For a Metro Vancouver developer or mid-market operator attempting to close a $10-million commercial loan, the math is stark. A Schedule A bank may offer prime plus 150 to 200 basis points—roughly 8.7 to 9.2 per cent—if the borrower qualifies. Private credit lenders typically charge 300 to 600 basis points more, pushing the all-in cost to 11 to 15 per cent, often excluding origination fees.
While these figures may seem prohibitive, they represent a growing reality for many businesses. Canadian private credit deal volume exceeded $25 billion in 2025, according to Canadian Venture Capital and Private Equity Association estimates. BC represents an increasing share of this activity as funds from Toronto and New York compete for Pacific-region deal flow.
The Bank of Canada's Senior Loan Officer Survey for Q1 2026 indicates that a majority of lenders have tightened credit conditions, with commercial real estate and SME lending facing the most significant pressure. Furthermore, OSFI's B-20 underwriting guidelines have effectively raised the floor for bank financing, creating a structural gap for loans between $5 million and $50 million.
Understanding the economics
Consider a $10-million construction-to-permanent loan for a mixed-use project in Metro Vancouver. A bank might offer 65 per cent loan-to-value (LTV) with a 60- to 90-day approval timeline. If the project involves site complexity or non-standard income, the bank may decline or offer a lower LTV that renders the project unviable.
Private credit lenders—such as those operated by Romspen Investment Corporation or Fiera Private Debt—often provide 70 to 75 per cent LTV with faster closing times. While the total cost of capital may be higher—potentially $2.1 million compared to $1.4 million for bank debt over an 18-month period—the premium can be viewed as the cost of execution certainty.
The value of covenant structure
Borrowers often focus exclusively on interest rates, but covenant structure is frequently the more critical variable. Bank loans often rely on maintenance-based covenants, which require borrowers to meet specific financial ratios every quarter. Failure to do so can trigger a technical default.
In contrast, many private credit facilities utilize incurrence-based covenants, which only trigger if the borrower takes a specific action, such as assuming additional debt. For operators in volatile markets, this flexibility can be more valuable than a lower interest rate. BDC's mid-market lending research highlights that access to capital is often the binding constraint for Canadian SMEs.
Strategic application
Private credit is not a universal solution. It is most effective for time-sensitive acquisitions, complex projects that banks cannot underwrite, or as a bridge for borrowers 12 to 18 months away from conventional financing. It is less sustainable as a permanent capital structure. The most effective strategy involves using private credit to stabilize an asset, followed by a transition to conventional financing.
What to watch
- The Bank of Canada's June 3 rate decision will influence the spread between bank prime and private credit floors.
- Ongoing reviews by OSFI regarding commercial real estate exposure at Schedule A banks.
- The growth of BC-based private credit funds, which may increase local competition and potentially lower pricing.
- Trends in covenant packages as competition among private lenders intensifies.
