Many Canadian businesses are facing an uphill battle, as evidenced by a 41.4% surge in business insolvencies in 2023 when compared to 2022, according to the latest data from Equifax Canada’s Market Pulse Quarterly Business Credit Trends Report, which also revealed a 14.3% uptick in the number of businesses that missed a payment on a credit product in Q4/23 compared with Q4/22.

According to Equifax, one significant contributor to this mounting stress is the repayment of Canada Emergency Business Account (CEBA) loans. With the deadline for CEBA loan repayments now passed, many businesses find themselves navigating the financial strain of monthly payments accompanied by a higher interest rate, a stark contrast to the initial terms of interest-free and no monthly payments. On Jan. 19, CEBA loans converted to a three-year term loan with 5% interest payable per year.

“Canadian businesses are facing a perfect storm of economic pressures,” Jeff Brown, head of commercial solutions for Equifax Canada, said. “The end of the initial grace period for CEBA loans, combined with high input costs, labor expenses, a slowdown in consumer spending and high interest rates, is creating a challenging environment.

“These factors are contributing to a growing trend of business failures. The sharp rise in insolvencies, representing a 30.3% surge since 2019, underscores the financial pressures faced by businesses. There is a need to manage debt and adapt to changing market conditions through strategic financial planning and proactive measures.”

Missed Payments Adding Up

Delinquencies across Canadian business credit accounts continued to rise in Q4/23, with industrial and financial trades experiencing increases in account-level delinquencies. During the quarter, industrial trades experienced an 8.8% increase in 30-plus day account-level delinquencies, reaching 11.2%. Financial trades experienced a 3.1% increase to 3.3%.

Installment loan delinquencies reported a significant surge, with early-stage delinquencies up by 12.5% and late-stage delinquencies up by 16.3% year over year, suggesting that businesses are struggling with monthly loan payments. Revolving credit (cards and line of credit) delinquencies of 30-plus days grew by 1.3% year over year, reaching 3.2% in Q4/23. Real estate, rental, leasing and retail trades also experienced substantial increases in missed payments.

The provinces with the highest financial trade delinquency rates in Q4/23 were Alberta (3%), Ontario (2.9%) and Quebec (2.6%), with Quebec also having experienced the largest uptick year over year from 2.4% to 2.6% in severe (90-plus days) delinquency rate.

Reported outstanding balances from financial trades continued to rise, reaching $31.8 billion in Q4/23 and marking a 7.4% annual increase driven primarily by a 15.3% increase in credit card balance.

Demand for Credit Continues

Despite a slowdown in inflationary pressure, new credit growth remains subdued, with high interest rates and tighter lending criteria constraining lending activities. This is evidenced by a notable decline in new originations for both financial (-24.4%) and industrial trades (-15.3%) compared to the previous year. However, despite reduced lending activity, the demand for credit among businesses remains robust, as reflected in a 5.5% increase in credit inquiries.

“The demand for new credit may point to signs of growth and expansion, as Q4 2023 saw a 21.9% rise in establishment of new businesses when compared to the same time period in 2022,” Brown said. “As always, we will monitor this closely and we will provide insights to help businesses respond to the ever-evolving market conditions.”