Guidance for Mortgage Brokers, Lawyers, and Licensed Financial Professionals
Private lending plays a growing and essential role in Canada’s credit environment. Yet for many borrowers, especially those accustomed to dealing with traditional banks, the concept of borrowing from a private lender can be unfamiliar, intimidating, or even viewed with suspicion. As a licensed professional advising clients on financial matters, your ability to clearly and responsibly communicate the nature, purpose, and implications of private financing is critical. Done properly, these conversations can help preserve client trust, reduce confusion at closing, and support more successful outcomes.
This article provides a practical framework for how to approach private lending conversations with clients, while maintaining professional credibility, regulatory compliance, and transparency.
1. Know When Private Lending Is Appropriate
Before discussing private lending, professionals must first ensure the referral is suitable. Private capital is not a replacement for bank lending; it is a complement for situations where institutional credit is unavailable or inappropriate. Common triggers include:
• Borrowers with bruised or non-existent credit
• Self-employed individuals with complex income structures
• Urgent closing timelines (e.g., within 5–10 business days)
• Distressed properties or unconventional asset types
• Tax arrears, foreclosure prevention, or other legal encumbrances
• Interim or bridge financing needs pending refinance or sale
• Files where the exit strategy is sound but timing is constrained
Private loans are typically short-term, interest-only, and asset-based. If a borrower has access to conventional financing, they should be directed accordingly. The conversation about private lending should be positioned not as a compromise, but as a practical and temporary solution in the absence of institutional options.
2. Set the Right Tone Early
A successful conversation starts with tone and framing. The objective is to be factual, not defensive; transparent, not overly apologetic. Begin with a neutral, client-focused explanation:
“We explored all available institutional options, but due to [credit issues / income documentation / timeline constraints], none were able to accommodate the file. That said, I have access to reputable private lenders who may be able to help. These are non-bank professionals who lend based on the property and the strength of your exit plan.”
Avoid characterizing private lending as “last resort” financing. While it may not be the first choice, it is still a legitimate and often appropriate form of credit. Clients take cues from your posture, confidence and professionalism reduce stigma and uncertainty.
3. Explain Key Differences
Borrowers should understand the structural and procedural differences between private and institutional loans. Consider explaining:
• Approval Criteria: Private lenders focus less on income or credit, and more on collateral, borrower intent, and exit strategy.
• Loan Term: Most private mortgages are short-term (6–18 months), intended as a bridge to refinance, sale, or resolution of an obstacle.
• Interest and Fees: Rates are higher than traditional loans, typically 8–15%, with lender and broker fees. However, many do not charge prepayment penalties or exit fees.
• Speed: Private lenders can often fund within days, provided legal, title, and appraisal conditions are met.
• Due Diligence: Private loans may still require appraisals, title searches, and borrower identification, but underwriting is less rigid.
Clarity on these points helps eliminate surprises at the commitment or closing stage.
4. Be Transparent About Cost
One of the most critical aspects of the discussion is cost. Break down the components plainly and without embellishment:
• Interest rate (monthly or annual)
• Lender fee
• Broker fee (if applicable)
• Legal costs
• Third-party reports (e.g., appraisal, title, environmental)
Clients must understand the total cost of borrowing and how long they are expected to carry the loan. Reinforce that this is a temporary financing tool, and that there is a plan in place to transition out of the loan at the earliest feasible opportunity.
If the client is confused, offer an example:
“If the loan amount is $100,000, and the rate is 12% annually, that’s $1,000 in interest per month. There may be a 2% lender fee and a 1% broker fee, which would total $3,000, usually deducted from the proceeds. Your legal and appraisal costs would be additional.”
This level of disclosure is not only ethical, it is essential under mortgage licensing and consumer protection rules.
5. Discuss Exit Strategy from the Start
Private lending is bridge financing. It is not designed to be held for the long term. A well-defined exit strategy reassures both the borrower and the lender that the transaction is viable.
Common exits include:
• Sale of the property
• Refinancing into a conventional mortgage after credit improvement or income normalization
• Maturity of an investment or inheritance
• Discharge of debt or resolution of legal obstacles (e.g., discharge of a lien, completion of probate)
You should be prepared to explain how and when the loan will be repaid, and what contingencies are in place if timelines shift.
6. Prepare for Common Questions and Misconceptions
Clients may have preconceived notions about private lending. Be ready to answer common questions:
• “Is this legal?”
Yes. Private mortgage lending is regulated under provincial and federal law. All lending must comply with consumer protection, disclosure, and usury laws.
• “Are these loan sharks?”
No. Reputable private lenders operate through legal channels, employ lawyers, issue written term sheets, and follow lawful collection practices.
• “Why is the interest rate so high?”
The rate reflects the lender’s risk. These loans are priced to cover potential losses, not to gouge. Banks can lend cheaply because they only lend to borrowers who fit within narrow risk profiles.
• “Will this hurt my credit?”
Not necessarily. Most private lenders do not report to credit bureaus. However, failure to repay could result in legal action that may eventually impact your credit or property title.
Having thoughtful, professional answers builds trust and reinforces your credibility.
7. Emphasize Your Role as a Fiduciary or Advisor
As a mortgage broker, lawyer, or financial professional, you are not selling a loan, you are advising a client. Make this clear in your tone and conduct.
“My job is to help you evaluate all available options, including private lending. I’ll walk you through the terms, make sure everything is transparent, and only recommend this path if it makes sense for your situation.”
If possible, provide written materials or direct your client to the lender’s website. Let them review terms independently, consult with legal counsel, and ask questions before signing.
8. Document the Conversation
For compliance and transparency, always document:
• The reasons private lending was proposed
• That the client was made aware of the rates, fees, and terms
• That the client had the opportunity to seek independent legal advice
• That they understood the loan is temporary and has a defined exit plan
In some provinces, additional disclosure forms may be required. Ensure that all paperwork is completed thoroughly and retained in your file.
9. Choose Reputable Lending Partners
Your reputation is tied to the lender you refer. Work only with private lenders who:
• Provide written offers, not verbal promises
• Are transparent about pricing and terms
• Allow for early repayment
• Operate within the law and under legal counsel
• Do not solicit your client directly
A lender who respects your role as an intermediary will help you serve your client more effectively and ethically.
Conclusion
Private lending is not for everyone, but for some clients, it is the only viable solution at a critical moment. How you present this option will shape the client’s perception and decision-making process. By approaching the conversation with professionalism, candour, and clear rationale, you not only protect your client, you enhance your own standing as a trusted advisor.
At Assadi Private Capital, we support professionals across Canada in structuring and executing private loans responsibly. If you have a file that may require private capital, we encourage you to contact us to explore whether we are a fit for your client and your practice.