Why Canadian Banks Won't Finance Restaurants (and What Actually Works)

What the Montreal Expo financier actually said

A commercial lender at the April 2026 Montreal Franchise Expo was direct: "We're not writing restaurant deals right now — not the way we used to." Even with the Canada Small Business Financing Program guaranteeing 85% of the loan, he said approval ratios on restaurant files at his bank had dropped sharply over the previous 12 months.

The reason was not a policy change anyone announced publicly. It was the file review process quietly tightening: more scrutiny on lease terms, more scrutiny on the buyer's food-service experience, more scrutiny on the previous owner's tax returns versus the broker's pitch deck. Deals that would have closed two years earlier were being declined now — or approved at smaller amounts that killed the deal.

If you are buying a restaurant in Canada in 2026, do not assume your bank is your first call. For most food-service deals, it should be your last.

Why the Big Six pulled back on restaurants

RBC, TD, Scotiabank, BMO, CIBC, and National Bank underwrite restaurants against one primary number: historical cash flow. In the post-pandemic environment, that cash flow has become harder to trust.

Three issues show up on nearly every restaurant file: — Pandemic-era subsidies (CEWS, CERS, CEBA) that boosted 2020–2022 tax returns but will not repeat. Underwriters now back those out when calculating sustainable cash flow, often dropping the number by 15–25%. — Labour cost inflation compressing margins. Ontario and Quebec minimum wages climbed significantly in 2024–2026, and kitchen staff wages climbed even more. A restaurant that showed 15% EBITDA pre-pandemic now shows 8–10%. — Lease renewals at post-COVID market rents. Landlords reset rent when the lease turns — a deal that works at $22/sq ft does not work at $38/sq ft. The bank models the renewal at current market, not the existing lease.

Individually these are manageable. Stacked on one file, they push the Debt Service Coverage Ratio below 1.25x, and the bank declines.

CSBFP is not a magic wand

The Canada Small Business Financing Program guarantees 85% of eligible loans up to $1.15 million for food-service businesses (broken down as $500K for equipment and leasehold improvements plus up to $650K for real property). Buyers often assume the guarantee forces the bank to approve.

It does not. The lender still bears 15% of the loss on default, and the guarantee requires the lender to have followed "reasonable credit practices" — which means a rigorous internal underwriting process. If the file does not meet the bank's own criteria, the guarantee is irrelevant. The bank says no before CSBFP enters the conversation.

CSBFP is extremely valuable when the bank already wants to do the deal — it improves the terms and reduces the buyer's collateral requirement. It is not a reason to approach banks that have already pulled back from the sector.

BDC: the real first call for restaurant acquisitions

The Business Development Bank of Canada is a federal crown corporation with a mandate to lend where chartered banks will not. For restaurant acquisitions in 2026, that mandate is actively in play.

BDC underwrites food-service deals that meet three tests: 1. The business has at least 3 years of operating history and verifiable tax returns 2. The buyer can contribute at least 25% of the total project cost in equity (cash, not vendor takeback) 3. The buyer has direct food-service management experience — franchisee, GM, or kitchen lead with P&L accountability

BDC loan terms for acquisitions typically run 5–10 years at rates 1–3 points above prime, depending on the deal. They are slower than banks (8–12 weeks to close is common) and more paperwork-intensive, but the approval bar is meaningfully more realistic for restaurants than any of the Big Six in the current climate.

BDC can also combine with CSBFP on the same deal — the CSBFP-guaranteed portion covers equipment and leaseholds, BDC covers working capital and goodwill.

Caisses Desjardins and the Quebec credit union advantage

In Quebec specifically, Caisses Desjardins writes independent restaurant acquisitions that Big Six branches in the same postal code decline. Two reasons:

First, Desjardins branches have more local credit authority. A caisse manager who knows the neighbourhood, knows the commercial landlord, and knows the outgoing owner can approve deals a centralized Big Six underwriting desk would reject on paper.

Second, Desjardins has a stated cooperative mandate to serve small business owners, including immigrant entrepreneurs — a significant share of the restaurant buyer pool at the Montreal Expo. That mandate shows up in how files are underwritten: character and community ties carry real weight, not just the numbers.

Outside Quebec, similar credit unions exist in every province: Meridian and DUCA in Ontario, Vancity and Coast Capital in BC, Servus in Alberta. For restaurant deals under $1.5M, start with a credit union before a chartered bank.

Equipment leasing: the 15–25% you do not need to borrow

A restaurant acquisition can be structured as two separate financings instead of one. The goodwill, real estate, and leasehold improvements go through your acquisition lender (BDC, Desjardins, or bank). The equipment — hood systems, walk-in coolers, ovens, POS, dishwashers — goes through an equipment leasing company.

Equipment leases typically cover 80–100% of the hard asset value, do not require a real estate collateral pledge, and approve in 5–10 business days. Terms run 3–7 years at higher rates than bank debt (7–12% range) but the speed and separate approval pool make them valuable.

The strategic point: for a $600,000 restaurant purchase where equipment represents $150,000 of value, using an equipment lease for the equipment means your acquisition loan is $450,000, not $600,000. That lower acquisition-loan amount is more likely to fit within the bank's DSCR threshold, which can flip a decline into an approval.

Private debt funds and specialty restaurant lenders

A growing set of private lenders in Canada specialize in food-service deals the banks will not touch. Firms like Roynat Capital (a Scotiabank subsidiary but with independent underwriting), Third Eye Capital, and Callidus Capital will fund restaurant acquisitions at higher rates — typically prime plus 4–8 points — with terms of 3–5 years and an explicit refinance plan.

The math only works for buyers who have a clear path to refinancing into bank debt within 24–36 months. You pay the higher rate upfront to get the deal closed, operate the business long enough to establish your own tax returns showing strong DSCR, and then refinance out to a BDC or bank loan at prime + 2.

This is not a first-choice option. It is the option when the deal is time-sensitive (another buyer in the wings), the business itself is strong, and the buyer's credit supports the bridge period.

What to do before you talk to any lender

Three things change every restaurant financing conversation in your favour:

1. Get the lease extended before you apply. A lease with 8+ years remaining (either firm or with a renewal option) removes the single biggest reason lenders decline food-service files. Have the landlord sign a lease extension or a firm renewal option contingent on your acquisition closing.

2. Have the seller re-cast the tax returns. Most small restaurants show lower profit on tax returns than they earned because of legitimate owner add-backs (personal vehicle, family on payroll, one-time expenses). A proper "normalized" income statement prepared by the seller's accountant can add $50,000–$150,000 to the defensible cash flow number.

3. Score the location before you apply. If the location is weak, the cash flow will deteriorate, and the loan will default. No amount of structuring fixes a bad address. ScoreVet scores any commercial address in Canada against the CFA 7-factor framework — daytime population, traffic, competitive set, daypart patterns, cannibalization risk. Do this before you pay a deposit, not after.

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