Many firms feel the US is no longer a reliable trading partner, while sales are getting harder
Canadian small businesses continue to have a tough time with sales growth falling sharply in the final quarter of 2025 and trade tensions continuing to weigh heavily on business confidence in 2026.
New data shows small business sales declined 4.1% year-over-year between October and December 2025, marking the steepest quarterly drop since the third quarter of 2020. The findings come from the latest Xero Small Business Insights report, which analyzes anonymized data from roughly 12,000 Canadian firms using its platform.
The slowdown highlights mounting pressures on the sector, including economic uncertainty, ongoing supply chain disruptions, and shifting trade policies.
“Heightened macroeconomic uncertainty, heavily disrupted supply chains, and shifting trade policy have significantly impacted the Canadian small business economy. We’re now seeing the true cost of a fractured global economy show up at the SMB level,” said Louise Southall, Economist at Xero.
The sector began 2025 in relatively solid shape after earlier interest rate cuts from the Bank of Canada. But sales momentum weakened as the year progressed, culminating in the downturn during the final three months.
“The small business sector started last year in a solid position, following earlier policy interest rate cuts by the Bank of Canada. But throughout the year, the general trend in Canada’s small business sales growth slowed, culminating in a decline in sales in the final quarter,” Southall added.
While revenue growth weakened, payment conditions remained relatively stable. Small businesses waited about 26.8 days on average to receive payment during the quarter, largely unchanged from earlier in the year. Late payments improved slightly, averaging 9.7 days.
At the same time, a separate report suggests international trade tensions are eroding confidence among Canadian entrepreneurs.
According to new research from the Canadian Federation of Independent Business, 52% of small firms no longer see the United States as a dependable trading partner one year after Washington imposed tariffs on Canadian goods.
“Small businesses have faced massive uncertainty since the trade battle began last year,” said Dan Kelly, CFIB president. "Small business owners have been dealing with the whiplash of trying to keep up with sudden changes and threats, including many that don’t happen or are revised within hours. With CUSMA coming up for review in the months ahead, the stakes are even higher.”
The trade dispute has strained cross-border relationships for many companies. Three-quarters of small firms now say tariffs have damaged ties with U.S. clients or partners, up from 49% a year earlier.
Overall, 68% of Canadian small business owners say they continue to experience negative impacts from U.S. tariffs, while 44% report being affected by steel and aluminum duties imposed by both countries.
CFIB also found that federal support programs designed to help businesses manage tariff costs are reaching very few companies.
Fewer than 1% of small firms have applied to the Regional Tariff Response Initiative (RTRI), while 77% say they were unaware the program existed. Eligibility requirements have also limited participation in some regions.
“We keep hearing the same things from small business owners: they’re too small to qualify, they didn’t know about the program, or that the required paperwork isn’t worth the time and resources,” said Corinne Pohlmann, CFIB executive vice-president of advocacy. “Many retailers and wholesalers were hit hard by counter-tariffs, but they still didn’t qualify. The program was poorly designed for the very small businesses it was supposed to help.”
The organization is urging Ottawa to introduce broader measures, including cutting the small business tax rate from 9% to 6% and creating a rebate program for tariff-affected firms.
“Small business owners are telling us they feel abandoned in dealing with tariff costs,” said Michelle Auger, CFIB director of trade and marketplace competitiveness. “With fewer people starting businesses, we can’t afford to overlook the ones we have. Ottawa needs to step up and find better ways to help.”
