Economic uncertainty and wildfires fuel a surge in missed payments
Businesses in Canada are grappling with rising financial stress, particularly in the construction and retail sectors, as economic uncertainty and recent natural disasters take their toll, according to Equifax Canada's Business Credit Trends Report.
Financial strain worsens
The report revealed a surge in businesses missing credit payments, with more than 56,000 companies failing to meet at least one financial obligation in Q2 2024 – a 10.2% rise compared to the same period last year.
The 60+ day delinquency rate for financial trade rose from 2.8% to 3.1% over the past year, largely driven by installment loans. Many businesses that rushed to pay off their Canada Emergency Business Account (CEBA) loans amid high interest rates are now struggling to stay afloat.
The construction and retail sectors, in particular, are feeling the pressure. The construction industry saw its 60+ day delinquency rate increase from 2.9% to 3.3%, while delinquency rates on asset-based loans more than doubled. In retail, the delinquency rate climbed from 3.7% to 4.2% during the same period.
Businesses that opened within the last two years are particularly vulnerable, as they're starting to miss payments, though their delinquency rates remain lower than the national average.
Natural disasters
The ongoing wildfires in Western Canada, particularly in Alberta and British Columbia, have intensified financial struggles for small businesses in those provinces.
Alberta has seen a surge in interprovincial migration, which has slightly offset some economic challenges, but businesses in these regions still face delinquency rates higher than the national average.
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"The economic impact of natural disasters, inflation, and fluctuating interest rates have created a challenging environment for businesses to navigate," said Jeff Brown, head of commercial solutions at Equifax Canada. Brown added that while business insolvencies have started to stabilize, many sectors continue to grapple with rising delinquency rates.
Holiday uncertainty
With the holiday season approaching, businesses are preparing for what is typically a critical time for sales. Retailers are already pushing holiday promotions earlier in the year, reflecting their reliance on this period to boost revenues.
However, with ongoing inflation, rising unemployment, and growing household budget pressures, there are concerns that delinquency rates may continue to rise.
“There is still a lot of uncertainty in the market, and businesses are being very prudent with their financial planning,” Brown said.
Despite the financial strain, there is hope that the gradual lowering of interest rates could provide some relief for businesses. However, experts warn that the conservative pace of these cuts may leave both businesses and consumers hesitant to make significant investments.
Insolvencies, while still a concern, have slowed. More than 1,500 businesses filed for bankruptcy in Q2 2024, a decrease of 23.1% from the previous quarter, though up 41.4% from Q2 2023.
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