October 7, 2026

Construction Financing in Ontario: Loans, Draws and Holdback

Construction financing in Ontario is a loan advanced in stages as the building goes up, not a lump sum on day one. Before the first dollar moves, the lender wants a full development budget, a schedule, a construction contract, your approvals and your equity in place. Once construction starts, money comes out roughly monthly as draws: the contractor invoices, a cost consultant hired by the lender checks the work and the cost to complete, the lender’s lawyer searches title for liens, and the lender advances what has been earned, less the 10% holdback the Construction Act requires. The three main routes are a conventional bank or credit union loan, private or mezzanine money, and CMHC programs for rental housing.

This guide is written from the borrower’s side: what the lender will ask for, what its cost consultant does on your site every month, and how the Construction Act’s payment and holdback rules sit inside each draw. Rates change weekly and depend on the deal, so we don’t quote them. This is general guidance, not financial or legal advice; your lender, your lawyer and your accountant set the terms for your project. Every program detail and section of the Act below was checked on October 6, 2026.

The kinds of construction financing in Ontario

There are four broad sources, and many projects use more than one. A common structure is a senior construction loan from a bank or CMHC-backed lender, the owner’s equity underneath it, and sometimes a mezzanine or private loan to fill a gap between the two.

Conventional bank and credit union loans

A conventional construction loan is the default for condominium projects with pre-sales, for commercial and industrial buildings, and for rental projects that don’t use CMHC. The lender sets how much of the cost it will fund, how much equity it expects from you, the pre-sale or pre-leasing threshold before the first advance, and the guarantees it wants. Each is negotiated deal by deal, and a first-time developer should expect to put in more equity and give more guarantees than a borrower with ten finished buildings.

Private and mezzanine money

Private lenders fund what banks won’t, or fund it faster: land loans, servicing, projects without enough pre-sales yet, or a gap between the senior loan and your equity. Mezzanine debt sits behind the senior lender and usually needs its consent. It costs more because it carries more risk. It works best as a bridge to a cheaper loan; as a permanent fix for a budget that never closed, its interest becomes one more soft cost the pro forma has to carry.

CMHC’s Apartment Construction Loan Program

The Apartment Construction Loan Program (ACLP) is a direct loan from CMHC for new rental housing. For standard rental projects, CMHC’s program page says it’s open to “for-profit developers, non-profit developers and other levels of government”, for projects of at least five rental units and loans of at least $1 million (CMHC, ACLP Standard Rental Housing). The headline terms on that page:

• up to 100% loan to cost on the residential space and up to 75% on non-residential space,
• a fixed interest rate locked in at the first advance,
• interest during construction financed by the loan itself; from the occupancy permit to 12 consecutive months of stabilized income you pay interest; after that, principal and interest,
• up to a 50-year amortization,
• an affordability commitment (for example, at least 20% of units at rents at or below 30% of median total income), and the ability to carry the project without ongoing subsidy and meet the debt coverage requirement.

The process is long and staged: conditional approval within 30 days of a complete submission, up to 90 days to submit underwriting documents, up to 60 days for CMHC to complete underwriting, and a loan agreement within 40 days of a signed term sheet. CMHC describes the program as prioritizing the strongest projects, so a complete, well-supported application matters. That page was last updated by CMHC in November 2024; check it again before you apply.

CMHC-insured financing and MLI Select

The other CMHC route is mortgage loan insurance on a loan from an approved lender. The insurance is what lets the lender advance more, at better pricing, than it would on its own. On CMHC’s standard rental product, loans can be advanced up to 85% of lending value during construction (CMHC, Mortgage Loan Insurance for Standard Rental Housing). An older CMHC reference guide for that product (2017) adds the construction conditions: construction costs are reviewed and recommended by a quantity surveyor, the work is built under a fixed price contract or a construction management arrangement, CMHC approves the first and last advances, and advances above 75% depend on the building achieving its projected rents (CMHC, Reference Guide: Mortgage Loan Insurance for Standard Rental Housing, 2017). The same guide asks for borrower net worth of at least 25% of the loan (minimum $100,000) and a guarantee of 100% of the amount owing until rents have been stable for 12 consecutive months, which runs past the end of construction; the current product page still sets that 100% guarantee.

MLI Select is CMHC’s points-based version. Projects of five or more units earn points for affordability, energy efficiency and accessibility; at least 50 points unlocks the benefits, including up to 95% loan to cost for new construction. More points earn a longer amortization: up to 40 years at 50 points, 45 at 70 and 50 at 100. The minimum debt coverage ratio is 1.10 for standard rental (CMHC, MLI Select, updated September 2026). The points have to be designed in, so the decision belongs at concept design.

What a construction lender asks for before funding

Everything on this list exists to show the lender that the building can be finished for the money available, on a known timeline, and will be worth more than the loan when it’s done.

1. A full development budget. Land, hard costs, soft costs, contingency and financing costs, with HST treated correctly. Soft costs are often where first budgets come up short: consultant fees, permits, development charges, legal, insurance, and the interest on the loan itself. We’ve written about why the first budget is the one that matters most. Our guide to hard costs vs soft costs in Ontario sets out each soft cost line.
2. A construction cost estimate the lender’s consultant can test. Measured from the current drawings, with written assumptions and exclusions. If you’re not sure how to read the one you’ve been given, our guide to reading a construction estimate walks through it.
3. A schedule. Approvals, permit, procurement, construction and lease-up, because the schedule decides how much interest the loan carries. A lender’s consultant will compare it to the contract and to what’s physically achievable on the site.
4. A pro forma and an appraisal. Revenue, operating costs and value, usually supported by an appraisal the lender orders. For rental, the debt coverage ratio is the number that sizes the loan.
5. Approvals and permits. Zoning in place, site plan approval if the project needs it, and a building permit or a clear path to one. Most lenders won’t advance construction money against an unapproved project; land and pre-development loans are a different product.
6. The construction contract. The form (stipulated price, construction management, design-build), the price, the schedule, the bonding and insurance. CMHC asks for a fixed price contract or a construction management arrangement. The contract’s payment terms have to line up with the loan’s draw terms, which we come back to below.
7. Equity, and where it comes from. How much, when it goes in, and proof that it exists.
8. Pre-sales or pre-leasing, where the lender requires them. Condominium lenders typically set a pre-sale threshold before the first advance.
9. The borrower and the team. Corporate structure, financial statements, net worth, guarantees, and the experience of the developer, the architect, the contractor and the project manager.
10. Site due diligence. Survey, title, environmental reports and the geotechnical investigation.
11. Insurance. Builder’s risk (course of construction) and liability policies naming the lender.

Equity usually goes in first

On most conventional construction loans, the borrower’s equity is spent before the lender advances anything. The land often counts toward it at an agreed value, and pre-development spending on design and approvals usually does too. Once the equity is in, the lender funds the rest of the approved budget as the work is done. The ACLP at up to 100% of residential cost is the notable exception, which is part of why it’s competitive.

If the equity is short when construction starts, the first draw is delayed and the contractor’s first invoice can arrive before the lender is ready to fund it.

The lender’s cost consultant and what the reports say

Almost every construction lender hires an independent cost consultant to work for it, and CMHC requires construction costs to be reviewed by a quantity surveyor. You’ll hear them called the lender’s monitor, project monitor, lender’s quantity surveyor or simply “the QS”. The borrower usually pays the fee, but the consultant reports to the lender.

The initial report

Before the first advance, the monitor reviews the whole package and writes an initial (or “pre-construction”) report for the lender. It typically covers:

• whether the hard-cost budget is reasonable for the design, the site and the market, measured against the monitor’s own cost data,
• whether the soft-cost budget is complete, and whether contingency is adequate for the stage of design,
• the construction contract, the procurement status (how much of the work is actually bought) and any gaps between the contract and the budget,
• the schedule and whether it’s achievable,
• permits and approvals in place, and the conditions still outstanding,
• insurance, bonding, and the team’s experience,
• whether the loan plus equity is enough to finish the project. Lenders often call this the loan being in balance.

A gap the monitor finds doesn’t kill the loan. It usually means more equity, more contingency, or a change to the design or procurement before closing. Finding it in your own budget review first is cheaper and keeps the lender’s confidence.

The monthly cost-to-complete report

Every month (or every draw), the monitor visits the site, reviews the contractor’s progress claim and the soft-cost invoices, and reports to the lender on:

• work in place: what has actually been built, compared with what is being claimed,
• cost to complete: the budget still needed to finish, including approved and pending changes,
• contingency remaining, and how fast it’s being used,
• schedule: progress against the plan and any risk to the completion date,
• the recommended advance, after holdback and any amount the monitor doesn’t yet accept.

The cost-to-complete figure is the one that matters most. If the cost to complete plus the amount already spent exceeds the budget the loan was sized on, the loan is out of balance, and the lender will want the shortfall covered before it advances again.

The monitor isn’t your owner’s rep

The monitor reviews and reports to the lender. It doesn’t run the project, manage the contractor, or make decisions on your behalf. An owner’s representative or development manager works for you, takes part in the decisions as they’re made, and produces the budget, schedule and reporting the monitor then reviews. We set out the difference in what an owner’s representative actually does.

How a construction loan draw works, step by step

Your loan agreement sets the exact sequence, but most Ontario construction loans follow this pattern each month.

1. The contractor issues its monthly invoice. Under the Construction Act, proper invoices are given monthly unless the contract says otherwise, and a contract can’t make the giving of an invoice conditional on the consultant’s certification or the owner’s prior approval (Construction Act, s. 6.3). Certification can still happen after the invoice arrives.
2. The owner’s side checks it within seven days. If an invoice is missing information the Act requires, it’s deemed a proper invoice unless the owner tells the contractor in writing, within seven days, what’s missing (s. 6.1(2), in force January 1, 2026).
3. The payment certifier reviews it. On a CCDC contract, that’s usually the architect or engineer, who certifies the amount payable.
4. The owner assembles the draw request. The certified progress claim, soft-cost invoices, an updated budget and cost report, a statutory declaration from the contractor that its trades have been paid from the last advance, and the holdback calculation.
5. The lender’s monitor visits and reports. It checks work in place, reviews the cost to complete and recommends an advance.
6. The lender’s lawyer subsearches title. A search of the property’s title confirms no claim for lien or other charge has been registered since the last advance. A lien on title usually stops the advance until it’s dealt with.
7. Disputes are noticed within 14 days. If the owner disputes any part of the invoice, it must give a notice of non-payment in the prescribed form within 14 days of receiving the invoice, with the reasons (s. 6.4(2)).
8. The lender advances. Funds go to the borrower’s construction account, or directly to the contractor and consultants if the loan agreement says so.
9. The owner pays within 28 days of the invoice. The undisputed amount, less the 10% holdback, is due no later than 28 days after the owner received the proper invoice (s. 6.4(1)). The contractor then has seven days to pay its subcontractors (s. 6.5(1)).

Fitting the draw cycle inside the 28 days

The Construction Act’s 28 days runs from when you receive the invoice, not from when the lender funds. If the lender’s draw cycle (monitor visit, report, title search, approval, wire) takes longer than about three weeks, the owner owes money it hasn’t received yet. It’s a frequent source of friction between a loan and a contract, and it’s avoidable.

Three things make the dates line up. Agree the invoice date with the contractor (often the last day of the month) and book the monitor’s visit for the first week of the next month. Settle the format of the draw package with the lender and the monitor before the first draw, so the second and third don’t stall on paperwork. And keep a small working balance of equity available, if the loan agreement allows, so a slow advance doesn’t become a late payment.

Holdback, liens and prompt payment in a draw

The Construction Act shapes every construction loan in Ontario, because lien claims can rank ahead of the lender’s mortgage. Our guide to the CCDC 2 contract covers the payment and holdback rules in detail from the contract side. Here is how they look from the lender’s side.

The 10% holdback, and why your lender watches it

Every payer under a contract retains a holdback of 10% of the price of the services and materials as they’re supplied (s. 22(1)). The holdback protects subcontractors and suppliers with lien rights. It also limits the owner’s own exposure: where the contractor is the one who failed to pay, the owner’s personal liability to lien claimants generally doesn’t exceed the holdback it was required to keep (s. 23).

The lender’s interest is direct. Where a mortgage is taken to finance an improvement, liens have priority over that mortgage to the extent of any deficiency in the holdbacks the owner was required to retain, whenever the mortgage was registered (s. 78(2)). In plain terms, if the owner paid out holdback it should have kept, the lien claimants can rank ahead of the bank for that amount. That’s why lenders advance net of holdback, and why most of them want to see the holdback calculation in every draw.

The Act also treats construction loan money as trust funds. Amounts the owner receives to finance the improvement form a trust for the benefit of the contractor, subject to paying for the land and prior charges (s. 7(1)). Loan advances are meant to pay for the construction, and the owner should keep them traceable.

Annual holdback release since January 2026

Before 2026, holdback was usually released once, at the end of the job. Since January 1, 2026, the Act requires an annual release: within 14 days after each anniversary of the contract date, the owner publishes a notice of annual release of holdback, then pays the year’s accrued holdback between 60 and 74 days after the notice, unless a lien has been preserved (s. 26(2) to (4)). For contracts entered into before that date, the first mandatory release falls on the second contract anniversary after it, and includes all holdback accrued up to then (s. 87.4).

For financing, this matters because the holdback release is a large cash payment the loan has to fund. On a two- or three-year build, it should appear as its own line in the draw schedule and in the cash flow, and the loan agreement should allow an advance for it. Ask your lender and its monitor how they’ll handle it before construction starts, not in month eleven.

Liens and the last advance

A contractor’s lien for work up to substantial performance expires 60 days after the certificate of substantial performance is published, or after the contract is completed, abandoned or terminated if that’s earlier, unless the lien is preserved (s. 31(2)). Lenders usually hold the final holdback advance until that period has passed and a title search shows no liens. A lien that is registered on title, even one that’s later shown to be unfounded, can stop advances until it’s discharged or bonded off, so dealing with a dispute quickly is in everyone’s interest. Our owner’s guide to construction liens and holdback covers what to do when one is registered.

When the budget moves

Every construction budget moves. Design develops, prices change, the ground holds something the borings missed, and the owner asks for something new. What matters to the lender is whether the project is still in balance: whether the loan plus the equity still covers the full cost to complete.

When the monitor’s cost-to-complete shows a shortfall, there are three usual ways to close it, roughly in this order:

1. Use the contingency. That’s what it’s for. A lender will look at how much is left against how much of the work is still unbought and unbuilt. Our guide to how much contingency is enough sets out how to size it by stage and how to track it as it’s spent.
2. Fund the overrun with more equity. Many loan agreements require the borrower to put in the shortfall before the next advance, and many lenders ask for a cost overrun guarantee from the borrower or its principals at closing.
3. Change the project or the loan. Rework the scope, re-procure part of the work, or renegotiate the loan amount. Each takes time, and time on a construction loan costs interest.

Schedule moves the same way. A later finish means more months of interest, more months of general conditions on the contract, and a later start to the rent or sale proceeds that repay the loan. We’ve written about what developers get wrong about schedules.

Report the movement early and plainly. A lender that hears about a cost pressure in the month it appears, with a plan attached, has more room to work with you than one that learns of it from its own monitor three months later.

Where an owner’s rep or development manager fits

Most of what a lender asks for has to be produced by someone on the owner’s side. A developer with an in-house team does it; an owner without one usually brings in a development manager or owner’s representative. In practice that includes:

• building the budget and schedule that go into the loan application, and testing them before the lender’s consultant does,
• running procurement so the contract the lender sees matches the budget,
• setting up the draw cycle so the dates fit inside the Act’s 28 days,
• assembling each draw package and tracking holdback, changes and contingency month to month.

What a rep doesn’t do is replace your lawyer on the loan agreement, your lender’s monitor, or your accountant on HST and tax treatment. Our team’s experience was built over 20+ years at PCL Constructors and Oxford Properties, across more than $3B of projects, on the owner and contractor side of exactly this process. If you’re preparing a loan application or a first draw, our development management page sets out how we help.

Frequently asked questions

Is it hard to get a construction loan in Ontario?

It depends on the project and the borrower more than on the lender. Lenders look for approvals in place, a budget their cost consultant can support, enough equity, a credible contractor and team, and, for condos, enough pre-sales. A thin budget or missing approvals will struggle with any lender, and may only find private money at a higher cost.

What does a construction lender’s quantity surveyor do?

The lender’s quantity surveyor (or cost consultant, or project monitor) works for the lender. Before closing, it reviews the budget, contract, schedule and approvals and reports whether the loan and equity are enough to finish. During construction, it visits the site each month, checks the work in place against the contractor’s claim, updates the cost to complete and recommends how much the lender should advance.

How much equity do I need for a construction loan?

There’s no single figure. It depends on the lender, the project type, the market and your track record, and it changes with conditions. Conventional lenders usually expect equity to go in before the first advance. CMHC’s Apartment Construction Loan Program can lend up to 100% of residential cost for eligible rental projects, and MLI Select up to 95% of cost on new construction with at least 50 points, both with conditions.

Where to start

Assemble the lender’s checklist before you approach a lender, not after. If the budget, schedule, contract and approvals are in order when the application goes in, the lender’s consultant confirms them rather than rebuilding them, and the first draw arrives on time. If you’d like an experienced hand to put that package together, or to sit beside you through the draws, you can talk to us about development management.