Equifax Canada finds small enterprise growth is accelerating, but independent owners must navigate finances carefully
Canada is enjoying a revival in small business growth, according to Equifax Canada's Market Pulse Small Business Credit Trends Report for Q4 2021.
The report showed a nationwide gain of 62% year over year in new businesses during Q4 2021; in comparison, new business growth in Q4 2021 compared to the same period in 2019, before the pandemic, was just 38%.
“Small business growth is happening in every part of the country,” said Jeff Brown, Small and Medium Business Leader at Equifax Canada. “While there’s more room for optimism, what’s in play now for most small business owners is the balancing act between debt and delinquency.”
During the pandemic, the federal government pumped billions of dollars into small businesses in the form of grants, subsidies, and loans. Over $49 billion in loans were made to over 900,000 enterprises through the Canadian Emergency Business Account (CEBA).
“In the early stages of the pandemic, small business owners tended to use government money wisely, paying off or down highly utilized accounts, or past due and delinquent accounts,” Brown said. “This translated into stronger credit ratings allowing many small business owners to slowly increase their debts over the past year.”
With the lift provided by government relief funds, Brown said small business owners have seen their debt burden grow by 20.7% – equivalent to an increase of $35,000 on average – in the past 12 months. While that’s not necessarily negative as businesses must spend money to make money, he said small business owners must continue making financial decisions prudently.
According to Equifax Canada data, 30+ day delinquencies decreased by 10.8% year over year in Q4 2021, indicating that small business owners are making their debt payments on schedule. Brown said delinquencies were low overall, well below pre-pandemic levels.
However, he added some areas such as Ontario, the Prairies, and Atlantic Canada are showing hints of financial stress through minor quarter-over-quarter increases in delinquencies.
“There are early warning signs, which may see delinquency rates shoot higher as small businesses try to adjust to a rebuild of consumer demand and spending,” added Brown. “While many pandemic restrictions are ending, we cannot ignore the fact that inflation and interest rate hikes are a cause for concern for both consumers and small business owners. With so much uncertainty, we could see consumers hold back on their spending.”
During an online conference hosted by Equifax last week, Pierre Cléroux, Chief Economist at the Business Development Bank of Canada, shared Brown's comments and concerns.
“When we compare the overall consumer price index excluding energy, we see that energy is playing an increasingly important role in driving consumer prices,” said Cléroux. “The pricing in gasoline, transportation, food, and real-estate have gone up the most over the past two years. The burden these price increases may have on a household budget could slow down consumer spending.”
