What is a Lender?

A lender is any institution or individual who loans money to borrowers. Lending institutions include educational, commercial and hard money lenders. The most traditional type of lender is a commercial lender. The commercial lender may be a banking institution or private financial group. This bank or financing firm offers borrowers certain terms including interest rates and loan duration. The goal of lenders is to maximize profit with the borrower taking a big risk in case of default. At times, a loan is brokered with the borrower being evaluated by a third-party who proposes the loan request to different lenders.

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This article will discuss the proliferation of private lenders in Canada, lending regulations in Canada and changes in mortgage lending laws. It will also touch on the issue of laws that regulate the mortgage industry in the country including federal and provincial legislation that are in effect to monitor and control the mortgage industry in Canada.

What are Private Lenders in Canada?

A good number of entrepreneurs try to apply for loans with carrying with them business concepts supported by comprehensive business plans. Most of the time, these applications are rejected. Many of these start-up business owners are able to obtain small business financing from private lenders.
Individuals, who do not want to give up percentage ownership in the business as required by venture capitalists, usually opt for a small business financing alternative from private lenders. When it comes to small business financing, private lenders look for the same information and conduct due diligence just like banks. This serves as basis for their funding decision. Criteria include sound business concepts, effective business plan, that includes contingency scenarios and realistic forecasts, as well as the expertise and experience of the proponents.
Most private lenders are “specialists” who engage in higher risk ventures because they are aware of opportunities and risks associated with selected business types or market segments. Private lenders do not only fund projects that banks reject but restructure loan repayments as well.

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What are the Lending Regulations in Canada?

Lending regulations in Canada provide guidelines for payday lenders. The Canadian government found out that payday lenders have been charging over 60% interest. This is a criminal offence according to the Criminal Code of Canada. Unfortunately, payday lenders are sometimes the only option for Canadians with bad credit.
These regulations have been instituted to eliminate and prevent the concept of loan sharking which is illegal in Canada. Mortgage lending laws were modified in 2010. Borrowers now qualify for a 5-year fixed term rate mortgage. This protects consumers by giving them flexibility and supporting payments at higher interest rates. Another change is the maximum amount whereby you can refinance your property. Refinancing was brought down from 95% to 90% to help homeowners save money. Finally, down payments for purchase of real estate were lowered to 5%. Canadian banks are enforcing new regulations that change the way of handling loans. It seems that today’s market is making it difficult to get a mortgage and/or loan for the working class. This has a big negative impact on Canadians with bad credit.

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What is the Canadian Interest Act?

The Canadian Interest Act defines the concept and principles of lending in Canada and is the primary reason why the so-called five-year term mortgage is not extensively available in the country.
This law states that “Whenever any principal money or interest secured by mortgage on real property or hypothec on immovables is not, under the terms of the mortgage or hypothec payable until a time more than five years after the date of the mortgage or hypothec, then, if at any time after the expiration of the five years, any person liable to pay, or entitled to pay in order to redeem the mortgage, or to extinguish the hypothec, tenders or pays, to the person entitled to receive the money, the amount due for principal money and interest to the time of payment, as calculated under sections 6 to 9, together with three months further interest in lieu of notice, no further interest shall be chargeable, payable or recoverable at any time after the payment on the principal money or interest due under the mortgage.”

Complications of Lending

Lending can be interpreted as a simple act but has been made complicated because of terms, regulations, interest rates, failure to pay loans and other legislation. Perhaps, Canadians should always be careful about their decisions to borrow money and apply for loans unless these will be used for business ventures with good opportunities. This will help them avoid legal issues and financial problems.

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