A new report found business insolvencies climbed more than 40 per cent in the fourth quarter of 2023 and could go even higher as many businesses are now stuck repaying pandemic loans.
Equifax’s Quarterly Business Credit Trends Report, released on Tuesday, found business insolvencies climbed 41.4 per cent in the fourth quarter of 2023 compared to 2022, while the number of businesses to miss a credit payment hiked 14.3 per cent in the quarter.
"The sharp rise in insolvencies, representing a 30.3 per cent surge since 2019, underscores the financial pressures faced by businesses,” Jeff Brown, head of commercial solutions for Equifax Canada, said in a news release. “There is a need to manage debt and adapt to changing market conditions through strategic financial planning and proactive measures.”
The data echoes a recent report from the Canadian Federation of Independent Business, which found that business insolvencies climbed 129.3 per cent in January compared to a year prior, as businesses fight labour shortages, higher costs and high-interest rates.
CEBA loans add stress
Equifax points to the repayment of Canada Emergency Business Account (CEBA) loans for the added pressure businesses now face.
CEBA offered pandemic-impacted businesses loans of up to $60,000 to keep them afloat during lockdowns. Under the terms of the loan, businesses had to repay it by Jan. 19, 2024, for it to be interest-free with a $20,000 forgivable portion. However, those who missed the repayment deadline would see their loans turned into a three-year term loan with a five per cent interest rate.
"Canadian businesses are facing a perfect storm of economic pressures,” Brown said. "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."
In January, Small Business Minister Rechie Valdez and Finance Minister Chrystia Freeland reported that 25 per cent of the nearly 900,000 CEBA recipients missed the deadline.
Simon Gaudreault, the CFIB’s chief economist and vice-president of research, previously called the CEBA loan repayment deadline the “straw that broke the camel’s back” for many Canadian businesses.
“The math just doesn’t add up anymore,” he told The Canadian Press earlier this month.
With files from The Canadian Press