Private Credit Northbound: Key Legal and Structural Considerations for U.S. Lenders Lending Into Canada

It is no secret that private credit has not achieved the same level of market penetration in Canada as it has in the United States and Europe. Nevertheless, local bank dominance is not absolute, and there remain opportunities for innovative and competitive foreign participants. For private credit lenders looking to deploy capital in Canada, several legal considerations are worth keeping in mind. This bulletin addresses common considerations that arise in the early stages of a Canadian credit.

Regulatory

Licensing Requirements

Commercial lending is generally unregulated in Canada, and there is no federal licensing regime for non-bank lenders (whether consumer or commercial, domestic or cross-border). While several provinces in Canada have consumer lender licensing regimes, only the province of Saskatchewan extends lender licensing to commercial lending. Consequently, non-bank lenders can offer loans to business customers located (e.g., headquartered) in all provinces other than Saskatchewan, including on a cross-border basis, without requiring any lender licensing. There are no disclosure or market conduct requirements applicable to commercial lending beyond application of the criminal rate of interest, and there are no restrictions on offering loans in any particular currency.

Some provinces impose licensing requirements on lenders taking mortgage collateral, including in cross-border commercial contexts. Approaches vary by province. In Ontario, appointing a locally licensed collateral agent to hold mortgage collateral on behalf of a lender can address licensing requirements. In British Columbia, lenders often rely on low-volume activity (fewer than 10 mortgages) or on the position that the licensing requirement does not apply to cross-border lenders. Parties should confirm current local practice and regulatory interpretation in the relevant province.

Cross-Border Funding and Servicing; AML Laws

Under Canadian law, loans need not be funded from, or repaid to, a Canadian bank account and can be offered, funded and serviced entirely on a cross-border basis. As of April 1, 2025, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) applies to entities engaging in the business of financing any of the following types of property (other than real property):

1. Any property for business purposes
2. Passenger vehicles in Canada
3. Any other property that is valued at C$100,000 or more

The statute’s application to non-Canadian entities conducting cross-border financing and the scope of “property” remain unclear (other than carving out “real property”). To date, the regulator, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), has not published any interpretive guidance addressing these items, so financing entities should seek legal advice to assess the PCMLTFA’s application to their activities.

Security

Decentralized Framework

Canada does not have a federal equivalent to the UCC (Uniform Commercial Code). Each province and territory (except Quebec) has its own Personal Property Security Act (PPSA). While the PPSAs are largely harmonized, differences remain in perfection, search and enforcement requirements, and province-specific filings may be required.

In Quebec, secured transactions are governed instead by the Civil Code of Québec (CCQ), which uses hypothecs rather than security interests. Other than hypothecs with delivery (i.e., a pledge), hypothecs must stipulate a maximum secured amount in Canadian dollars, provide a collateral description of the property being hypothecated and, in certain circumstances, must be in notarial form and executed before a Quebec notary.

Registration

Security interests and hypothecs are perfected by electronic registration in the relevant provincial registry. Most PPSA provinces and Quebec require a collateral description, though Ontario uses a “check-the-box” system. Priority is generally determined by the time of registration or, as it relates to securities, the time that control is obtained.

Conflict-of-Law Rules

Conflict-of-law rules differ in a notable way from the UCC. For tangibles under the PPSAs and the CCQ, perfection follows the law of the collateral’s location. For intangibles, perfection is governed by the law of the debtor’s location or, in Quebec, the debtor’s domicile. Historically, “location” for intangibles and mobile goods meant the chief executive office, but Ontario, British Columbia, Saskatchewan and Alberta now align with the UCC by deeming a corporate debtor located in its jurisdiction of incorporation — simplifying filings while leaving other provinces using the older test.

Special Collateral

Certain classes of collateral — such as vehicles, rolling stock, ships, aircraft and intellectual property — are subject to additional registration or perfection rules. In PPSA jurisdictions, security over a bank account can be perfected by registration and without a deposit account control agreement. In Quebec, perfection against a bank account is achieved by registration or by control, with control taking priority.

Real Property Security

Real property security is also governed provincially. Charges or mortgages are registered in the applicable provincial land-titles system. Foreign lenders may need an extra-provincial registration to hold real property security, though many appoint a local trust company instead. Title insurance has largely replaced traditional solicitors’ opinions for efficiency and fraud protection. In Quebec, real property security is taken by way of a hypothec over immovables, which must be executed before a Quebec notary and registered in the Quebec land registry (Registre foncier du Québec).

Insolvency

The Companies’ Creditors Arrangement Act (CCAA), Canada’s primary restructuring statute for large insolvent corporations, provides core relief similar to Chapter 11 of the U.S. Bankruptcy Code, including:

• Comprehensive stays of proceedings in favour of the debtor
• Debtor-in-possession (DIP) financing and related priority charges (liens)
• Goingconcern and liquidation sales
• Creditor- and court-approved restructuring plans
• Recognition of foreign insolvency proceedings and orders

CCAA proceedings are often shorter and less costly than Chapter 11 proceedings, and there is no statutory requirement for an unsecured creditors’ committee. Instead, a court-appointed monitor — a licensed insolvency professional — oversees the proceedings, assists the debtor, and provides independent reports and recommendations to the court.

Secured creditors also have an effective realization tool in Canada: receiverships. A receiver — again, a licensed insolvency professional — may be appointed privately by a secured creditor pursuant to the terms of a security agreement or by court order. Court-appointed receiverships are typically used in larger mandates. At the request of a lender whose security has become enforceable, the court can authorize a receiver to take control of a debtor’s business and realize on its assets through a going-concern or liquidation sale.

Tax

Interest paid by Canadian debtors to arm’s length creditors is generally not subject to Canadian federal withholding tax. There are no applicable provincial or territorial withholding taxes on interest payments.

Canadian withholding taxes can apply where interest payments are “participating” (i.e., the amount of interest paid depends all or in part on the success or performance of the debtor’s business), where the creditor does not deal at arm’s length with the debtor or where the creditor is a specified person (referred to as a specified shareholder, specified beneficiary or specified entity, as applicable) in respect of the debtor. Generally, being a specified person for such purposes requires the creditor to own or have rights to acquire (together with related parties) a 25% equity interest in the debtor.

Commercially, the approach to Canadian withholding taxes is well settled and follows the approach taken in U.S.-style credit agreements. The debtor is generally liable to “gross-up” amounts paid on account of Canadian withholding taxes, subject to customary exclusions where the debtor or creditor does not deal at arm’s length or where the creditor is a type of specified person in respect of the borrower.

In conclusion, Canada is a stable and sophisticated jurisdiction that is generally open for business to foreign lenders. While there are inevitable nuances relative to the United States or Europe, private credit lenders will find the legal environment in Canada to be familiar and welcome.

For more information, please contact the authors or any other member of our Direct Lending & Private Credit group.