Debt burden for Canada's small businesses averages $170K

Even when things return to 'normal' independent businesses’ balance sheets will take time to recover

Debt burden for Canada's small businesses averages $170K
Steve Randall

The balance sheets of small businesses across Canada will be tilted to the downside for some time as under-pressure firms have borrowed to stay afloat.

The average small business owes $170,000 resulting from the COVID-19 pandemic with this backbone of the Canadian economy taking on a collective $135 billion.

The figures from the Canadian Federation of Independent Business show an escalation of the debt burden, which was estimated at $117 billion last summer.

“Over the last six months, the average debt taken on by small businesses to deal with COVID-19 has grown significantly,” said Laura Jones, Executive Vice-President at CFIB. “While many businesses had previously reopened and were attempting to regain lost sales, the second wave and the restrictions that came with it are putting a massive wrench in an already slow recovery for small businesses.”

Although economists are optimistic of a rebound for the economy in the second half of 2021, more than three quarters of small businesses responding to CFIB’s poll who have taken on debt, say it will be at least a year before it is cleared.

Meanwhile, more than one in ten respondents believes they will never be able to repay their pandemic-related borrowing.

Many business owners will be among those who are trying to manage household debts, highlighted as a concern in a Credit Counselling Canada report last year.

Profits slow to return

Profits are expected to be constrained for a sizeable share of Canada’s small businesses too: 4 in 10 believe it will be at least a year before they can return to pre-pandemic profit levels (not including any debt repayments).

CFIB is calling on Canadian consumers to shop local and use small businesses as much as they can,

“Small businesses need our support through this challenging time,” added Taylor Matchett, a research analyst at CFIB and the lead author of the report. “We must also keep in mind that businesses are much more fragile now than at the beginning of the pandemic, and every effort should be made to keep businesses open while managing the health implications of the virus.”