Newer Canadian businesses face increasing debt, says report

Newer Canadian businesses are driving significant growth in debt balances, creating a complex financial landscape ahead of the holiday season, according to Equifax Canada’s Q3 Business Credit Trends Report.

Total business debt balances reached $35 billion in the third quarter of 2024, a 15.3 per cent increase from the same period last year. Businesses established in the past two years led the charge, with their debt balances rising 25.2 per cent compared to the third quarter of 2023.

Established businesses, however, adopted a more cautious financial stance, with the average debt per business falling 8.1 per cent year-over-year to $25,366. The data reflects contrasting strategies, with newer companies grappling with higher operating costs while older ones focus on conservative debt management.

Economic indicators are showing early signs of recovery, supported by recent interest rate cuts and inflation easing to the Bank of Canada’s two per cent target, the report said. The Equifax Canadian Small Business Health Index improved 1.5 per cent in Q3 2024, reflecting increased business confidence and better access to credit.

“Newer businesses are driving debt growth as they navigate the high costs of establishment and operation,” said Jeff Brown, head of commercial solutions at Equifax Canada. “While these businesses are contributing to the economy’s overall momentum, rising delinquencies among debt-burdened enterprises remind us that financial recovery is not evenly distributed.”

Retail sector under pressure

Heading into the holiday season, retailers are facing heightened challenges, including above-average delinquency rates. Inflation-adjusted consumer credit card spending has dropped compared to last year, and the ongoing Canada Post strike has disrupted business operations.

“Retail businesses are feeling the strain as the holiday season approaches,” Brown said. “Between the Canada Post strike during this critical time, including on the key Black Friday weekend, and weaker discretionary consumer spending, small businesses face an uphill battle.”

Trade delinquencies rise, insolvencies decline

Trade delinquency rates for financial and industrial trades climbed in the third quarter, reaching 3.3 per cent and 5.9 per cent, respectively. This increase was largely driven by installment loans. However, business insolvencies showed improvement, with 1,312 filings in Q3 2024, a 14.7 per cent drop from the previous quarter.

Early-stage delinquency rates (30-day) are also beginning to stabilize, suggesting financial pressures may be easing as businesses prepare for the fourth quarter.

“This holiday season presents both opportunities and challenges for Canadian businesses,” said Brown. “While improving sentiment and easing financial pressures offer hope, rising delinquencies and an uneven recovery are a reminder of the resilience required for Canadian businesses to succeed in this environment.”