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Not Open for Business: How the Economy is Affecting Canadian Small Business Sectors

In our Q2 2022 Market Pulse Small Business webinar, our panelists of experts discussed market factors such as rising inflation, interest rates, and continued supply chain constraints that impact the Canadian small and medium-sized business economic landscape. 


The current economic landscape for small businesses

Overall, businesses are taking on more debt sitting at an average of $37,000, up from last quarter by 4%. Insolvencies are also on the rise and while the delinquency rate is generally doing better than last year, we’re starting to see a rise quarter-over-quarter. This delinquency rate rise signals a struggling post-pandemic recovery period. 

The rise in delinquency rates is present in every key industry as supply shortages and supply chain issues impact construction, manufacturing, transportation services, and retail trade. With interest rates continuing to hike as well, the quarters ahead might prove to be even more stressful for Canadian small businesses to manage.


Areas and sectors to watch for financial distress 

Across the various sectors, construction and manufacturing are being affected by the current economic environment, showing the largest increases in insolvencies. Regionally, Toronto and Montreal are returning to the pre-COVID levels. These are areas to pay particular attention to within small business portfolios. The rise in insolvencies is partially due to the cost of essentials such as food, shelter, and transportation outpacing growth in earnings. This observation is illustrative of the current inflationary period. 

Sinead Gleason, Product Leader for Commercial Solutions at Equifax Canada states that “The summer months tend to be the peak season for new businesses to open their doors. However, that hasn't happened this year to the same degree as in the past. This difference is something to watch out for with increased rate hikes and supply chain issues because growth will not necessarily be coming from net new businesses as we've historically seen. Rather, growth will come from more mature businesses that made it through COVID.” 


Small business lending and growth insights

Equifax is beginning to see a return to the pre-pandemic levels of new lending. The identified growth is coming more from established businesses rather than newer businesses. This trend is reasonable given the context of pre-existing supplier relationships. The new credit is coming from businesses with stronger credit scores while low to medium risk credit scores are accounting for half of all new trades. In Q2 2022, the shift back to pre-pandemic levels for new credit isn't happening for financial or industrial trade originations. This trend suggests that lenders are proceeding with more caution when granting new credit than what has typically been seen. Gleason expresses that “Given the changing economic climate, these insights are unsurprising.”


For more valuable insights on the economic impact of the pandemic, and global events, watch the full small business quarterly trends webinar and panel discussion. 

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We want to help Canadians live their financial best. To learn more about understanding our small business credit and debt trends, please contact your Equifax Account Representative. You can also reach us directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.  

This article is published by Equifax Canada Co.® 2022. All rights reserved. No part of this article may be reproduced, copied or transmitted in any form or by any means, or stored in a retrieval system of any nature, without the prior permission of Equifax Canada Co. This article is for informational purposes only and is not intended to be legal or business advice.