Private Commercial Mortgage in Canada

Private commercial mortgages are not the right tool for every situation, and they are not a substitute for conventional financing when conventional financing is available. The cost differential is real and needs to be justified by the circumstances. The situations where private lending makes clear sense fall into a few distinct categories.

• Speed is a constraint. When a purchase agreement has a tight closing date, when a vendor will not extend, or when a competing bid is forcing a fast decision, institutional timelines of 6 to 12 weeks are simply not workable. Private lenders can commit and close in days to weeks when the asset and the file are clear.
• The property doesn’t meet conventional standards — yet. A vacant building, a partially leased retail strip, a property coming out of a receivership, or an asset with deferred maintenance will typically not qualify for conventional financing. Private capital allows an investor to acquire or hold the asset through a repositioning period before transitioning to term financing once performance is established.
• The borrower’s profile falls outside institutional appetite. Self-employed borrowers with non-traditional income documentation, borrowers navigating a recent credit event, or those with complex corporate structures often find conventional lenders unwilling to engage regardless of the underlying asset quality. Private lenders underwrite the deal on its merits, not on the borrower’s ability to fit a standard template.
• A maturing loan needs a bridge. When a commercial mortgage comes up for renewal and the current lender declines to renew — or when conventional refinancing is not yet possible — private financing can provide the capital needed to stabilise the situation and create time to secure a long-term solution.
• The transaction requires a structure that conventional lenders won’t provide. Interest-only payments, short terms, second mortgage positions, or financing on specialty assets are areas where conventional lenders have limited appetite. Private lenders operate with far more structural flexibility.

If conventional financing is available on reasonable terms, it is almost always the better economic choice. A commercial mortgage broker can assess your specific situation and give you a clear view of what each option actually costs over the holding period, not just at the rate level.

Private commercial mortgage rates in Canada are higher than conventional financing, and they are set based on the specific risk profile of each transaction rather than on published rate sheets. As a general reference, rates typically range from 8 to 15 percent annually, with most transactions falling somewhere in the 9 to 12 percent range, depending on how the following factors work out.

Rate is only part of the cost picture. Lender fees, broker fees, legal costs, and appraisal fees contribute to the total cost of private capital, and the blended effective cost is often higher than the stated interest rate alone suggests. Getting a complete cost breakdown before committing to a private mortgage is important — a commercial mortgage broker can model this clearly against the economics of the underlying deal.

Closing speed is a defining feature of private commercial lending and often the primary reason borrowers choose it over conventional alternatives. In practice, a well-prepared private commercial mortgage can close in one to three weeks. For very straightforward deals, clean title, current appraisal already in hand, no environmental concerns, some transactions have closed in as little as five to seven business days.

What drives the timeline in a private commercial mortgage transaction:

The stated interest rate on a private commercial mortgage is not the full cost of the financing. Fees and transaction costs add meaningfully to the total, and understanding them before committing to a deal is essential — not just for budgeting, but for honestly assessing whether the economics work.

On a $1 million private commercial mortgage, upfront fees alone — lender fees, broker fees, appraisal, and legal — can reasonably total $25,000 to $50,000 or more, depending on deal complexity. When combined with an interest rate in the 9 to 12 percent range on an interest-only basis, the total annualised cost of private capital is meaningfully higher than the rate alone suggests.

Private commercial mortgage underwriting is asset-driven rather than borrower-driven. This is the fundamental difference from institutional lending, and it is the reason private lenders can move quickly and accommodate situations that conventional lenders cannot. That said, asset-driven does not mean approval is automatic. Private lenders are still capital allocators, and they assess each transaction through the lens of risk and recovery.

The primary underwriting considerations for most private commercial mortgage lenders in Canada:

• Loan-to-value ratio: The most important variable. Private lenders advance between 55 and 75 percent of current appraised value in most cases. The LTV determines how much equity cushion the lender has if the borrower defaults and the property needs to be realised. Lower LTV requests attract better rates and faster approvals.
• Property quality and marketability: Location, condition, asset class, and how readily the property could be sold or leased in a distress scenario. A well-located retail strip in a major urban market is a fundamentally different risk profile from a rural single-tenant industrial building. Lenders are implicitly asking: if this loan goes wrong, how easily can we recover our capital?
• Existing income or a credible path to income: Not all private lenders require current income — many specifically focus on transitional and vacant assets — but they do want to understand the property’s income trajectory and what assumptions underpin it. Speculative projections without supporting evidence are viewed with scepticism.
• The borrower’s exit strategy: Private loans are short-term instruments. Lenders want to understand how the borrower plans to repay the loan at maturity — whether through a property sale, a conventional refinance, or another capital event. Vague exit plans or exits that depend on best-case assumptions are a concern for most private lenders.
• Borrower’s relevant experience: Not a hard requirement for all private lenders, but experienced investors managing similar assets are consistently preferred. A first-time commercial investor pursuing a complex repositioning project faces more scrutiny than a seasoned operator with a track record.
• Title clarity and environmental status: Private lenders will not advance on a property with unresolved title encumbrances or known environmental liabilities. These are hard stops, not negotiating points.

What private lenders are generally less focused on than institutional lenders: personal credit scores, traditional income documentation, debt service coverage ratios calculated from current NOI, and adherence to standardised product parameters. This flexibility is what makes private financing viable for situations where it is genuinely needed.

Getting into a private commercial mortgage is straightforward relative to conventional financing. Getting out of one on time and on favourable terms requires planning that begins before the loan is signed — not in the months before maturity. A private mortgage without a clear, realistic exit strategy is a significant financial risk, and it is one of the most common mistakes borrowers make when entering this market.

Private commercial mortgages are designed as short-term instruments. Most have terms of 6 months to 3 years. At maturity, the full outstanding balance is due. If the exit has not materialised, the borrower must either refinance into another private loan — often at a higher cost if the property’s situation has not improved — or face lender enforcement. Neither outcome is desirable, and both are avoidable with proper planning.

• Exit 1 — Refinance into Conventional – The most common intended exit. The borrower uses the private mortgage term to stabilise the asset — lease it up, complete renovations, resolve a title issue, improve financials — and then refinances into conventional term debt once the property meets institutional criteria. Requires a realistic assessment of what stabilisation actually takes and how long.
• Exit 2 — Property Sale – For acquisitions made under time pressure or for assets held as shorter-term investments, a sale repays the private loan at or before maturity. This exit depends on market conditions at the time of sale — a plan that assumes a specific sale price or timeline should be stress-tested against a slower market.
• Exit 3 — Capital Event or Equity Injection – In some cases, a business transaction, asset sale elsewhere in a portfolio, or equity partner joining the deal provides the capital to repay the private mortgage. This exit type should have a named source of capital and a clear timeline — not a general expectation that capital will materialise.

Practical steps to protect the exit from day one:

• Build a realistic timeline for the stabilisation or sale event, then add three to six months as a buffer. Private lending terms are not easily extended, and lenders who are asked to extend at the last minute often do so at materially higher rates.
• Understand what the property needs to achieve conventional financing — the specific DSCR, occupancy, and condition thresholds — before the private loan closes, not after.
• Begin the conventional refinancing process at least four to six months before the private loan matures. Institutional timelines of 8 to 12 weeks leave little room for error if you start late.
• Keep the broker who arranged the private financing involved throughout the term. They have the lender relationships and market visibility to advise on when and how to approach the refinancing market.

Private commercial mortgages carry real risks that borrowers should understand clearly before committing. The flexibility and speed that make them useful come with trade-offs that can create problems if the transaction is entered without sufficient preparation. None of these risks are reasons to avoid private financing when it is the right tool — but they are reasons to go in with clear eyes.

The most effective protection against all of these risks is working with an experienced commercial mortgage broker who has established relationships with credible private lenders and the judgement to identify problematic terms before they become problems. This is not part of the process to manage independently.

The regulatory landscape for private commercial mortgage lenders in Canada is different from that of banks and credit unions, and understanding the distinction matters when you are evaluating who you are dealing with.

Banks and credit unions are federally or provincially regulated deposit-taking institutions subject to oversight from OSFI (Office of the Superintendent of Financial Institutions), provincial regulators, and CDIC or provincial deposit protection schemes. Private mortgage lenders — individuals, MICs, syndicates, and private funds, are not deposit-taking institutions and are not subject to the same institutional oversight. Their activities are governed by different rules depending on how the entity is structured and which province it operates in.

Mortgage investment corporations (MICs) are a common vehicle for private commercial lending in Canada. They are governed by the Income Tax Act’s MIC provisions and must meet specific investment criteria, but they are not individually licensed as lenders in most provinces. Syndicates and private lending funds may be subject to securities regulation depending on how they raise capital, but this varies significantly.

What does remain regulated is the mortgage broker who introduces the deal. A licensed commercial mortgage broker in Canada is regulated by its provincial authority — the FSRA in Ontario, the BCFSA in BC, and RECA in Alberta — and is required to adhere to standards of conduct, conflict-of-interest disclosure, and fair dealing. Working through a licensed broker provides an important layer of accountability that is absent when borrowers approach private lenders directly.

How to vet a private lender before committing:

The terms are often used interchangeably, and in practice there is meaningful overlap — but they are not identical products, and understanding the distinction helps borrowers identify the right structure for their situation.

A bridge loan is defined by its purpose: it bridges a specific, identifiable gap between two financing events. The most common example is a property that has been acquired and is being repositioned — leased up, renovated, or stabilised — ahead of a conventional term mortgage. The bridge loan provides capital during the transition period, with a clearly defined event (stabilisation, sale, or refinance) that will repay it. Bridge loans can be funded by both private and some institutional or alternative lenders, and they tend to have well-defined timelines and repayment triggers.

A private commercial mortgage is defined by its funding source: a non-institutional, private capital provider. Not every private mortgage is a bridge loan. Private mortgages can also be used for acquisitions where conventional criteria are not met due to the borrower’s profile rather than the property’s condition, for second mortgage positions, or for financing specialty assets that institutional lenders do not engage with at any stage. The use of private capital in these situations is not temporary or transitional — it may be the only available source of first-mortgage financing for that asset type or borrower profile.

In most practical conversations, if a lender or broker refers to a bridge loan funded by private capital, these terms are being used to describe the same instrument. The distinction matters most when a borrower needs to understand whether their situation is genuinely transitional — and therefore suited to a bridge structure — or whether private financing is needed on a more open-ended basis, which carries different cost and risk implications.