Every borrower asks the same question when the Bank of Canada moves: what does it do to my rate? For a bank line the answer is immediate, because the line is priced off prime, and prime follows the policy rate within days. For private credit the answer is slower and less direct.
Three layers
- The policy rate: set by the Bank of Canada eight times a year, the anchor for everything else
- Bank prime: the big banks’ reference rate, typically a fixed margin above the policy rate
- The risk spread: what a lender adds for collateral quality, loan-to-value, term and the strength of the exit
Why private rates lag
Private lenders fund from committed capital rather than deposits, so their cost of funds does not reset every time the policy rate moves. Rates on new facilities adjust over a quarter or two. Existing facilities are usually fixed for the term, which protects a borrower in a rising cycle and costs them a little in a falling one.
What matters more than the cycle
The spread between a strong file and a weak one is wider than the movement in the policy rate over a year. A clean title, a current appraisal, a credible exit and an owner who answers questions directly will move your rate more than the Bank of Canada will. Spend the effort there.
Have a situation like this? Tell us about the deal and a principal will respond within two business days. Cascade lends to businesses only, in Canadian dollars, and every rate we quote is an annual rate.
