Businesses are navigating through economic headwinds. Equifax Canada’s Q2 2023 Market Pulse - Business Quarterly Credit Trends Report provides valuable insights into the current landscape, highlighting three key credit trends that are influencing businesses across the country.
Amidst inflationary pressure, businesses are seeking more credit
As inflation rates continue to rise, businesses find
themselves grappling with escalating costs. Whether it's raw
materials, energy, or labour, everything appears to be getting more
expensive. To stay competitive and maintain their operations,
businesses are increasingly turning to credit as a means of
financing these rising costs. Credit card demand remained strong
from the previous quarter, with 62 per cent of all new financial
trade originations being credit cards. Credit card balances
increased by 22.6 per cent annually while the number of accounts
increased by 17.7 per cent. The increase in credit card utilization
is being masked by high new originations. With businesses seeking
more credit, lenders should monitor changes in credit behaviour to
Pandemic savings: offsetting the growing financial stress
Amidst this challenging economic backdrop, it's worth noting that pandemic-related savings played a crucial role in keeping businesses resilient. The savings accrued during lockdowns and restricted operations acted as a financial buoy for many businesses. Nonetheless, Equifax Canada reports that average business debt has surged by 22.3 per cent from a year ago to $44.7K, and industrial trade delinquencies are nearing pre-pandemic levels, which could be a sign of financial challenges ahead.
Rising business expenses may result in increased insolvencies
Businesses will continue to be impacted by high inflation
and high cost of borrowing. One of the most concerning
consequences of this financial stress is the possibility of
business insolvencies. With expenses on the rise and profit
margins shrinking, many businesses, especially smaller ones, are
at risk of going under. The increased demand for credit is, in
part, a response to the need to cover operating expenses and avoid
insolvency. A higher demand for credit is expected from businesses
struggling with debt. As well, businesses impacted by natural
disasters could take a long time to recover in this economy, and
could require government support.
For more valuable insights on the economic impact of the pandemic and global events, watch the full business quarterly trends webinar and panel discussion.
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