Alternative Lending Isn't Just a Stepping Stone Anymore
For years, an alternative lender was where a bruised-credit borrower parked a mortgage on the way back to a big bank. Lenders on an industry panel this month say that story no longer describes most of their clients.
The short version
- Alternative lending was long treated as a temporary stop for bruised-credit borrowers on the way to a big bank. Lenders on an industry panel say that path is now outdated for many clients.
- The average credit score in one alternative lender's own portfolio is 763 — comparable to what a big bank would see — and belongs mostly to entrepreneurs, property investors and high-net-worth clients.
- Banks assess income in specific, standardized ways that don't fit every self-employed or investment-heavy file, which is what pushes otherwise strong borrowers toward an alternative lender in the first place.
- For a borrower who does want to move back to a big bank eventually, lenders say the exit should be planned from the start, one to three years out — not treated as automatic.
The old story about alternative lending
For a long time, the mortgage industry told a simple story about alternative lending: it was a short-term stop for borrowers with damaged credit, and the goal was always to graduate back to a big bank. Lenders speaking at an industry event in Toronto this month said that story has stopped describing most of their clients.
“Historically, alt business was perceived as a short-term solution for clients,” Prakash Bector, interim vice president of sales and distribution at EQ Bank, said during the panel, according to Canadian Mortgage Trends. “In many, many cases now, the alt solution is the prime solution for these clients.”
Joe Cote, chief operating officer at Haventree Bank, told the same panel the definition of an alternative borrower has widened considerably. Haventree's clients now range from people navigating a divorce, CRA debt or bankruptcy to small business owners affected by tariffs, property investors and owners of rental or seasonal homes. “There are millions of Canadians that do not fit the prime big six credit box on a full-time basis,” Cote said.
Who's actually using an alternative lender now
Grant Armstrong, chief growth officer at WealthONE Bank of Canada, said bruised credit is now a much smaller share of the business than it was 15 or 20 years ago. He told the panel the average credit score in WealthONE's own portfolio is 763 — a figure that compares favourably with borrowers at the big banks. Many of those clients are entrepreneurs, investors with multiple properties, or people with significant net worth, and Armstrong attributed their exclusion from a bank's standard criteria partly to how narrowly banks define acceptable income.
“Banks have very, very specific ways of looking at income,” Armstrong said. “That's where the alternative lenders come in.” For a self-employed business owner, Cote said, a lender looks past personal earnings to what the business itself generates — using bank statements or business financials rather than a single line on a T1. The onus is on a broker to understand what a specific business does, where its revenue comes from and what its overhead looks like, since a file built around the client rarely helps if it isn't also built around how the lender actually calculates income.
Choosing the right file, not just the lowest cost
Bector pointed to EQ Bank's pandemic-era five-year fixed offer of 2.59% as an example of why the old assumption doesn't hold. “You know how many clients took us up on the 5-year fixed term?” he said. “Close to zero.” Most clients instead renewed with EQ Bank or moved to a different alternative lender — not because they were stuck, but because the alternative lender remained the better fit for how their income or assets were structured.
For clients who do plan to move to a big bank eventually, Cam DelliPizzi, regional sales director at MCAN Financial, said the exit should be planned from day one, looking one to three years ahead rather than focusing only on getting an initial approval. He noted MCAN runs its own graduation program to help make that transition when it genuinely makes sense for the client.
What this means if a bank has already said no
A declined application at one bank is a statement about that bank's specific criteria, not a verdict on your finances. If your income comes from self-employment, a mix of properties, or funds from overseas or a relative, the standardized formula that produced a decline may simply not have been built to read your file — which is a different problem than not qualifying at all.
- Ask what documentation an alternative lender would actually want to see for your specific situation — often business financials or bank statements rather than a single tax line.
- If cost is the concern, ask what it would take to shift how income or ownership is structured to eventually qualify with a bank — and how long that realistically takes.
- If staying with an alternative lender is the better long-term fit, ask whether that lender pays a broker at renewal, which tends to correlate with clients who stay long-term getting continued attention rather than being treated as a one-time file.
Nearly thirty years in Canadian financial services, based in Waterloo Region and working across Ontario. Most people are handed a product — you deserve a plan.
General information only, based on public reporting of an industry panel discussion. Individual lender criteria vary, and every application remains subject to that lender's own review, income verification and final approval. Nothing here is a guarantee of qualifying with any lender, and everything is illustrative and subject to lender approval and final terms.
Sources: Canadian Mortgage Trends — 'The alt solution is the prime solution': Alternative borrowers increasingly staying put, September 24, 2026