Private loan or bank: when should you choose one or the other?

Bank or private loan: the choice rarely rests on a single criterion. It depends on what your application offers and what your project demands.

This guide describes how each lender thinks, what can tip the decision, and what to check before signing.

How does a bank assess a application?

According to BDC, a bank reviews recent financial statements, assets, management experience, credit score and the health of the sector.

BDC names cash flow as the most important indicator. The bank wants to know whether the business generates enough money to pay the debt.

It also uses the debt service coverage ratio. That compares available income with the interest and principal due over the year.

BDC adds that the owner's personal investment counts. A borrower who puts in their own money shows they share the risk.

This work calls for documents: financial statements, credit reports, proof of the down payment, licences and quotes. Allow time to gather them.

What is a private loan?

A private loan comes from a lender that is not a bank: an individual, a company or a fund. Mortgage loans there are often short term.

The Financial Consumer Agency of Canada lists mortgage investment companies among lender types, next to banks and credit unions. It states that the lender type influences the rate.

A private lender often puts the emphasis on the value of the property pledged as security. That is not a universal rule: each lender has its own criteria.

Private loan terms are not standardized. This guide cites no rate and no term, because no current official source was found.

When is a bank the better fit?

It often is when the application is strong and the project is not rushed. Here are typical situations.

• Financial statements are current and cash flow covers the debt comfortably.
• The closing date leaves time to build the application.
• The project is an ordinary long-term purchase or refinancing.
• You want a stable amortization and term.

BDC points out that banks typically finance 75% to 100% of the value of a commercial purchase. That figure depends on the building's condition and other factors.

When might a private loan be considered?

It can be discussed when a bank cannot respond, for example for lack of time or because of an unusual application. These cases come up often.

• The closing date is too close for a bank process.
• Financial statements do not yet show the building's real income.
• The building needs work before it meets a bank's criteria.
• The borrower's credit is a problem, but the building has value.

In these cases, the private loan answers a need for speed or flexibility. It generally does so at a higher cost.

It is not built to last. Plan from the start how you will repay it, for example by refinancing with a bank.

What risks should you check before signing?

A short loan forces frequent renegotiation or refinancing. The agency reminds borrowers that at each renewal the rate is renegotiated and payments can change.

Here is what to ask for in writing, whatever the lender.

• The rate, the term and the repayment method.
• Every fee: application, appraisal, legal, commissions.
• Prepayment penalties, which the agency says can reach thousands of dollars.
• The conditions at renewal or at maturity.
• Whether the loan is a call loan, which BDC flags for many commercial loans.

Also check who you are dealing with. In Quebec, mortgage brokerage is regulated by the Autorité des marchés financiers. Consult its register to confirm an intermediary's registration before handing over documents.

A broker does not lend the money. According to the agency, a broker puts the borrower in touch with lenders.

How do you compare the two options?

Put the offers side by side using the same criteria. The rate alone is not enough.

• Total cost over the expected term, fees included.
• Time to get the funds, confirmed in writing.
• Flexibility if a sale, renovation or leasing runs late.
• What happens at maturity.
• Security required, including any personal guarantee.

The agency advises comparing several lenders and negotiating. It says this can save thousands of dollars.

Think about what comes after the loan, too. A short loan has a maturity date. At that point it must be repaid, renewed or replaced.

If replacement goes through a bank, the bank will judge the application at that time. The building's income, the credit score and the financial statements will have to hold up.

So it is worth asking from the start what the bank will see in twelve months. If the answer is uncertain, the refinancing risk is real.

Also keep copies of every offer you receive, including the ones you decline. They give you a baseline when the next lender quotes.

This reflection does not replace the advice of a legal or accounting professional, especially when the amounts are large.

What should you do next?

Note your deadline, your down payment and the building's income. These three items often decide which way to go.

Then ask each lender for a written offer, and read it with a legal professional if the amounts are large.

PMECAP is a free comparison site. It does not lend, post rates or promise timelines. Its form is passed to a brokerage firm registered with the AMF.

Read the guide on rates and down payment on a commercial loan, then the private loan family and the refinancing family.

FAQ

Sources

• BDC – How a bank looks at your business (accessed October 13, 2026)
• BDC – Get the right level of financing for your real estate project (accessed October 13, 2026)
• BDC – Qu'est-ce qu'une hypothèque commerciale (glossaire) (accessed October 13, 2026)
• ACFC – Choisir le bon prêt hypothécaire (accessed October 13, 2026)