An Overview for Brokers, Legal Professionals, and Financial Advisors
Private lending is a critical part of Canada’s financial ecosystem, particularly in a regulatory environment where traditional mortgage credit is increasingly restricted. It enables borrowers who do not qualify for conventional bank financing to access capital, often on a short-term basis and under asset-secured terms. While sometimes misunderstood, private lending is a legitimate, regulated, and solution-oriented practice that serves borrowers, lenders, and intermediaries alike.
This article outlines the fundamentals of private lending in Canada, its regulatory context, and its practical applications for professionals advising clients in mortgage, legal, insolvency, and financial matters.
Defining Private Lending
Private lending refers to non-bank, non-institutional financing extended by individuals, companies, or mortgage investment entities. These loans are typically secured against real estate and issued based on the underlying asset and borrower intent, rather than traditional metrics such as credit score, income verification, or debt servicing ratios.
Common forms of private lending include:
• First and second-position mortgages
• Bridge financing
• Equity takeouts
• Business-purpose loans secured by property
• Loans for borrowers in foreclosure, arrears, or bankruptcy
The majority of private lending transactions in Canada are short-term (6 to 18 months), interest-only, and used to bridge a borrower through a transition period, asset repositioning, or liquidity event.
Who Are Private Lenders?
Private lenders in Canada fall into three broad categories:
1. Individual Lenders – Private persons who lend their own capital on a deal-by-deal basis. These may include high-net-worth investors, retired professionals, or operators who manage their own mortgage portfolios.
2. Private Lending Corporations – Businesses such as Assadi Private Capital, Inc. that operate as direct lenders, managing origination, underwriting, and capital deployment in-house. These firms offer greater structure and accountability while retaining flexibility.
3. Mortgage Investment Corporations (MICs) – Pooled investment vehicles that raise capital from shareholders and lend it out in mortgage form. MICs are regulated investment products under the Income Tax Act.
Each of these lenders may have different mandates, risk tolerances, and operating styles, but they are all subject to applicable provincial and federal lending laws.
When Is Private Lending Used?
Private lending is not intended to compete with conventional bank financing. Rather, it serves borrowers who:
• Are credit-impaired or have prior bankruptcies or consumer proposals
• Are self-employed and cannot provide conventional income documentation
• Need fast closings, often within days, that banks cannot accommodate
• Own distressed, vacant, or unconventional properties
• Require interim capital pending probate, restructuring, or sale
• Are involved in litigation, foreclosure, or insolvency
• Seek short-term liquidity for business or investment purposes
In each case, the private loan is not the destination, it is the bridge.
How Is Private Lending Regulated in Canada?
Private lending in Canada is governed by a combination of federal and provincial laws. Key regulatory frameworks include:
• Mortgage Broker Licensing – In most provinces, only licensed mortgage brokers or agents may arrange private mortgage transactions. Borrowers cannot be solicited directly without registration.
• Disclosure Requirements – Provinces such as Ontario and Alberta require detailed written disclosures to borrowers outlining rates, fees, risks, and prepayment terms.
• Section 347 of the Criminal Code – This provision caps the legal maximum interest rate at 60% per annum, inclusive of all fees and compounding. Lenders must price loans carefully to remain compliant.
• Anti-Money Laundering (AML) Rules – Private lenders must adhere to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) by verifying borrower identities, conducting suspicious transaction monitoring, and reporting as required.
• Consumer Protection Acts – These may impose cooling-off periods, enforceable disclosure standards, and penalties for non-compliance with lending regulations.
Reputable private lenders typically operate through licensed intermediaries, retain legal counsel, and adhere to standardized documentation practices.
Key Features of Private Mortgages
Private loans differ from bank loans in structure, pricing, and risk allocation. Features often include:
• Term: Short duration, typically 6–18 months
• Amortization: Often interest-only; occasionally fully open
• Interest Rates: Usually between 8%–15%, depending on risk
• Fees: Lender, broker, and legal fees disclosed upfront
• LTV Ratios: Generally capped at 75% for urban properties; lower for rural or distressed assets
• Security: Real estate-backed, occasionally with personal guarantees or corporate covenants
The pricing reflects not just risk, but the lack of institutional friction, private lenders offer speed, flexibility, and the ability to fund complex or time-sensitive transactions.
What Are the Risks and Benefits?
Benefits:
• Fast Turnaround: Many private loans can fund within 3–10 business days.
• Flexible Criteria: Approval is based on asset value and exit strategy, not just credit score or income.
• Problem-Solving: Can resolve tax arrears, prevent foreclosure, or release equity quickly.
• Broker-Driven: Private lenders work with intermediaries, not in competition with them.
Risks:
• Higher Cost: Interest rates and fees exceed those of institutional lenders.
• Short Terms: Requires a realistic and executable exit strategy.
• Collateral Exposure: Loans are secured against property, with potential enforcement if repayment fails.
• Unsuitable Borrowers: Private lending is not appropriate for every client, especially those unable to meet exit timelines.
Professionals advising clients on private lending should assess suitability and ensure informed consent at all stages.
Who Uses Private Lending?
• Mortgage Brokers: Brokers place files that fall outside bank criteria or involve legal/title complexity.
• Lawyers: Real estate, estate, and litigation lawyers refer clients requiring urgent or transitional capital.
• LITs and Insolvency Professionals: Use private loans to support proposals, pay creditors, or unlock value from real estate during restructuring.
• Property Investors: Acquire, reposition, or flip properties with short-term bridge loans.
• Small Business Owners: Use real estate-secured loans for working capital, inventory, or expansion.
Private lending is rarely the first option, but when used appropriately, it is a highly effective tool to preserve deals, avoid defaults, and unlock liquidity.
Conclusion
Private lending in Canada is a professional, regulated, and necessary solution for borrowers who fall outside the rigid parameters of institutional credit. It requires a thoughtful approach, appropriate structuring, and transparent communication.
At Assadi Private Capital, we work exclusively with licensed mortgage brokers, legal professionals, and restructuring advisors to fund private loans that are tailored, lawful, and designed to solve real-world problems. If you’re handling a client file that requires speed, flexibility, or asset-based financing, we invite you to connect with us and explore how private capital can support your practice.