CEBA loan repayments are one of several factors challenging businesses
Multiple pressures are converging to cause real pain for many of Canada’s businesses, with some finding another layer of negativity too much to handle.
A new report from Equifax Canada published today (March 19) highlights how being unable to meet the deadline for repayment of Canada Emergency Business Loans, triggering interest payments at 5% for a three year period, replacing interest free and no monthly payments.
Not only was there a 41% surge in business insolvencies in 2023 compared to 2022 but the firm’s data reveals a 14% increase in businesses that missed a payment on a credit product in the fourth quarter of 2023 compared to a year earlier.
Industrial trades experienced an increase in 30+ day account-level delinquencies of almost 9% in the fourth quarter of 2023 to surpass 11%. Financial trades saw a 3.1% rise to 3.3%, led by Alberta (3%), Ontario (2.9%), and Quebec (2.6%) with the latter also seeing the largest rise in the 90+ days delinquency rate versus a year earlier.
For installment loans, early stage delinquencies were up more than 12% and late stage rose more than 16% which indicates struggles for businesses in making monthly payments.
There were also increases in missed payments for credit cards and lines of credit and real estate, rental, leasing, and retail trades were all affected by more payments being missed by customers and clients.
Reported outstanding balances from financial trades continued to rise, reaching $31.8 billion in Q4 2023, and marking a 7.4% annual increase driven primarily by a 15.3% increase in credit card balances.
Perfect storm
Jeff Brown, head of commercial solutions for Equifax Canada says that the conversion of the CEBA loans from pandemic lifeline to costly borrowing adds to other pressures that business owners are already grappling with.
"Canadian businesses are facing a perfect storm of economic pressures. The end of the initial grace period for CEBA loans, combined with high input costs, labour expenses, a slowdown in consumer spending and high interest rates, is creating a challenging environment,” he said. “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.”
Brown added that strategic financial planning and proactive measures are required to manage debt and adapt to changing market conditions.
While inflationary pressures are easing, businesses are still seeking credit with a 5.5% rise in inquiries for new credit, but financial (-24.4%) and industrial trades (-15.3%) both saw a decrease in new originations compared with 2022.
“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,” says Brown. “As always, we will monitor this closely and we will provide insights to help businesses respond to the ever-evolving market conditions.”
