Equifax Canada data shows newer firms have ramped up their borrowing
Canadian businesses are falling into two distinct camps when it comes to debt management, with newer firms borrowing more while more established ones reduce their debt burden.
A new report from Equifax Canada reveals a 15% year-over-year rise in business debt balances in the third quarter of 2024, taking the total to $35 billion. But this increase was driven by those businesses that were founded in the past 24 months which loaded up debt by a quarter compared to the same period of 2023.
Meanwhile, established businesses cut their debt balances by a collective 8% year-over-year with the average business for this cohort owing $25,366.
The report says this shows how older businesses are able to adopt a more cautious approach to their finances whereas those in their startup years are facing higher operational costs.
“While these businesses are contributing to the economy’s overall momentum, rising delinquencies among debt-burdened enterprises remind us that financial recovery is not evenly distributed,” commented Jeff Brown, head of Commercial Solutions at Equifax Canada.
Business conditions have improved overall with Equifax Canada’s Business Health Index gaining 1.5% in the third quarter, but business delinquencies gained more than 3% for financial and almost 6% for industrial trades. This was largely due to installment loans which have been increasing sharply in 2024.
But on the plus side, insolvencies were down almost 15% quarter-over-quarter with 1,312 businesses filing during the quarter and early stage delinquencies (30 days) are showing signs of stabilization.
Retail businesses are under pressure though as they move through the key holiday season with challenges including the GST/HST holiday due to be implemented in just over a week, and discretionary consumer spending constrained by the cost of living.
“This holiday season presents both opportunities and challenges for Canadian businesses, noted Brown. “While improving sentiment and easing financial pressures offer hope, rising delinquencies and an uneven recovery are a reminder of the resilience required for Canadian businesses to succeed in this environment.”
