Lending In Canada's Defence And Dual-Use Sector: Aligning Risk And Structure

Canadian lenders are increasingly encountering borrowers that operate in the defence or defence-adjacent sector. Many of these businesses are otherwise conventional middle-market credits with established operations, contracted revenue streams and long-term customer relationships. Despite this, transactions frequently slow down or fail for reasons that are not tied to credit fundamentals. The hesitation tends to arise from perceived regulatory complexity, uncertainty around enforcement and sensitivity to reputational considerations.

In practice, the issue is less about heightened risk and more about imprecise characterization. Defence-related exposure in Canada does not present a uniform or inherently elevated risk profile. What it does present is a set of unique regulatory and operational considerations that are often insufficiently understood within traditional lending frameworks.