On January 1, 2025, the highest interest rate a lender can legally charge in Canada dropped from 60% effective annual rate to 35% annual percentage rate. Most Canadian business owners never heard about it. The ones who did usually took away the part that matters least to them, because business borrowing sits under a separate set of limits.
Here is the short version. Under section 347 of the Criminal Code, the general ceiling is now 35% APR. Commercial loans over $10,000 and up to $500,000 are carved out of that number and capped at 48% APR instead, provided the borrower is a corporation and the money is for business use. Commercial loans above $500,000 to a corporate borrower carry no cap at all. Loans of $10,000 or less fall back to the 35% ceiling.
That difference lands hardest on the borrowers with the fewest choices: the ones a bank has already turned down. If you are shopping for business financing outside the big banks, the rate printed at the top of the page is only part of the story. What the law counts as interest is wider than most owners expect, and it should change how you read every offer in front of you.
What the 35% interest rate cap actually covers
Section 347 of the Criminal Code makes it an offence to enter into an agreement to receive interest at a criminal rate. Until the end of 2024, that line sat at 60% effective annual rate. Since January 1, 2025, it sits at 35% annual percentage rate. On paper the change looks modest. It isn't.
Two things moved at once. The number came down, and the measuring stick changed from effective annual rate to APR. EAR accounts for compounding. APR does not. Sixty percent EAR works out to roughly 48% APR, so on a like for like basis the real drop was from about 48% to 35%.
What counts as interest is broader than the rate
This is the part owners miss. What the law counts as interest reaches well past the percentage printed on your term sheet. Fees, commissions, penalties, fines and other charges paid for the advance of credit are all pulled into the calculation. An origination fee, a documentation fee, a broker commission: every one of them counts toward the total.
So a lender quoting a rate below the cap can still land offside once the fees are added back. Comparing two offers on the headline rate alone tells you close to nothing. Ask for the all in annualized cost, in writing, before you compare anything.
Offering the rate is now an offence too
The amendments reached past signed agreements. Advertising or offering credit at a criminal rate is itself an offence, whether or not a borrower ever signs. Enforcement does not have to wait for a completed loan.
For you, that has one practical use. A lender who will not put the total cost of borrowing in writing is telling you something about the deal. Take the hint.
Where business loans sit under the rules
Commercial lending got its own carve out through the Criminal Interest Rate Regulations, published in June 2024 as SOR/2024-114. The reasoning was that business credit carries risk consumer credit does not, and that a hard 35% ceiling would push some businesses out of borrowing altogether. Agree with it or not, this is how the tiers break down.
| Amount advanced | Who the borrower is | Cap that applies |
|---|---|---|
| $10,000 or less | Any borrower, any purpose | 35% APR |
| Over $10,000 up to $500,000 | Corporation, business purpose | 48% APR |
| Over $500,000 | Corporation, business purpose | No cap under these rules |
Two conditions have to hold together for the commercial carve out to apply. The borrower cannot be a natural person, and the money has to be for a business or commercial purpose. Miss either one and the 35% ceiling is back.
The date on your agreement matters
The current rules apply to credit agreements entered into on or after January 1, 2025. Arrangements signed before that date stay under the old 60% EAR test. Signed a high cost advance in 2023 and still paying it down? The old standard is the one attached to it.
Renewals and refinances are where owners get caught out. A new agreement is a new agreement. Restructure the same debt in 2026 and the current rules follow the new paper, which can work for you or against you depending on the size of the facility.
Why the exemption does not protect every business owner
Here is the gap almost nobody explains at the kitchen table. The commercial carve out only applies when the borrower is not a natural person. A sole proprietor is a natural person. So is a partner in an unincorporated partnership. Run a landscaping business in Barrie under your own name, borrow $60,000 for a truck and a mower deck, and the 35% ceiling covers you whether the lender intended that or not.
Incorporate the same business, borrow the same $60,000 through the corporation, and the 48% ceiling applies instead. Same owner, same truck, different legal limit. Honestly, most owners have no idea which side of that line they are standing on the day they sign.
Merchant cash advances sit in their own grey area
Some products are written as a purchase of future receivables rather than a loan. Lawyers do not agree on how far section 347 reaches into an arrangement drafted that way, and the answer turns on the specific facts and the wording of the contract. If you are weighing a merchant cash advance priced with a factor rate, convert that factor rate into an annualized cost before you set it beside a term loan. A 1.35 factor repaid over six months is not the same animal as 35% over a year.
A personal guarantee does not move the cap
Ask this one out loud, because plenty of owners assume the opposite. If I sign personally, does the loan become a consumer loan? No. The test looks at who the borrower is on the agreement and what the money is for. A personal guarantee puts your own assets behind the debt if the business defaults. It does not slide the loan back under the 35% ceiling.
How to read a financing offer before you sign
Rate caps mark the outer edge of what is legal. They say nothing about whether an offer is good. The stretch between 12% and 40% is where most Canadian business owners actually live, and no section of the Criminal Code helps you there. The rest of our borrowing guides work through the same ground from other angles. What helps is asking four questions and refusing to move until all four answers are in writing.
The four question offer check
- What is the total dollar cost? Not the rate. The number of dollars you repay above the amount advanced, with every fee included.
- What is the annualized cost once fees are counted? Origination, documentation, brokerage, administration, all of it, annualized over the real term rather than a full year you may never use.
- What happens if you repay early? Some agreements discount the remaining cost. Others charge the full amount no matter when you clear it.
- What triggers a default and what does it cost? NSF charges and default interest can push a borderline deal well past what you signed up for.
The Financial Consumer Agency of Canada publishes plain language material on cost of borrowing that is worth twenty minutes before any lender meeting. Pricing also tracks the wider cost of money, so check where the Bank of Canada policy rate sits when you are comparing quotes written weeks apart. None of this is legal advice. If a specific agreement worries you, a lawyer who works in commercial lending can read it in an hour and tell you what you are holding.
What a good lender does without being asked
A lender who reads your full file should be able to explain the dollar cost, the term and the repayment structure in a single conversation. If your bank statements show steady deposits and your revenue supports the payment, that story deserves more weight than one number from a credit bureau. That is why our application process puts a Canadian advisor on every file. For the longer version of what a non bank underwriter actually reads, start with why your bank statements matter more than your credit score.
Solid Capital is a Canadian alternative lender built for business owners and homeowners the big banks decline or under serve. We use alternative underwriting, which means reading the whole file, including bank statements, revenue history and business context, rather than stopping at a credit score. If your business is generating revenue and you can show it, there is a real conversation to be had. Talk to a Solid Capital advisor, and there is no impact to your credit to apply.
The cap tells you what is illegal. It does not tell you what is fair. Ask for the total cost in dollars before you sign anything. That is the only number that spends.
Frequently Asked Questions
What is the criminal interest rate in Canada in 2026?
The criminal interest rate under section 347 of the Criminal Code is 35% APR, in effect since January 1, 2025. It replaced the previous limit of 60% effective annual rate, which worked out to roughly 48% APR. Separate limits apply to commercial loans.
Does the 35% cap apply to business loans in Canada?
Not always. If the borrower is a corporation and the money is for a business purpose, loans over $10,000 and up to $500,000 are capped at 48% APR, and loans above $500,000 carry no cap under these rules. Business loans of $10,000 or less stay under the 35% APR limit.
Do fees count toward the interest rate cap?
Yes. Interest is defined broadly enough to take in fees, commissions, penalties, fines and similar charges paid for the advance of credit. A lender quoting a rate below the cap can still exceed it once origination, documentation and brokerage fees are added back.
Does the cap protect a sole proprietor?
It does. The commercial exemption only applies when the borrower is not a natural person, and a sole proprietor is a natural person. Borrowing under your own name rather than through a corporation keeps you under the 35% APR ceiling.
Are merchant cash advances covered by the criminal interest rate?
It depends on how the agreement is drafted. Some advances are written as a purchase of future receivables rather than a loan, and how far section 347 reaches into that structure is not settled. Convert the factor rate into an annualized cost so you can compare it to a term loan.
Does the new rate apply to a loan I signed in 2023?
No. The 35% APR limit applies to credit agreements entered into on or after January 1, 2025. Older agreements remain under the previous 60% effective annual rate test, though a renewal or restructuring signed now creates a new agreement under the current rules.
