A new report by Equifax (NYSE:EFX) Canada reveals a complex financial landscape for small and medium-sized businesses (SMBs) in the country. The study found that 64% of SMBs consider cash flow management as a pressing concern, with uncertainty about the upcoming holiday season cited as a major factor. Additionally, 53% of SMBs struggle with limited access to business financing, and 18% have faced past bankruptcy or insolvency.
Rising interest rates are also causing financial strain on businesses, with 75% having raised their rates or pricing and 69% believing these rates negatively impact their businesses. Furthermore, 57% of SMB owners reported having customers who are past due on payments or invoices, with 46% expecting this trend to continue in the next 12 months.
Despite these challenges, new data from Equifax Canada shows that established businesses are outpacing new businesses in trade growth. Credit card demand accounted for 62% of new financial trade originations in Q1 2023, and average business debt has surged by 22.3% from a year ago to $44.7K.
"The rising costs of doing business may threaten a wave of insolvencies," said Jeff Brown, Head of Commercial Solutions at Equifax Canada. "We anticipate an increase in demand for credit, particularly from enterprises wrestling with existing debt."
In brighter news, new business originations surpassed pre-pandemic levels in Q2 2023 across Canada, driven by seasonal trends. Year-over-year increases were observed in Alberta (27.4%), B.C. (33.6%), Ontario (34.7%), and Quebec (24.1%). Credit utilization for lines of credit (LoCs) and credit cards is rebounding since January 2022, with LoC balances rising by 21%, and credit card balances increasing by 22.6% annually.
However, concerns remain about government support and debt repayments. Government-backed loans, like CEBA, were crucial for Canadian businesses, with 36% of respondents utilizing them. Yet, 36% anticipate negative impacts, 45% aim to clear debts by year-end, and 47% foresee repayments extending into 2024. An overwhelming 84% call for increased government intervention to address these challenges and support small businesses.
The survey also pointed out that while business owners are increasingly aware of their financial profiles, with 58% recognizing their ability to access business credit reports, only 36% of those familiar with business credit reports know their actual credit scores.
Equifax Canada continues to monitor the credit landscape closely and provides crucial data to support businesses and lenders in making informed credit decisions during these uncertain times.
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