The Rise of Alternative Lending—and What It Means for Canadian Farmers

Alternative lending, also known as non-bank lending, is the fastest-growing part of Canada’s finance industry and now makes up about 30% of all residential mortgages. Many people mistakenly think that alternative lending is only for high-risk borrowers, but that’s simply not true. In fact, non-bank lenders in Canada often offer lower interest rates, fees, and penalties (all on the same loan) on certain types of loans compared to the big six banks. They do this by using global capital markets as a source of low-cost capital to fund loans, and their lower operating costs allow them to offer more competitive rates.  However, these types of loans are mainly available in larger Canadian cities, where the biggest real estate markets are seen as the least risky by investors.   

The alternative lending industry in Canada started in the 1960s when government mortgage default insurance was introduced. In the 1970s and 1980s, small non-bank lenders began grouping loans into large pools and selling them as securities to investors. Since these loans were government-guaranteed, investors saw them as safe, like government bonds. The large established market for government bonds allowed non-bank lenders to access a lot of capital at low rates and pass those savings on to their borrowers, offering better loan terms.   

Over time, the industry has expanded to include loans without government guarantees, like non-insured mortgages and commercial real estate loans. The market for these loans has grown a lot in the past 20 years, but these loans often have higher interest rates than bank loans because they aren’t government-backed. However, alternative lenders have responded by offering loans outside of the usual lending standards and by quickly funding time sensitive opportunities.   

Glengarry is the first company in Canada to bring this approach to agriculture and is working to create investment markets for farm loans. As we expand these markets, we will be able to offer more loan options at better rates.  Glengarry also created the first true alternative to bank financing in Canada, where there is real flexibility on the qualifying criteria, not available at other traditional lenders.  If you are looking for more options, contact us today at JGinquiry@glengarry.ca to see what alternative financing can do for you.