Private lending in Canada explained for business owners: types, pricing, covenants, legal guardrails, and how to choose between private lenders, banks, and leasing.
Private lending in Canada is any non-bank or non-traditional financing where the terms are negotiated directly with a private lender (a finance company, private credit fund, investor group, or specialty lender). For business owners, it can be a lifesaver when you need speed, flexibility, or a lender who will underwrite the real story—but it can also be expensive, covenant-heavy, and unforgiving if cash flow turns.
This guide is written for Canadian business owners who are considering private lending (or being offered it) and want to understand:
Not legal or tax advice. For your specific situation, confirm legal structure and disclosures with a Canadian lawyer and accountant.
Private lending is a broad umbrella. In the real world, it usually shows up as:
Why it’s grown: The Bank of Canada notes that non-bank financial intermediaries are a large and important part of the system, and connections between banks and non-banks can matter for stress transmission. Bank of Canada
Plain-language takeaway: private lenders can move quickly and solve edge cases—but they still behave like lenders. They control risk through pricing, security, and monitoring.
This matters because it affects how high-cost private lending can be structured.
Under Criminal Code section 347, the “criminal rate” is an annual percentage rate calculated using generally accepted actuarial practices that exceeds 35% on the credit advanced. Department of Justice Canada The Code also defines “interest” broadly to include many fees and charges (not just a stated interest rate). Department of Justice Canada
Why you care as a borrower: you should always ask for your true annualized cost (APR-style), including fees—because fees can change the economics materially, and in some structures they’re treated as “interest.” Department of Justice Canada
Private lenders don’t price like banks because they’re often taking:
A practical way to think about it: lenders charge for risk and work. A lending text we use internally summarizes the idea of “pricing for risk” and notes that lenders may also charge fees where higher monitoring is required.
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Ask every lender/broker for these items in writing:
Contrarian but fair view: many “bad” private loans aren’t bad because the rate is high—they’re bad because the repayment plan depends on a refinance that isn’t guaranteed.
You’ll get better outcomes if you understand the “credit brain.”
A classic judgmental underwriting framework is the 5C analysis: character, capacity, capital, collateral, and conditions.
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Here’s what that means in private lending:
Every lender is managing some version of:
Your job as a borrower is to reduce perceived risk with:
Private lending often comes with more control after funding. Two terms you’ll see:
This same source explains the common-sense reason: it’s harder to ensure key items (like security or valuations) happen after funds are already advanced.
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A prudent lender wants warning signs before a missed payment.
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Common monitoring requirements include:
Private lending can be a rational choice when:
Examples:
Asset-based approaches can sometimes unlock capital where pure cash-flow underwriting won’t.
You’re paying for execution.
Private lending is often a poor fit when:
If you can’t support payments today, you’re betting on future approval conditions you don’t control.
If the real issue is margin, pricing, collections, or overhead, debt can buy time—but it can’t fix the core model.
If you’re buying or refinancing a machine/vehicle that generates revenue, a leasing-first structure often produces a cleaner fit: the asset is the anchor, and your cash flow supports the payment.
If the purpose of financing is to acquire an earning asset (truck, trailer, machine tool, packaging line, forklift), the most borrower-friendly approach is often:
Because approvals and funding are usually tied to a defined asset, you can often move faster—but you must be disciplined with documentation.
For example, standard equipment finance funding packages often require items like signed documents, IDs, void cheque/PAD, vendor invoice, proof of initial payment, and insurance certificate.
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That’s not bureaucracy for its own sake—it’s how funders control fraud, title, and collateral risk.
Use this quick checklist before you sign anything.
Give yourself 1 point each:
Rule of thumb: If you’re under 7/10, pause and restructure (or consider alternatives like equipment-specific financing).
Write:
If you can’t explain it simply, underwriting will be messy.
Don’t accept “standard covenants” as a verbal promise. Ask for:
Especially if you already have:
Your lender will search it anyway. Surprises late are what kill closings.
If you’re buying equipment, compare:
If your private lending is mortgage-related (as a lender or intermediary), FINTRAC has explicit requirements for mortgage administrators, brokers, and lenders effective October 11, 2024, including compliance program, client identification, beneficial ownership, and ongoing monitoring. FINTRAC
If you’re a business owner borrowing on real estate, this is one reason the process can feel more document-heavy than expected.
Situation: A manufacturing business in Ontario won a contract that required a fast ramp: inventory build + overtime + a new packaging line. The bank was cautious because working capital would look worse before it looked better.
What we would consider “smart structure”:
Why this works in the lender’s brain:
Result: The business avoided over-borrowing at a high cost, funded what was truly transitional, and kept the equipment financing tied to the asset (where it belongs).
If you’re deciding between private lending, bank financing, and a leasing-first equipment structure, you’ll usually get the best outcome by structuring around:
Mehmi can help you pressure-test the deal the way an underwriter would (capacity, collateral, conditions, monitoring) and—when it’s equipment-driven—structure it leasing-first so the asset does more of the heavy lifting.
Private lending is financing provided outside traditional bank lending, typically by private lenders, finance companies, or private credit funds, with negotiated terms (rate, fees, security, covenants).
Yes, but pricing must comply with Canadian law. Criminal Code section 347 defines a criminal interest rate as an APR exceeding 35% (calculated using actuarial principles) and defines “interest” broadly to include many fees and charges. Department of Justice Canada
Because private lenders often take more execution risk and/or credit uncertainty and may require more monitoring. “Pricing for risk” is a standard lending concept.
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Conditions precedent must be met before funding; covenants are ongoing monitoring terms after funding.
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Sometimes—but if the financing is for an earning asset, you should compare against leasing-first equipment finance, where the deal can be anchored to the asset and funded with a clean package (IDs, PAD/void cheque, invoice, insurance, etc.).
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Accepting a deal where repayment depends on a future refinance, without a credible secondary exit, and without understanding covenants/triggers that can tighten liquidity at the worst time.
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