Canadian businesses are in a fragile yet transitional phase in the early months of 2025. The Bank of Canada’s interest rate hikes, which peaked at 5.0% in 2024—the highest since 2008—further strained these balance sheets. Now, with the overnight rate at 2.75%, lending conditions are more favorable, creating new possibilities for companies seeking refinancing, restructuring, or growth capital.
Despite this rate relief, many businesses remain under pressure. A recent year-end survey by Statistics Canada found that nearly 67% of Canadian businesses said interest rates had negatively impacted their operations, while one-third identified the cost of servicing existing debt as a critical operational challenge. Certain sectors, including agriculture and hospitality, are particularly vulnerable, reporting the highest levels of reliance on new debt to maintain operations. These industries, characterized by narrow margins and high capital demands, now face the dual burden of structural inefficiencies and tighter access to credit.
In this environment, alternative lenders have taken on a more prominent role. Third Eye Capital, a Toronto-based private credit firm co-founded by Arif Bhalwani, is among the companies helping to bridge the gap left by traditional financial institutions. These firms step into complex financial situations where conventional lenders tend to pull back, offering customized debt solutions to companies undergoing financial, operational, or strategic transition.
Canada’s six largest banks continue to dominate the commercial lending space, accounting for more than 70% market share. However, their increasingly stringent lending standards have left many companies without access to capital during critical phases of their business cycle. Regulatory capital constraints and risk-aversion have led banks to avoid financing deals that involve operational uncertainty, distressed balance sheets, or industry-specific volatility.
This has created a growing market for private lenders with deep expertise in corporate restructuring and special situations investing. Third Eye Capital has deployed more than $5 billion in capital across industries such as energy, construction, manufacturing, and technology. Bhalwani and his team evaluate opportunities not solely on current financials but on turnaround potential, using a hands-on approach that often includes working directly with management teams to improve performance and unlock value.
Debt servicing firms attempt to meet the needs of companies that need financial partners capable of understanding operational complexity and industry nuance. With a professional background spanning venture capital, distressed assets, and business turnarounds, managers like Bhalwani bring underwriting expertise and active portfolio management to volatile markets.
This kind of strategy and expertise appeals to investors focused on net worth preservation and growth. The willingness to engage in higher-risk lending, balanced by thorough due diligence and structuring, has allowed alternative lending firms to deliver higher potential returns while supporting the stabilization of key sectors within the Canadian economy.
This value proposition is increasingly resonating with high-net-worth and institutional investors seeking alternatives to traditional fixed-income products. As demand for capital rebounds in the wake of lower interest rates, debt servicing firms are well-positioned to benefit from increased deal flow while offering downside protection through strong risk management.
Looking ahead, Canadian businesses will likely continue to experience uneven recovery. Industries facing secular challenges, including hospitality and agriculture, will require restructuring expertise and tailored financing solutions. In this context, lenders like Third Eye Capital, focusing on distressed and transitional businesses, are poised to play a critical role.
For investors, aligning with experienced firms capable of managing these complexities could be a defining strategy in preserving and growing wealth in an uncertain economic cycle.