A new study tackles the issues they face
Canadian businesses have grappled with rising interest rates, surging inflation, and turbulent economic headwinds throughout 2022 – and companies in the mortgage industry may have been experiencing those challenges too, especially with volume down and a quieter market than recent years.
While small businesses on the whole appear largely optimistic about the future, some of those factors have continued to weigh on their outlook, according to a new Scotiabank report assessing the mood of such businesses.
The bank’s Path to Impact Report revealed that while a majority of small businesses in Canada view themselves as better prepared for another COVID-19 wave or an economic recession than before, issues such as inflation, supply chain snarls, labour market shortages and higher rates remain significant concerns.
Jason Charlebois (pictured top), Scotiabank’s senior vice president for small business banking, told Canadian Mortgage Professional that among the most important focus areas from a social perspective for small businesses was exploring financing options to ensure their capital can sustain business operations and meet needs, as well as eliminating wasteful practices that could impact profitability.
It’s also essential, he added, to “stay ahead of the industry trends and have contingency plans to make sure that whatever the economic environment creates for them, they’re ready to react and adjust.”
Read next: RBC highlights threats to Canadian net wealth
Luckily on that point, the experiences of the pandemic should stand small businesses in good stead on that front, according to Charlebois. “Business owners have proven their resiliency through over two years of lockdowns and restrictions. I think they’re well suited for that,” he said.
Perhaps unsurprisingly for professionals in the mortgage industry who have seen their daily work revolutionized by technology over the past two and a half years, digitization was identified by Scotiabank as an indispensable asset for small businesses in the coming years.
“Digital allowed many businesses to open the channels of sales and service for their customers, so they’ve got to continue to leverage that,” Charlebois said.
Inflation has proven one of the most significant hurdles facing the Canadian economy in 2022, shooting to its highest level for nearly four decades in the summer before declining slightly since then – but still sitting at a level far above the Bank of Canada’s target rate of 2%.
Thirty-four percent (34%) of businesses surveyed by Scotiabank said they were being impacted by inflation, which is likely to persist as a major factor facing small business in Canada, Charlebois said.
“Those businesses – their cost model, their ability to pass on price increases to their customers are challenging,” he said.
“Inflation will directly impact their bottom line and their level of profitability and the input costs to their business are rising, and they’re not able to either become more efficient as a business or pass on those higher costs to their customers. Definitely, that poses a very significant challenge to certain businesses.”
On the plus side, cash flow has been a positive factor for small businesses, Charlebois said, with the Canadian economy performing well in recent times thanks to pent-up demand for purchases of various goods and services.
Read next: Economist: BoC walking a risky policy tightrope
“That’s obviously helped the operating capital of these businesses in terms of fewer of them feeling cashflow concerns,” he said.
“Those who do feel those concerns still definitely need to act in terms of making sure they’ve got access to capital in the form of financing to help over the course of the fall and winter when the economic forecasts come through in terms of further interest rate hikes, continued sustained inflation and possible recession.”
Overall, 42% of small business owners said their business was doing better compared to two years before, with 66% of owners either extremely or very optimistic for their business’s future and 81% indicating they were better equipped to handle a possible recession.
Still, access to quality advice is important, Charlebois said, especially in the current unprecedented economic times. “For small businesses, it’s very clear a consistent theme over the last many years in terms of talking to business owners is those who seek out advice perform better than those who don’t,” he said.
Other factors having a big impact on small businesses in Canada, according to the report, are supply shortages (27% of respondents affected), meeting demand (22%) and hiring staff (25%).
