Imagine you have built a $30-million-revenue manufacturing business in Burnaby. You want to acquire a competitor, accelerate into the US market, or fund a new production line. Your bank will lend you senior debt against hard assets. Your venture investors—if you have any—want equity and a liquidation preference. What you actually need is the instrument that sits between those two: subordinated debt, or mezzanine financing, that does not dilute your ownership and does not require collateral you do not have. You have just discovered one of the least-discussed structural gaps in the BC economy.

The Canadian mezzanine market is estimated at under $3 billion annually—a rounding error against the US market, which exceeds $100 billion. For BC mid-market companies seeking $5 million to $25 million in growth capital, the practical consequence is that they frequently find either no local options or US-headquartered funds willing to lend only at terms calibrated to American market conditions.

Those American terms carry a price. Typical mezzanine pricing in Canada runs at the base rate—generally Prime or the Canadian Overnight Repo Rate Average (CORRA)—plus 8 to 12 per cent. The effective spread of 200 to 400 basis points does not sound catastrophic until you model it across a $15-million facility over five years. At 300 basis points of additional cost, you are talking roughly $2.25 million in excess interest expense over the life of the deal. That is a meaningful drag on a company at this stage of growth.

This is not a new problem, but it is becoming more acute. BC mid-market M&A volume increased approximately 18 per cent in 2025, according to data tracked by ACG Vancouver. More deals mean more demand for bridge and subordinated structures, and the supply side has not kept pace. Canada’s chartered banks have continued their structural retreat from second-lien positions. The result is a market where demand is rising and domestic supply remains flat.

The domestic options that do exist are worth knowing. BDC Capital runs a mezzanine and growth equity programme with a stated ceiling of $35 million per transaction. BDC’s mandate is to serve companies that cannot access conventional financing. However, BDC often moves at a pace suited to a Crown corporation rather than a competitive deal process. When a seller has other interested parties, a 90-day diligence timeline can be a significant constraint.

Roynat Capital, the Scotiabank subsidiary, remains a significant domestic player. While its appetite for BC mid-market deals is genuine, its capacity is finite and its deal selectivity is high.

Credit unions represent an underappreciated wildcard. Central 1 Credit Union data shows that the province’s credit union system has been expanding its commercial book. Larger credit unions—Vancity and First West among them—have demonstrated an appetite for structured lending that chartered banks often avoid. They are not mezzanine funds in the technical sense, but they can construct facilities that functionally resemble subordinated debt for companies with strong local relationships.

The more interesting structural alternatives are those that do not look like debt at all. Employee ownership trusts (EOTs), which received favourable federal tax treatment, are emerging as a legitimate recapitalization structure. A founder selling 40 per cent of their business to an EOT can use the proceeds to fund growth initiatives that would otherwise require mezzanine debt. Search funds and independent sponsors are also increasingly active, providing acquisition financing structures that blend equity and deferred consideration.

The legal infrastructure for these deals is maturing. M&A finance practices at firms like Fasken and Bennett Jones have developed expertise in structuring around the mezzanine gap using vendor take-back financing, royalty structures, and convertible instruments.

Canada’s mezzanine market remains thin because institutional capital—pension funds, insurance companies, and large family offices—has historically preferred to deploy into US funds. What would help is a dedicated BC or Canadian mid-market mezzanine fund with patient institutional backing. Until then, BC’s mid-market CFOs are building creative solutions to structural problems. The premium is real, but so is the ingenuity of the operators navigating around it.

What to watch:

• Whether BDC Capital accelerates deal timelines in response to competitive pressure from US mezzanine funds.
• Credit union appetite for structured subordinated facilities as their commercial books grow.
• EOT uptake among BC mid-market founders as the federal tax framework matures through 2026 and 2027.
• Any new entrant establishing a dedicated Canadian mid-market mezzanine fund.
• Upcoming CVCA deal data for H1 2026 subordinated debt transactions in BC, which may indicate if supply is beginning to respond to demand.