re serious, operate like a lender from day one.
If mortgages are involved, confirm your provincial framework (Ontario/FSRA is one example). (FSRA Ontario)
This is not optional if you want to avoid expensive mistakes. Your lawyer should handle:
At minimum, your internal file should include:
If you’re in the mortgage sector, FINTRAC expectations around KYC and ongoing monitoring are a real factor. (FINTRAC)
A lender’s monitoring goal is to catch drift before a missed payment becomes the first warning sign.
Decide now:
Consumer private lending can look easy and “high yield,” but it’s where regulatory and reputational risk explodes.
For example, Ontario’s Loan Brokers Act restricts loan brokers from requiring or accepting payments from or on behalf of a consumer in certain circumstances. (Ontario)
Practical takeaway: If you’re anywhere near consumer loan brokering or arranging, get legal guidance and build a compliance-first model. Many new entrants get burned here because they copy tactics they saw online that don’t map cleanly to Canadian rules.
Raising capital is often the point where “private lending” turns into a regulated capital-markets activity.
Practical “do this, not that”:
Give yourself 1 point each:
Rule: if it’s under 7/10, structure tighter or pass.
Pick the lower of:
If those numbers are far apart, you’re not doing a normal loan—you’re doing a collateral bet.
Situation: A Canadian owner-operator wanted to start private lending with personal capital after selling a business. They were tempted by high advertised yields in consumer-style deals.
What they did instead (smarter path):
Outcome: Lower headline yields than the sketchiest options—but fewer surprises, cleaner enforcement rights, and a repeatable process they could scale (or later convert into a compliant pooled vehicle with proper advice).
Takeaway: your first goal isn’t maximum return—it’s survivability + process.
If your interest is private lending for businesses—especially deals tied to equipment, vehicles, or other operating assets outside real estate—talk to someone who can pressure-test your structure the way an underwriter would (capacity, collateral, conditions, monitoring).
Mehmi can help you think through structures and risk controls in a leasing-first environment (often a safer starting point than unsecured lending), and point out the “approval breakers” we see in real files.
Yes, but it must comply with Canadian law. A key constraint is the Criminal Code’s criminal interest rate provisions, including how “interest” is defined and the 35% APR threshold. (Department of Justice Canada)
It depends on what you lend against and how you operate. Mortgage lending/brokering can be provincially regulated (Ontario is one example under FSRA). (FSRA Ontario)
Mortgage administrators, brokers, and lenders have FINTRAC obligations effective October 11, 2024 (KYC, recordkeeping, reporting, compliance program, and ongoing monitoring expectations). (FINTRAC)
Possibly—but once you raise capital, you may be issuing securities and relying on prospectus exemptions (NI 45-106 is a key framework). (OSC) Get securities-law advice before you solicit funds.
Underestimating enforcement and overestimating the exit. If your repayment plan is “they’ll refinance,” you’re exposed to market cycles and borrower execution risk.
They can be high-risk and are an area regulators have specifically tightened and harmonized to enhance investor protection. (Securities Administrators) Treat them like a securities product (because they often are) and do serious diligence.
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