Is Private Lending
Your Only Hope?

Is Private Lending Your Only Hope of Buying a New Home or Keeping the One You Have Now?


Borrowing from a private lender is a serious undertaking. If you are considering borrowing funds from a private lender, there may be a compelling event happening in your life, otherwise you wouldn’t be taking this step. A private lender will use your home’s available equity for security, which is important to remember.

Why Do You Need the Funds?

Perhaps you want to buy a new home, and were declined a mortgage from a traditional lending institutions (chartered banks and trusts), or you didn’t pass the mortgage financial stress test that has been recently regulated.

There may be other reasons for using a private lender, you may be starting a business, need vital capital and funds, Getting access to private lending funds may help you keep the home you have now instead of having to sell your home to get access to your home’s equity.

Private Lending May Be Your Only Option, Maybe Not

There may be numerous important reasons why you need these funds. Borrowing from a private lender for less critical requirements may not be prudent, for example, borrowing for a vacation, unnecessary home improvements, investing, buying a car, you get the idea, would not be a prudent use of private lending. The private lender will secure their loan with your home’s equity, no different from a bank, and if you stop making your payments they may start the process for foreclosure or power of sale.

Is private lending your only hope? If traditional lending institutions and their partners will not provide you with the funds to buy a new home, renew your current mortgage, or start a business, as examples, then perhaps private lending would be a fit for you, unless you have a family member or friend who has the means to lend the funds you need. Whether you are securing a second or third mortgage through a private lender, you still need to meet all your financial obligations, if not, you risk losing your home.

A Reason for Being Optimistic

Securing funds from a private lender may fill a financial gap until you are more credit worthy and have funds or capital to pay out the private lender, funds you may only need in the short term. After a short period of time you can try approaching the traditional lending institutions and banks again, who may be more amenable to loaning you the funds you need or approving a mortgage.

A private lender may help you with the funds you need to fill a temporary financial income gap, start a business, or as an alternative when you are recovering from a bankruptcy or a consumer proposal when your credit is poor and traditional lenders will not loan you the funds you need. These are critical reasons why people use private lenders, if you have the means to make all your payments.

As we have outlined in our white paper ‘Six Factors to Consider Before Contacting a Private Lender’, we do suggest you revisit securing funds from the traditional lending institutions and their lending partners, if you tried one bank, try another, if not them try again with another. Once you have exhausted the traditional lending institutions, your family and friends (‘The Mortgage Stress Test: What It Is and Understanding Your Options?’), then, perhaps you may want to pursue borrowing funds from a private lender.

Nichols Law Professional Corporation (Nichols Law, NLPC) has been helping clients throughout the Greater Toronto – GTA area, York Region and Markham, with their real estate, estate planning and business legal needs and issues for over 30 years.