Business insolvencies are on the rise, jumping more than 40 per cent in the final quarter of 2023 compared to the previous year. This worrying trend might not be slowing down anytime soon, as many businesses find themselves in a tight spot repaying loans taken out during the pandemic.
According to Equifax’s Quarterly Business Credit Trends Report released recently, insolvencies surged by 41.4 per cent in the fourth quarter of 2023 when compared to the same period in 2022. Additionally, there was a noticeable 14.3 per cent increase in the number of businesses failing to make timely credit payments during this time.
Jeff Brown, who heads commercial solutions at Equifax Canada, highlighted the financial strain businesses are facing. "The sharp rise in insolvencies, representing a 30.3 per cent surge since 2019, underscores the financial pressures faced by businesses,” he said. Brown emphasized the importance of managing debt and adapting to market changes through strategic financial planning and proactive measures.
This data aligns with findings from the Canadian Federation of Independent Business (CFIB), which reported a staggering 129.3 per cent increase in business insolvencies in January compared to the previous year. This surge comes as businesses grapple with challenges such as labor shortages, rising costs, and higher interest rates.
One significant factor contributing to this strain, as identified by Equifax, is the repayment of Canada Emergency Business Account (CEBA) loans. These loans, designed to support businesses affected by the pandemic, provided up to $60,000 to help them stay afloat during lockdowns. However, the repayment deadline for these loans, set for January 19, 2024, has added additional pressure.
Under the original terms, businesses had the opportunity to repay the loan interest-free, with a portion forgivable. However, failure to meet this deadline means the loan is converted into a three-year term loan with a five per cent interest rate.
Jeff Brown emphasized the challenging circumstances facing Canadian businesses, citing a combination of factors such as high input costs, labor expenses, reduced consumer spending, and elevated interest rates. He described it as a "perfect storm of economic pressures" contributing to the difficult environment.
In January, Small Business Minister Rechie Valdez and Finance Minister Chrystia Freeland revealed that a quarter of the nearly 900,000 CEBA recipients missed the repayment deadline. Simon Gaudreault, CFIB’s chief economist and vice-president of research, previously characterized this deadline as the final blow for many businesses already struggling to stay afloat.
As the economic landscape continues to evolve, businesses are urged to navigate these challenges diligently, with strategic financial planning and proactive measures seen as essential for survival in these turbulent times.
