What is a B lender, and when does it make sense?

In Canada, a B lender, also called an alternative lender, is a regulated lender that accepts borrowers whose income, credit or property doesn't fit a bank's rules. A B lender is often a trust company, and it usually charges a higher rate and sometimes a fee. A B lender makes sense when the institutional options do not work and you have a clear plan to move back. The usual plan is a move to a bank, credit union or monoline lender at a future renewal.

Where B lenders fit

Think of mortgage lenders in three groups:

1. Institutional ("A") lenders: banks, credit unions and monoline lenders (lenders that only do mortgages). Institutional lenders usually cost you less, and their rules are stricter.
2. Alternative ("B") lenders: trust companies and other regulated lenders with more flexible rules on income, credit and property. B lenders charge more for that flexibility.
3. Private lenders: individuals or funds lending their own money, for short-term needs. Private lenders cost more again and suit only a brief bridge.

We always look at the institutional route first.

Who B lenders help

Common situations include:

• Self-employed borrowers whose tax returns show low income after write-offs, or who have less than two years of returns.
• Credit challenges, such as recent late payments, a consumer proposal or a past bankruptcy.
• Recent changes, such as a new job in a new field or income that has just changed.
• Higher debt ratios than a bank would accept, or properties a bank does not like.

What a B lender costs

B lenders usually charge a higher rate than a bank. Many charge a lender fee, and some situations also involve a broker fee. In Ontario, any fee must be disclosed to you in writing before you commit.

B lenders often expect more equity: a larger down payment on a purchase, or a lower loan-to-value (the loan as a share of the home's value) on a refinance. B lenders usually offer shorter terms too.

Federally regulated alternative lenders, such as trust companies regulated by OSFI, generally apply the stress test: the greater of the contract rate plus 2 percentage points, or 5.25%.

When a B lender makes sense

A B lender is a tool, not a destination. A B lender tends to make sense when:

• the institutional options have been checked and do not fit;
• the extra cost is clearly worth it, for example to buy a home now rather than wait, or to replace much higher-cost debt; and
• there is a realistic plan to return to a bank lender, such as filing two full years of returns or rebuilding credit for a term.

A B lender makes less sense if the higher payment would strain you, or there is no clear path back.

What to do next

If a bank has said no, use our call-me-back form and we will look at every option in order. You can also read about self-employed mortgages.