March 19, 2024

BRITISH COLUMBIA – The latest data from Equifax® Canada’s Market Pulse Quarterly Business Credit Trends Report shows a 41.4 per cent rise in business insolvencies in 20B23 when compared to 2022 as well as a 14.3 per cent increase in businesses that have missed payments on a credit product from Q4 2023 vs Q4 2022.

The CEBA (Canada Emergency Business Account) loans are a contributing factor as the recent repayment deadline has proved a financial challenge coupled with higher interest rate. On January 19, 2024, CEBA loans converted to a three-year term loan with five per cent interest payable per year.

“Canadian businesses are facing a perfect storm of economic pressures,” says Jeff Brown, Head of Commercial Solutions for Equifax Canada. “The end of the initial grace period for CEBA loans, combined with high input costs, labour expenses, a slowdown in consumer spending and high interest rates, is creating a challenging environment.”

“These factors are contributing to a growing trend of business failures,” continues Brown. “The sharp rise in insolvencies, representing a 30.3 per cent surge since 2019, underscores the financial pressures faced by businesses. There is a need to manage debt and adapt to changing market conditions through strategic financial planning and proactive measures.”

Delinquencies continued their upward trend, particularly in industrial and financial sectors, during Q4 2023. Industrial trades witnessed an 8.8 per cent surge in 30+ day delinquencies, reaching 11.2 per cent, while financial trades experienced a 3.1 per cent increase, reaching 3.3 per cent.

Significant rises were also reported in installment loan delinquencies, with early-stage delinquencies up by 12.5 per cent and late-stage delinquencies up by 16.3 per cent year-over-year, indicating challenges in meeting monthly loan obligations. Revolving credit delinquencies saw a 1.3 per cent year-over-year increase, reaching 3.2 per cent in Q4 2023. Real estate, rental, leasing, and retail trades also saw notable increases in missed payments.

The provinces with the highest financial trade delinquency rates were Alberta (3%), Ontario (2.9%), and Quebec (2.6%). Quebec also experienced the largest year-over-year increase in severe (90+ days) delinquency rate, rising from 2.4 per cent to 2.6 per cent.

Reported outstanding balances from financial trades rose to $31.8 billion in Q4 2023, marking a 7.4 per cent annual increase, primarily driven by a 15.3 per cent rise in credit card balances.

Despite a slowdown in inflationary pressure, new credit growth remained subdued due to high interest rates and tighter lending criteria. New originations for both financial (-24.4%) and industrial trades (-15.3%) declined compared to the previous year. However, despite reduced lending activity, there was a 5.5 per cent increase in credit inquiries, suggesting robust demand for credit among businesses.

“The demand for new credit may point to signs of growth and expansion as Q4 2023 saw a 21.9 per cent rise in establishment of new businesses when compared to the same time period in 2022,” says Brown. “As always, we will monitor this closely and we will provide insights to help businesses respond to the ever-evolving market conditions.”

Source: Equifax & Business Examiner Staff



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