Canada is seeing a resurgence in the growth of small businesses, according to Equifax Canada.
The group’s quarterly ‘market pulse’ small business credit trends report shows a nationwide gain of 62 per cent year-over-year in new businesses during the fourth quarter of 2021. By comparison, the same period in 2019 (pre-pandemic) saw 38 per cent.
“Small business growth is happening in every part of the country,” says Jeff Brown, a small and medium business leader for Equifax Canada.
Over the pandemic, the federal government injected billions of dollars into small businesses via grants, subsidies, and loans, Equifax reports, with the Canadian Emergency Business Account (CEBA) alone accounting for more than $49 billion in loans to almost 900,000 businesses.
With the aid of government funds, small business owners increased their debt burden by 20.7 per cent in the past 12 months, Brown says.
“While there’s more room for optimism, what’s in play now for most small business owners is the balancing act between debt and delinquency,” he adds. “In the early stages of the pandemic, small business owners tended to use government money wisely, paying off or down highly utilized accounts, or past-due and delinquent accounts. This translated into stronger credit ratings, allowing many small business owners to slowly increase their debts over the past year. This isn’t necessarily a bad thing because businesses need to spend money to make money, but it’s important for small business owners to continue to make prudent financial decisions.”
While delinquencies are well below pre-pandemic levels, Brown notes there are some small quarter-over-quarter increases across some regions, including Ontario, the Prairies, and Atlantic Canada.
“There are early warning signs, which may see delinquency rates shoot higher as small businesses try to adjust to a rebuild of consumer demand and spending,” he says. “While many pandemic restrictions are ending, we cannot ignore the fact that inflation and interest rate hikes are a cause for concern for both consumers and small business owners. With so much uncertainty, we could see consumers hold back on their spending.”
“When we compare the overall consumer price index excluding energy, we see energy is playing an increasingly important role in driving consumer prices,” adds Pierre Cléroux, chief economist at the Business Development Bank of Canada. “The pricing in gasoline, transportation, food, and real estate have gone up the most over the past two years. The burden these price increases may have on a household budget could slow down consumer spending.”
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