CFIB warns the “entrepreneurial drought” is eroding growth, confidence, and market dynamism
Canada has just chalked up six consecutive quarters where more businesses closed than opened – and the country’s largest small‑business group warns that this “entrepreneurial drought” is eroding growth, confidence and market dynamism.
According to the Canadian Federation of Independent Business (CFIB), Statistics Canada data show business exits have exceeded entries since early 2024.
In the second quarter of 2025, the exit rate reached 5.6 percent, while the entry rate fell to 4.8 percent in the fourth quarter of 2025, levels CFIB describes as among the highest closure rates and weakest start‑up activity outside the pandemic.
CFIB defines an entrepreneurial drought as at least four straight quarters in which entry rates sit strictly below exit rates, resulting in a net loss of entrepreneurial activity.
The group says this short‑term imbalance sits on top of a structural decline.
As per CFIB’s report Canada’s Entrepreneurial Drought, Part 1: The Shrinking Business Landscape, Statistics Canada’s Longitudinal Employment Analysis Program shows that in 1984 the business entry rate was about 24 percent and the exit rate roughly 16 percent.
By 2023, both had fallen to around 12 percent, meaning entry rates have dropped nearly 50 percent since the mid‑1980s and are now stuck at historic lows.
CFIB notes that small and medium-sized enterprises (SMEs) underpin Canada’s economy, accounting for nearly 99 percent of employer businesses, over 60 percent of private‑sector employment and almost half of private‑sector GDP, based on federal small‑business statistics.
The federation argues that when the cycle of firm entry and exit slows, competitive pressure weakens, resources remain tied up in less efficient firms and productivity growth suffers.
The Bank of Canada has already flagged weak productivity, and CFIB links this to declining business dynamism.
Drawing on a Schumpeterian “creative destruction” framework, the report says that under normal conditions, firm turnover pushes labour and capital towards more innovative, productive businesses, lifting output per worker and supporting higher wages, demand and investment.
CFIB warns that when this renewal process stalls and costs and regulations constrain SMEs’ ability to adapt, Canada risks a more rigid, less responsive business environment.
CFIB also highlights the operating climate.
The federation reports that since the fourth quarter of 2019, business insolvencies in Canada have risen by 24 percent as of the fourth quarter of 2025.
In its 2024 red tape analysis, CFIB says 54 percent of firms view government regulation and paperwork as “major impediments,” and that businesses spent an average of 735 hours — about 32 working days — on compliance in 2024.
It puts the total economic cost at $51.5bn, including $17.9bn from red tape.
Succession risk compounds these pressures.
CFIB’s survey work shows about three‑quarters of owners plan to retire within the next decade, but only around 9 percent have a formal succession plan, heightening the chance that “healthy exits” such as retirement still result in closures if buyers or successors do not emerge.
Despite these headwinds, CFIB says entrepreneurial interest remains.
A 2023 Angus Reid Forum survey for CFIB found just over 16 percent of Canadians expressed interest in starting a business within 10 years, while 72 percent reported no such interest.
Among those interested, the most cited barriers were earning a living, accessing financing, and maintaining work–life balance.
CFIB also points to Global Entrepreneurship Monitor findings that Canadians show stronger entrepreneurial intentions than Americans but report a higher fear of failure.
The federation links these firm‑level trends to long‑term growth concerns.
According to analysis cited from the Organisation for Economic Co‑operation and Development, Canada’s real GDP per capita is projected to grow by only 0.78 percent a year through 2060, while productivity growth has averaged 0.86 percent since 2000 compared with 1.4 percent in the United States.
CFIB argues that fragmented support systems, policy uncertainty and weak incentives to innovate mean only a handful of Canadian SMEs ever scale into large enterprises.
In response, CFIB’s new report Canada’s Entrepreneurial Drought, Part 2: Fixing Canada’s Shrinking Business Landscape sets out proposed reforms focused on reducing the cost of doing business, cutting red tape and addressing labour‑market and succession challenges.
Recommendations include:
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Lower the federal and provincial small business corporate tax rates
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Raise and index the income thresholds for the small business tax rate
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Improve access to financing and government procurement
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Measure the regulatory burden and report it publicly
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Adopt a “2-for-1” rule for new regulations
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Expand mutual recognition rules to ease internal trade
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Strengthen training partnerships
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Protect the Temporary Foreign Worker Program
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Encourage the purchase of existing businesses
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Let small corporations defer capital-gains tax on intergenerational transfers
The federal spring economic statement gives Ottawa “an opportunity…to address Canada’s entrepreneurial drought and restore small business confidence,” said Michelle Auger, CFIB director of trade and marketplace competitiveness.
She said governments have prioritized large companies while “small firms have been largely ignored,” and warned that Canada “cannot afford to keep losing more businesses than it gains.”
“The entrepreneurial drought won't fix itself,” said Brianna Solberg, CFIB director for the Prairies and the North.
She said Canada must give businesses “clear reasons to start, stay and invest,” and argued that current policies “are failing to inspire confidence among entrepreneurs” and do not yet match ambitions for economic strength and productivity.
