Survey finds 21% of Canadian owners opened a personal line of credit for their business
Forty-five percent of Canadian small business owners who used a personal line of credit or provided a personal guarantee for their company say doing so has affected their personal finances.
An Equifax Canada survey found reduced personal credit availability at 20 percent, greater difficulty qualifying for a car loan at 20 percent, difficulty obtaining other personal credit at 15 percent, and difficulty qualifying for a mortgage at 13 percent.
Across all owners surveyed, 26 percent said they had been required to provide a personal guarantee to obtain business financing, potentially putting personal assets such as savings or a family home on the line.
Another 21 percent had applied for or opened a personal line of credit as a financial safety net for their business during the past two years.
“Running a small business has always involved financial risk, but these findings highlight how closely business and personal finances can become connected,” said Jeff Brown, Head of Commercial Solutions at Equifax Canada.
Finding or retaining customers was the most cited challenge at 53 percent, followed by rising operating costs at 48 percent and a lack of capital or cash flow at 30 percent.
Among owners aged 18 to 34, 54 percent said they had been required to provide a personal guarantee, compared with 15 percent of owners aged 55 and older.
The same share of younger owners had applied for or opened a personal or business line of credit as a safety net during the past two years, against 15 percent of the oldest group.
“The findings suggest that younger business owners are managing several pressures simultaneously: maintaining customers and revenue, absorbing higher costs and, in some cases, finding additional financing to bridge cash-flow gaps,” Brown said.
Equifax Canada data shows that business principals, the owners who disproportionately depend on personal credit to fund and run their businesses, carry credit utilization 31 percent higher than consumers, balances 105 percent higher on their personal credit, and 44 percent more trades than the average consumer.
The company also reported high usage of both revolving credit and home equity lines of credit among business owners.
Brown said the data shows “a disproportionate dependence on personal credit” among business owners funding day-to-day operations.
He said owners relying on home equity lines of credit (HELOCs) during real estate fluctuations carry risk that extends past the company to their own finances.
Fifty-four percent of surveyed owners have checked their business credit report at least once, including 34 percent within the past 12 months.
Fifteen percent said they did not know how to access the report, and 10 percent were unaware their business had a separate credit report.
Sixty-four percent said they would be interested in monitoring their business credit score through their bank’s commercial banking platform, rising to 86 percent among those who had checked within the past year.
Among owners under 55, 74 percent expressed that interest, compared with 52 percent of those 55 and older.
“You cannot manage what you cannot see,” Brown said. “Understanding a company’s commercial credit profile can help business owners better understand how lenders may view their business and the financing options that may be available to them.”
