As part of the loan application process, lenders always check your credit score. That’s nothing new. In 2026, however, the stakes have been raised. With the Canadian economy now in a technical recession (marked by two quarters of consecutive negative annualized GDP growth), and experts trying to avoid referring to it as anything more deep rooted or longer lasting, lender behaviour has always been the first to shift to reflect the economic reality. That means banks and other financial institutions are more cautious and selective when it comes to lending money out, the rules for lending are pivoting, and your credit score is going to play a much bigger role than ever before.
So, What Exactly is a “Technical Recession”?
Simply put, a technical recession is a mathematical thing. It’s triggered when the GDP, or gross domestic product, declined for two quarters running. StatsCan reported that the Canadian GDP contracted by 1% in the fourth quarter of 2025, and by 0.1% on an annualized basis in the first quarter of 2026. While this may seem small, and by all accounts, it is, it still met the threshold for a technical recession. And, regardless of whether it is or seems small, it still triggers a response from lenders across the country, and this most certainly affects how loans are processed.
The Business Development Bank of Canada (BDC) is considered a key financial institution for Canadian entrepreneurs, and their take is that a “technical recession” says little about the severity of the slowdown. It’s not that the Canadian economy is collapsing, rather it is struggling to gain momentum. Couple this with the announcement of a potential recession, and you have a recipe that signals change in the risk landscape. Lenders are all about mitigating risk, and this is a flashing red light of risk and, as a result, they tighten their belts along with lending criteria.
A Recession Means Lending Risk Gets Magnified
The average Canadian Equifax Score has dropped from 762 to 760 as of 2025, showing the rising financial pressure on consumers. A slowing economy correlates to borrower stress. That means missed payments, with the number of people who are 90+ days past due on credit obligations increasing by 9.6% year-over-year. This goes beyond credit cards, as delinquency for auto loans and real estate loans have also gone up. Lenders don’t love defaults. Neither does your credit score, if we’re being honest. And your credit score is the shorthand determination lenders will lean into. It’s how banks, credit unions, and private lenders will gauge your personal risk of becoming a liability rather than a partner in prosperity, and it’s all tied to the math of a slow-moving economy.
The 3 Factors Lenders Evaluate in a Downturn
We’ve covered how your credit score is the main focus for lenders, but it is part of a more holistic view they are taking at present. They also want to know if you are able to weather a worse financial climate, given the macro indicators of that aforementioned technical recession.
The way they do this is they look at the strength of your income and cash flow. If all your money is tied up in investments, for example, and you don’t have money coming in, then you are reliant on cashing out if the margins on your investments get too tight. That’s not ideal. If you have stable income, however, the next payment can be met more easily because that income is liquid until it’s invested. Some lenders are moving borrowers to “B” and “C” credit buckets, requiring higher down payments, shorter loan terms, and stronger collateral to offset the risk of a credit-challenged borrower.
Some alternative lenders are moving away from credit scores as the holy grail, and focusing on that paper trail of real-time revenue and cash flow because credit scores simply indicate a damaged credit history. A history which may have been adversely affected by conditions outside of the borrowers control, such as the pandemic of late. Other than that, the business may show strong returns consistently, and that makes them an ideal candidate for a loan, which the big banks may overlook.
The next factor to consider after credit scores and cash flow is the value and quality of collateral. Glasslake uses a PCA (Property, Credit History and Affordability) mindset to evaluate collateral assets.
We like to say “Property is king” because a strong, well-valued asset gives a lender confidence even when other parts of the application are less than perfect — it’s the anchor the whole deal is built around. The reason “Credit history” is so important is that a credit score alone doesn’t capture context; we’re looking at the pattern behind the number, not just the number itself. And “Affordability” goes beyond just buying power because just because you can close on a property doesn’t mean you are able to do so comfortably, especially in a shifting economy.
Applying this to equipment leasing is the best way to position a borrower for success. They own that forklift that is being used for business, as an example. Because the lender retains ownership of the equipment, they can easily recover the asset if the payments stop. But any asset-based lending works like this, making those loans easier to get. This shift to collateral-heavy lending is why the banks are harder to work with during a recession, technical or otherwise.
The final factor is the borrower’s history. Some of Canada’s bigger lenders now require self-employed Canadians to maintain a credit score of 750 (versus 650 for an employed individual on somebody’s payroll). And they take at least two years of income into consideration, as well as a log of all investments.
Geez Lenders, What Happens if You Don’t Qualify?
An injured credit score definitely alters the options you have from a traditional bank. That’s why alternative lenders like Glasslake are necessary and have become a key part of the demand in the market. Just because money is stricter to lend out, doesn’t mean the number of borrowers goes down. And alternative lenders have higher risk than banks, due to their size, thus the adjusted rates. Specialized lenders can use this size difference to be a lot more flexible, though, and this is a significant advantage, whether in a recession or not. Customized loans are not just taken off a shelf, but tailored to your specific financial needs and profile. Many borrowers actually prefer this setup over what the big banks are allowed to offer.
Small lenders can approve deals for borrowers with past credit issues, and simply move the levers to manage the risk. They may ask for a larger down payment, shorter loan term, or a higher interest rate. But the loan can still go through without miles of red tape, and life can go on. Sure, there may be a down payment required for that commercial loan, and there may be a lease structure over a loan, but that allows the loan to go through using the asset as a security. This is a strategic pivot, and that agility is unique to a small lender vs a big bank.
Private lending used to be viewed as a last resort, but today are seen as a vital part of the landscape in a shifting economy. They provide solutions to self-employed individuals, homeowners in need of a quick refinance, or those facing short-term financial challenges. Of course the cost reflects this flexibility, as do the terms, but with proper financial planning, they fill a gap in the market left wide open by the big banks.
The Credit Score Tally in a Recession
A recession doesn’t mean business and investments just stop. It means they get creative. Banks have a knee-jerk reaction to things like technical recession, which locks out many borrowers.
People who are financially responsible, but don’t fit a perfect mould, are unjustly characterized as non-viable candidates for loans by big banks, even when they carry a solid credit score and strong overall financials. Borrowers should always maintain certain criteria, such as a credit score above 700, stable revenue and a clear business plan if they want to ensure financing, and should factor in that extra scrutiny from lenders is part of the deal. Comprehensive documentation of financials will be requested.
Being ready to offer a higher down payment, securing a co-signer, or proposing that you finance your asset with a strong resale value are all factors which can tip the loan in your favour. And always be upfront with your lender or broker about past credit events! A one-time disruption, like the pandemic or major default for good reason, is viewed very differently than a prolonged pattern of missed payments. Being clear about your financial situation and history is the easiest path to a loan approval, especially from an alternative lender.
Just because we are in a technical recession here in Canada doesn’t mean you can borrow to build out your dreams, it just means you have to do your part to make lending to you easy. And your credit score acts as a critical first step you demonstrate to a lender of your reliability. For more insights on how to prepare your finances and explore your options in this shifting environment, explore the other resources on our site.
TL;DR: Emily’s One-Minute Version
- The average Equifax score has dipped to 760, and delinquencies are up 9.6% year-over-year, prompting more loan scrutiny
- In a downturn, lenders evaluate (1) income/cash flow strength, (2) collateral quality (e.g., equipment leasing is easier because lenders retain ownership), and (3) borrower history
- Non-bank and private lenders offer more flexible, customized loans for borrowers with past credit issues
- Maintain a score above 700, provide thorough financial documentation, offer higher down payments, secure co-signers, and be honest about past credit events
