General information only. This article is educational and is not financial, legal, tax or investment advice, or an offer to lend or invest. Get advice from qualified professionals about your situation.
Banks and credit unions are usually the lowest-cost source of borrowed money. But they work within strict policies, and many sound deals fall outside them. Private lenders, including individuals, private companies and mortgage investment corporations (MICs), fill that gap. This guide explains the differences so you can decide which fits.
How the two approaches differ
| Bank / credit union | Private lender | |
|---|---|---|
| Main focus | Income, credit score, debt-service ratios | Security, exit plan, overall story |
| Speed | Often weeks | Often faster; varies by lender |
| Flexibility | Standard products and policies | Terms negotiated per deal |
| Cost | Generally lower | Generally higher, priced to risk |
| Typical term | Long-term amortising loans | Often short-term, frequently interest-only |
When a private lender can make sense
- You have strong security but your income is hard to document (for example, recently self-employed).
- Your credit has been damaged by a past event that is now resolved.
- The property or asset is unusual, such as raw land, a mixed-use building, or specialised equipment.
- You need to close faster than a bank can approve.
- You need a short-term solution while you fix whatever the bank is concerned about.
When it probably does not
- You qualify for bank financing and are not under time pressure.
- There is no realistic way to repay or refinance the loan.
- The cost of the loan would wipe out the benefit of the deal.
Red flags when dealing with any lender
- Pressure to sign quickly without seeing written terms.
- Requests for large upfront fees before any approval or documentation.
- Unwillingness to show the total cost of borrowing in dollars.
- Advice not to get your own lawyer.
Always have your own lawyer review loan documents. In Alberta, mortgage brokerage is regulated by the Real Estate Council of Alberta (RECA), and you can check whether a broker is licensed. For consumer loans, provincial cost-of-credit disclosure rules and federal criminal interest rate rules also apply.
The bottom line
Private financing is a tool, not a last resort or a shortcut. Used for the right situation, with a clear exit, it can save a deal. Used without a plan, it can be expensive. If you are weighing the options, see our lending and capital options or send us the details.