Independent businesses are marking the second anniversary of COVID with low sales and heavy debt
Two years after the pandemic first made itself felt, the majority of Canada’s small businesses have yet to return to their previous levels of sales and activity.
According to the latest Canadian Federation of Independent Business (CFIB) Small Business Recovery Dashboard, only 35% of enterprises have resumed normal sales, although debt levels and the percentage of businesses facing bankruptcy remain high.
CFIB president Dan Kelly said in a comment, "While it is good news that COVID restrictions are finally being lifted across Canada, the economic damage to small business has been massive and has left many in a very precarious position. As we enter the recovery phase of the pandemic, governments need to hold off on any cost increases, especially given that one in seven (14 per cent) of small firms are actively considering bankruptcy or permanently winding down operations."
Certain industries are performing significantly worse than the national average which sees two-thirds of firms (67%) that report taking on debt and with businesses owing an average of $158,000.
"Businesses in hospitality and arts and recreation have been the hardest hit by the pandemic, with the potential for a full quarter to permanently close as a result of the damage they've taken on due to COVID restrictions," Kelly added.
As most small enterprises drown in debt, the percentage of businesses considering bankruptcy is on the rise. Since the beginning of 2022, the percentage of enterprises reporting regular sales has climbed modestly, from 31% to 35%. Until more businesses are able to return to normal sales, their ability to meet new costs or repay debt will be severely hampered.
Among the industries that felt the strongest blow of the pandemic, hospitality and arts and recreation have considered bankruptcy at an outsized rate, with a staggering 28% and 23% respectively compared to just 14% among businesses overall.
The hospitality industry alone has amassed $206,462 average debt per business, while arts and recreation businesses owe $182,876 on average. These are in comparison to the $158,128 average debt per business on a national scale.
According to the CFIB, the federal government can give small businesses time to recover through a carbon tax freeze and measures to lower energy costs for small businesses right away. It is also urging the government to stop all present and prospective tax hikes, including the excise tax on alcohol, the Canada Pension Plan, and the premiums for Employment Insurance.
The federation also called for a six-month extension to the Canada Recovery Hiring Program, as well as an expansion to include new firms in the program's eligibility. Lastly, it said the government can lower credit card processing fees for small businesses as soon as possible.
"Small businesses have borne the brunt of two years of COVID restrictions and will be dealing with the fallout of the pandemic for months, if not years," added Kelly. "Imposing new costs and higher taxes on them right now could be the final nail in the coffin for some."