A Comprehensive Guide to Alternative Lending in Canada

Key Takeaways

• Alternative lending in Canada offers fast, flexible financing through non-bank providers, with easier approval than traditional loans.
• Common options include peer-to-peer loans, invoice factoring, microloans, business lines of credit, and private mortgages.
• It’s ideal for startups and small businesses with limited credit history or urgent funding needs.

Small businesses in Canada often struggle to access funding for expenses and expansion, through traditional lenders. Lengthy application processes, strict credit requirements, and excessive red tape can create major obstacles to accessing the capital they need. Fortunately, there’s a better alternative.

Alternative lending is a viable and growing solution in Canada that’s perfect for those who need cash quickly but may have trouble qualifying for a conventional loan or financial product. It could be exactly what you need to reach your company’s financial goals.

Read on as we explore all things alternative lending. We’ll help you understand what alternative lending is, how it works from the inside, and how to choose the right alternative financial product for you.

What Is Alternative Lending in Canada?

What is alternative business funding? In Canada, the term “alternative lending” refers to financing provided to businesses and entrepreneurs through non-bank entities. Private lenders, bad credit lenders, credit unions, and others may offer alternative lending solutions for Canadian individuals and company owners.

Alternative lending in Canada has steadily evolved, gaining significant momentum since the 2008 global financial crisis. From 2007 to 2018, the value of non-bank mortgage loans increased by 924%. We also saw growth in unconventional lending throughout the COVID-19 pandemic. Experts believe that alternative lending will see exponential growth over the next few years, from US $1.72 billion in 2023 to reach US $4.20 billion by 2028.

As time goes on, more investors, business owners, and entrepreneurs are turning to private, non-bank lenders to navigate today’s economic landscape.

But don’t mistake alternative lending for a last resort. It’s a strategic option that businesses should consider just as seriously as traditional financing.

How Alternative Lending Works

Now that we’ve covered what alternative lending is, let’s look at how it works. With alternative lending, funding typically comes from private lending, fintechs, and P2P networks.

To apply for a business loan through an alternative lender, follow these steps:

1. Gather the documents you need for your alternative loan application. Typically, borrowers need to submit government-issued identification, recent bank statements, proof of revenue, and certain financial statements.
2. Fill out the application form online or in person with your chosen lender. Follow any prompts, upload or hand over the necessary documentation, and submit the application form.
3. Wait for a decision from the lender. The timeframe will vary by lender but could range from hours to months.
4. Review the approval letter or email. Scan the document for any fees (late payment fees, origination fees, etc.), the proposed interest rate, and repayment terms and frequency. If you have questions, ask them. Otherwise, sign the agreement paperwork to move forward.
5. Wait for your funds. Once your application is approved, wait for the loan to be funded. On average, it takes a few business days for the funds to be received. Upon receipt, feel free to use the funds as planned and repay the loan as outlined in the agreement.

There are many differences between loans from traditional banks and those from alternative lenders.

• Approval – Non-traditional loan approvals take about 1 to 3 days, while traditional lenders take weeks or even months. Those looking for fast business loans may prefer the alternative route.
• Collateral – Your average bank may require collateral as a prerequisite to loan approval. Many alternative lenders provide flexible business financing through unsecured loans – no collateral needed.
• Credit requirements – An alternative lender will be much more lenient than a conventional lender when it comes to creditworthiness. It’s a lot easier to qualify for alternative funding solutions, even if you have bad credit or little credit history.

Alternative Lending vs Traditional Lending

Alternative vs. traditional lending — which loan type should you focus on? The answer is clear.

• Alternative lending is ideal for startups, small businesses, or entrepreneurs who need cash right away, don’t have the best credit, or are having trouble qualifying for traditional loans.
• Traditional lending is better suited for more mature businesses with strong financials, specifically those that need large amounts of capital at lower interest rates for long-term growth.

Types of Alternative Financing Options Available in Canada

Before moving forward, it’s critical to learn about the most common alternative finance types:

• Peer-to-peer lending – Canadian peer-to-peer lending is when borrowers receive an online business loan directly from an individual investor.
• Merchant cash advance – The borrower will receive a single lump sum of money. To pay it back, they’ll give up a percentage of their future credit sales.
• Invoice factoring – When a business sells off its outstanding invoices to a specialized factoring company for less than their worth. They’ll receive cash right away, rather than wait for customers to pay.
• Asset-based lending – Taking out a loan under an agreement that requires assets to be used as collateral.
• Microloans – Small business loan, typically from a few hundred to a few thousand dollars (under $50,000). Ideal for start-ups, entrepreneurs, and small business funding.
• Online business lines of credit – Revolving credit option where borrowers can use as much money as they’d like (up to a predetermined amount) and only pay interest on the amount used.
• Private mortgage lending – A non-traditional lender provides a mortgage loan that’s secured by residential or commercial real estate.

Who Are Alternative Lenders in Canada?

Have you been asking yourself, “What are alternative lenders?” Canadian alternative lenders come in various forms. First, there are fintech platforms — apps, software, or digital tools that businesses and individuals use to access credit and other financial products. There are also non-bank lenders — any lender that isn’t a traditional bank. Finally, consider P2P marketplaces, which include websites and apps that allow lenders to pool their funds and lend funds directly to borrowers.

So, what makes a lender “alternative”? It’s about who the lender is. If they’re not a traditional bank, then they’re an alternative lender.

These lenders have to abide by applicable industry-specific regulations. Some pertinent regulatory bodies and statutes include:

• Office of the Superintendent of Financial Institutions (OSFI)
• The Office of the Superintendent of Financial Institutions Act
• Financial Consumer Agency of Canada (FCAC)

But it’s critical to know that regulations for alternative institutions are less stringent than those for traditional banks and financial institutions.

When Does Alternative Lending Make Sense?

Wondering if alternative lending might be the right choice for your business? Here are a few common scenarios where non-traditional financing makes perfect sense:

• You need funds for urgent inventory purchases.
• You’re struggling with cash flow due to seasonal sales fluctuations.
• Your company is in its early stages, and you’ve got no credit history.

To learn more about the specific benefits of alternative financing, visit our article: Advantages of Alternative Financing.

How to Evaluate an Alternative Lender

Canadian alternative lending is a billion-dollar industry — and with so many lenders out there, choosing the right one for your business can be overwhelming. To help narrow it down, ask yourself the following questions about any lender you’re considering:

• Are they transparent? Do they use clear, easy-to-understand language with minimal jargon, provide upfront disclosures, and provide consistent communication? Don’t go with a company that pushes you to move quickly or withholds information.
• What are the real costs? Ask about costs straight out. Look for information about interest rates, penalties and late fees, and a forecast of your short- and long-term costs. Also, attempt to get the cost of the loan in dollars. A company that’s forthcoming about costs is one that you can typically trust.
• Can you repay early? Inquire about prepayment penalties and whether you can save on interest by paying a loan off early. Don’t forget to ask if prepayment could negatively affect your credit standing.

After receiving answers to these questions, you can make a solid assessment of any and every lender.

Note: Read any agreements completely and ensure you understand their contents.

The Future of Alternative Lending in Canada

As we move through 2025 and beyond, the alternative lending space is expected to evolve with exciting new trends. The industry’s value continues to grow, and more business owners are turning to non-traditional financing. Tech-driven innovations, like AI underwriting and Open Banking, will make it easier to evaluate borrowers and handle loan transactions. And as alternative lending becomes more mainstream, trust among SMEs is likely to increase as well.

Secure SME Financing in Canada with an Alternative Loan

So, “what is alternative banking or funding?” Alternative lending in Canada is much more than a fallback option for businesses turned around by banks. It’s a valid, pragmatic business financing option. It delivers speed, flexibility, and accessibility for startups and small firms with problematic credit or time-sensitive cash requirements. That said, it’s critical for company owners to make properly informed decisions by understanding loan costs, potential repayment terms, and lender credibility.

Looking for alternative loans in Canada? We encourage you to explore funding options with a responsible, Canadian-based lender like Greenbox Capital.