What does setting up a private lending company in Ontario actually involve? Private lending often starts informally, with one loan to someone you know.
Over time, that activity can grow into something larger and harder to manage. This article explains when informal lending stops working, the building blocks a lending business needs, and why enforcement should be planned from the start.
Key Takeaways
- Private lending often starts informally, but volume and loan size eventually force a shift toward structure.
- Setting up a private lending company in Ontario typically means lending through a corporation, not personally.
- Standardized loan and security documents reduce cost, inconsistency, and gaps that surface at enforcement.
- Security must be taken and registered correctly every time, under the PPSA or as a registered mortgage.
- Licensing, interest rate, and disclosure rules can apply depending on what you lend against and how often.
- Enforcement should be treated as a certainty for some loans, not a remote possibility.
- Building structure early is far cheaper than fixing it after a loan goes wrong.
When Informal Lending Stops Working
Informal lending can work at a small scale. An individual lends to a known borrower, a second deal follows, and the arrangement feels manageable.
Over time, the activity becomes more frequent, the amounts get larger, and the borrowers become less familiar. That is when the risks start to change.
Documentation varies from one deal to the next. Security is taken on some loans but not others. Tax and structuring questions begin to surface.
What worked for one or two loans becomes difficult to manage across ten or twenty. That friction is usually what prompts the move toward setting up a private lending company in Ontario with a real structure behind it.
How to Set Up a Private Lending Company in Ontario
A functioning lending business needs more than capital and willing borrowers. It needs several building blocks working together.
Choosing a Corporate Structure for Private Lending
Most private lending operations are carried out through a corporation. This centralizes lending activity, makes it easier to track, and separates it from your personal affairs.
That separation matters more as loan sizes and volume increase. The right structure depends on how capital will be contributed, how returns will be distributed, and whether other investors will participate.
If multiple people are contributing funds, their rights should be set out in a shareholder agreement from the start. Our overview of business structure in Ontario explains why the documents need to keep pace with how the business actually operates.
Standardized Loan and Security Documents
A lending business needs a standard set of documents. This usually includes a loan agreement, a security agreement, and mortgage documentation where real estate is involved.
Standardization does not remove negotiation. It creates a consistent starting point, so each deal does not become its own drafting exercise.
Without it, costs rise and gaps appear that often stay invisible until you need to enforce. Our guide to commercial loan agreements in Ontario covers the covenants, representations, and default terms these documents should address.
Many private lenders also require personal guarantees from the owners of corporate borrowers. Your standard document set should include a guarantee form that works alongside the loan agreement.
Security and PPSA Registration
Security sits at the centre of any lending business. For loans secured against business assets, this usually means a general security agreement registered under Ontario's Personal Property Security Act.
For loans secured against real estate, it means a properly drafted and registered mortgage.
The goal is not just to take security. It is to take it the same way every time and register it correctly. Your priority over other creditors, and your ability to enforce, both depend on that.
Managing Multiple Loans
As the number of loans grows, you need to track obligations across every borrower at once. This includes payment schedules, maturity dates, renewals, and defaults.
It also includes the status of every security registration and discharge. PPSA registrations have expiry dates, and a lapsed registration can cost you your priority.
Without a system, these details become easy to miss. The risk of a missed step rises with every new loan.
Licensing and Regulatory Requirements
Private lending in Ontario is not unregulated. Which rules apply depends on what you lend against, who you lend to, and how often you lend.
Mortgage lending licences. Lending money on the security of real estate as a business in Ontario generally requires a licence under the Mortgage Brokerages, Lenders and Administrators Act, 2006, unless an exemption applies. This is regulated by the Financial Services Regulatory Authority of Ontario.
The criminal interest rate. The Criminal Code caps the interest rate a lender can charge. The cap was lowered effective January 1, 2025, with separate rules for certain commercial loans. Fees and charges can count toward the rate, so pricing needs careful review.
Interest disclosure rules. The federal Interest Act sets rules on how interest must be expressed. It also limits penalty interest on mortgage arrears.
Anti-money laundering obligations. Since October 2024, mortgage lenders, brokers, and administrators have been subject to federal anti-money laundering requirements administered by FINTRAC.
These rules become more relevant as your lending activity grows beyond a handful of loans. They are much easier to build in at the start than to fix after the fact.
Common Mistakes When Scaling a Private Lending Company in Ontario
A few mistakes come up again and again as lenders move from occasional loans to a structured business.
Reusing Ad Hoc Templates Across Deals
An early loan agreement, drafted for one specific situation, gets copied for later deals. Nobody checks whether the terms still fit.
Treating Security as Optional for Smaller Loans
Smaller loans go out without security or without registration. The amount seems too small to justify the paperwork.
Mixing Personal and Business Lending Funds
Lending capital flows through personal accounts instead of the corporation. This blurs personal and business risk.
Delaying Legal Review Until a Deal Goes Wrong
Structure and documents only get real attention after a borrower defaults. By then, the gaps are already locked in.
Each of these feels manageable at a small scale. Once the number of active loans grows, a minor inconsistency can become a real weakness.
Planning for Loan Enforcement From the Start
Enforcement is often treated as something to think about only if a deal goes wrong. In practice, it should be part of the structure from day one.
A lending business should assume that some loans will eventually need to be enforced. Your documents and processes should be designed with that in mind.
If enforcement rights are unclear or inconsistent across loans, recovery becomes unpredictable. That happens exactly when predictability matters most.
Why Structure Becomes Necessary
The move from informal lending to a structured business is not driven by growth alone. It is driven by risk.
As your exposure increases, so does the cost of inconsistency. Documentation gaps, unclear security, and ad hoc processes rarely cause problems at the start. They become material later, often at the moment a loan needs to be enforced.
A structured approach reduces that risk considerably. It is also far cheaper to build early than to retrofit later.
The Bottom Line on Setting Up a Private Lending Company in Ontario
A private lending company is not defined by how many loans it has made. It is defined by whether those loans are documented, secured, and managed consistently.
Setting up a private lending company in Ontario means building that system before you need it: the right corporate structure, standard documents, correctly registered security, and attention to licensing and interest rate rules.
If you're moving from occasional loans to a structured lending business, our team at Levine Law can help. We can set up the corporate structure and reusable loan and security documents before your next deal.
When to Involve a Lawyer
The best time to involve a lawyer is before your second or third loan. At that stage, building standard documents and the right structure is still straightforward.
A lawyer can help you choose a corporate structure, confirm which licensing and interest rate rules apply, and draft loan and security documents you can use again and again.
Frequently Asked Questions
When should informal lending become a structured business?
Once the number of loans, their size, or the number of borrowers grows to the point where inconsistent documents and security create real risk.
What legal structure is typically used for a private lending company in Ontario?
Most private lending businesses operate through a corporation. This centralizes the activity and separates it from your personal affairs.
Do I need a licence to lend money privately in Ontario?
It depends on what you lend against and how often. Lending on the security of real estate as a business generally requires a mortgage licence in Ontario, unless an exemption applies.
Is there a maximum interest rate for private loans in Canada?
Yes. The Criminal Code sets a criminal interest rate, which was lowered in 2025. Certain commercial loans have separate rules, and fees can count toward the rate.
Why does loan documentation need to be standardized?
Standard documents reduce cost, prevent inconsistency between deals, and avoid gaps that only surface when you need to enforce.
What role does PPSA registration play in private lending?
It establishes your priority and enforceability against a borrower's personal property, provided the registration is done correctly and kept current.
Why should enforcement be considered from the start?
Some loans will eventually need to be enforced. Your documents and processes should support that outcome from the first deal.
When should a lawyer get involved in setting up a lending business?
Ideally before your second or third loan, while standardizing the structure and documents is still straightforward.