Private Lending and
Poor Credit Recovery

Is Private Lending Your Only Source for Funds if you are Recovering from a Poor Credit or Consumer Proposal?

There are many reasons for considering private lending, several of these reasons and topics we have covered in previous blog posts including “Is Private Lending Your Only Hope of Buying a New Home or Keeping the One You Have Now?” and our white paper “Six Factors to Consider Before Contacting a Private Lender”.

A Financial Crisis of Your Own; Bruised or Bad Credit

There may be another reason why you need to borrow funds from a private lender, and that reason is that you are experiencing a serious financial crisis.

Perhaps you were part of a downsizing with your career and only have your spouse’s income to try and make ends meet, and the only source of funds that you have access to is the equity in your home to help you manage this financial crisis and income gap.

Consumer Proposal

To make matters worse, you may have had financial issues with your current lenders and were forced to submit a Consumer Proposal, which has had a dramatic and negative effect on your credit rating and now traditional lenders will not lend to you until your Consumer Proposal obligations are fulfilled, which may be years.

Filling a Financial Gap or Avoiding a Crisis

If you have enough equity in your home to appeal to a private lender, have been responsible with your financial obligations and payments for the most part, and have a steady source of income to meet your financial obligations, a private lender may be the answer.

Is a private lender your only source of funds? It depends on many factors, one of them is ‘timing’. If you have exhausted traditional lenders, such as the banks, and I mean exhausted, have tried all the banks or you don’t have a family member or a friend with the means to help you out of this financial jam, then you may only have a couple options. At this point in time, if traditional lenders won’t lend you funds, and you don’t have other sources for lending, the timing may only offer one alternative, private lending

Out of Options?

One of those options may include the selling of your home, which means you are out of the housing market as a tax friendly investment, and out of your home and the neighborhood you may really like. And, if the market is low, having to sell at below market value. This also means you may have to rent a home instead of trying to buy another, which may be difficult if you can’t get approved for a mortgage. If traditional and private lenders won’t lend to you, this may be your only option.

Private Lending May Be Your Last Hope

If you do have adequate equity in your home, have been mostly responsible with your financial obligations, and even if you had credit issues, have submitted a Consumer Proposal or had a Bankruptcy, a private lender may still lend funds to you, at a cost. Many of these costs have been outlined in our white paper “Six Factors to Consider Before Contacting a Private Lender”.

Private Lending as a Short-Term Solution

Securing funds from a private lender shouldn’t be for the long-term. We have outlined factors in our white paper that make suggestions about private lending as a short-term strategy and suggest that if private lending is a source of funds that you are considering, that you speak with a lawyer to help you with this borrowing alternative.


Even though there are many fees and costs involved with private lending, private lending can be a viable solution, if you take a responsible and proactive approach with this borrowing alternative, are somewhat detail oriented and approach this method as a short-term strategy.

You may want to read NLPC’s ‘Six Factors to Consider Before Contacting a Private Lender’white paper, which provides additional details about private lending and the need to have a lawyer involved at all steps of a private lending arrangement, and especially prior to engaging with private lending.

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.