Managing Partner explains why he sees Canadian small businesses struggling, outlines what advisors can do to help
![The case for pre-COVID interest rates](https://cdn-res.keymedia.com/cdn-cgi/image/f=auto/https://cdn-res.keymedia.com/cms/images/ca/155/kall_638587213451189731.jpg)
Daryl Ching wants the Bank of Canada’s policy interest rate back below two per cent. Ching is the managing partner at Vistance Capital Advisory, working directly with small business owner clients to manage the risks, opportunities, and challenges of business ownership. In his role as an advocate for small businesses, he argues that the current cost of debt has eroded small business owners’ capacity to raise capital, which could have dire consequences for the economy.
Ching outlined why he thinks rates need to be cut far deeper than the Bank of Canada appears to be planning to. He explained how small business owners are currently coping with the high cost of debt, and what those strategies have meant for their business. While he acknowledges some of the wider considerations going into the BoC’s policy rate, Ching’s broad point is that more needs to be done for small business owners in this environment.
“Before the COVID-19 pandemic, companies were borrowing money at six to seven per cent interest rates, which is a fairly reasonable rate for a business. We then saw an increase of three and a quarter per cent over a very short timeframe and as a result companies are borrowing at nine and a half to ten and a half per cent,” Ching says. “This obviously adds a lot of strain for businesses on a prime rate. They’ve seen these increases as unsustainable and have had to look for other ways to reduce their debt.”
Those strategies have included cost-cutting measures like reducing headcount, asking for more upfront from clients, or even scaling back or shutting down operations. They also include equity raises. With debt now prohibitively expensive for some business owners, they’re opting to sell equity. That could have significant negative consequences long-term, however, as equity owners may want to exit within five years and expect turbocharged growth in the meantime.
Giving up equity ownership also means giving up control. Small business owners have gone from independence and autonomy, to quarterly expense and growth reports. Business owners who had once planned to grow slow and steady are now forced to completely change their models.
These rate increases are the third “whammy” to hit small businesses in recent years. Ching notes that the closure of the Canadian Digital Adoption Program (CDAP) and the required repayment of CEBA loans earlier this year forced small business owners into a tough position. He thinks that a return to pre-COVID interest rates can help these business owners get back on their feet.
Ching admits that his role is as a small business advocate. He accepts, too, that other macroeconomic forces are at work, namely inflation. The significant interest rate increases we saw in 2022 and 2023 were largely an effort to curtail skyrocketing inflation. If pre-COVID interest rates are a non-starter for Canadian policymakers, he then asks “what else are we doing to help small businesses?”
With interest rates so high, Ching wants the Canadian government to step up and provide additional sources of funding support to small business owners. He sees recent changes — like the increase in the capital gains inclusion rate — as another wound to small businesses. He would like to see greater support put towards angel investor networks, even in the form of a subsidy for small business investments.
Ching says that while he calls for policy relief, advisors can help their small business owner clients too. Estate planning specialists, he says, can help set up family trusts to mitigate some of the tax burden small business owners now face. Holding companies, too, can offer a similar degree of shelter. Ching often tells his clients to seek out estate planning experts as they work to manage the impact of this business environment.
Fundamentally, Ching wants to see greater support for small business owners now. He believes that advisors can advocate for these entrepreneurs to ensure the supports they need arrive.
“You’ve just taken away more and more from entrepreneurs and small business owners who are taking a massive risk,” Ching says. “Talk to any business owner and they will tell you about a day when they had to put their personal assets at risk. They are vital to fuelling the Canadian economy, shouldn’t the government be doing everything possible to ensure they are supported?”