Private credit in Canada

Private credit—business loans made by non-bank lenders—has expanded rapidly worldwide, but for Canadian businesses, it remains a stable and relatively limited source of funding. Canadian asset managers, however, are actively participating in private credit globally, creating exposures that could matter for financial stability in Canada.

A growing number of businesses around the world are bypassing traditional lenders and turning to loans from non-bank financial institutions, or private credit.

Private credit offers businesses a way to access financing faster and with more flexible terms than they typically could through banks or public debt markets. And it offers investors a way to diversify their holdings while seeking potentially higher returns.

But the growth of private credit has been happening largely outside a regulatory environment, raising concerns about potential effects on financial stability. Borrowers sometimes turn to non-bank lenders when they can’t easily access financing from traditional sources. That can make the loans riskier than usual for the investors involved, particularly where regulatory oversight is lighter.

Information is limited about the market for private credit in Canada and the connections Canadian investors have to the global market. Our analysis helps address this gap. We find that although Canadian businesses are not overly reliant on private credit, domestic asset managers collectively have built a meaningful presence in private credit markets abroad.

Private credit can include a range of activities

Private credit has no commonly accepted definition.

• A narrow definition limits private credit to loans made by lenders other than banks to risky medium-sized businesses.
• A broad definition captures any loan or similar credit product from non-banks to businesses of various sizes.

We use the broad definition to capture different forms of private credit. This includes loans made directly to businesses by large institutional investors and by funds that pool investors’ capital—much like how a mutual fund pools money to buy stocks or bonds.

With this broad definition in mind, let’s look at private credit in Canada, starting with borrowers.

Private credit serves as a limited source of funding for Canadian businesses

In Canada, businesses receive financing primarily through banks and by issuing debt—such as corporate bonds or commercial paper—in public debt markets. Together, these two sources account for about three-quarters of the external funding of non-financial businesses (Chart 1).

The share of loans from non-banks to Canadian businesses has remained broadly stable at about 15% over the past decade, suggesting that private credit has not been displacing traditional sources of funding.

The situation in Canada contrasts with that in the United States. There, private credit is emerging as a viable alternative to bank lending and public debt markets and, in some segments, has become a primary source of financing. This has attracted the attention of investors and financial institutions—including those in Canada.

Canadian investors are active in private credit abroad

Our estimates suggest the combined value of private lending by Canadian investors and lending to private credit funds by Canadian banks was about $500 billion around the beginning of 2026. Most of this lending is taking place in the United States.

Our estimates capture three main groups with exposure to private credit:

• life insurers and pension funds
• investment funds
• banks

Life insurers and pension funds

These two types of entities account for the bulk of Canadian investments in private credit. Their exposures span both domestic and foreign markets.

We estimate that the three largest Canadian life insurers held just over $200 billion in private credit investments in the first quarter of 2026. This accounts for about 22% of their invested assets—a share that has been stable over the past five years. Canada’s large pension funds held an estimated $215 billion in such investments at the end of 2025, or roughly 9% of invested assets.

Pension funds and life insurers have accumulated significant experience managing the risks that come with private credit. Life insurers, for example, have focused primarily on investment-grade private credit, with less than 1% being of higher risk.

Both types of entities are generally well suited to investing in private credit because:

• they mostly lend directly to businesses, which gives them a clearer view of credit risks than they would have by investing through private credit funds
• they have long investment horizons and limited reliance on short-term funding, which means they can hold illiquid assets through periods of stress

Investment funds

Canadian investment funds, which pool capital from investors, are a small but growing group of private credit investors. We estimate that their private credit holdings totalled $54 billion in 2025—up over 60% since 2020 (Chart 2)—with over two-fifths representing loans tied to real estate. Still, these holdings represent only about 1.5% of the total net assets of Canadian stand-alone investment funds, a share that has been roughly stable since 2020.

Our estimate likely understates the total private credit exposure for this group because the Ontario Securities Commission’s Investment Fund Survey captures only some—not all—of the fund-like entities in Canada. Mortgage investment corporations and other private corporations that extend credit to businesses are only partially included.

Banks

Canadian banks typically lend money to asset managers that operate private credit funds, most of which are in the United States. We estimate that these loans amounted to at least $40 billion in the first quarter of 2026 (Chart 3). While this lending has grown over the past five years, it represents only about 1% of Canadian banks’ overall lending.

These loans to asset managers keep banks’ risks low because the loans are typically:

• secured by capital commitments from the fund’s investors, not by the fund’s assets
• repaid before claims from other fund investors, meaning losses would need to be severe and erode investor capital before impacting banks

What this means for Canada

Even if Canadian businesses don’t rely much on private credit, Canadian institutional investors and banks have built a meaningful presence in global private credit markets. These exposures may help diversify portfolios and support returns, but they also create potential channels of contagion. As detailed in the Bank of Canada’s Financial Stability Report—2026, a sharp downturn in the performance of private credit abroad could affect Canadian investors and business lending in the domestic economy.

Assessing these risks is challenging because transparency is limited, leverage can be difficult to measure, and links to the broader financial system are still being mapped. But these challenges are worth taking on so that central banks can gain a clearer view of how private credit may affect financial stability.

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