Debt, Delinquencies, and Insolvencies on the Rise

TORONTO, Sept. 29, 2022 (GLOBE NEWSWIRE) -- Four-in-five (82 per cent) of small business owners want governments to do more to address inflation, according to a recent survey from Equifax Canada. Within a nationwide panel of 300 small business owners, 87 per cent said they have been forced to increase prices as a result of rising business costs and 78 per cent admit that this move is hurting their business.

Small business owners are currently dealing with a myriad of challenges and concerns:

• Managing cash flows is one of the major challenges experienced by 60 per cent of survey respondents, with 59 per cent wanting to grow their business but having limited access to business financing. A few (14 per cent) have already experienced bankruptcy or insolvency of their business.
  
• Half of respondents (49 per cent) cited their leading concern as the cost of goods, followed by supplier product availability (42 per cent) and staffing (32 per cent).
  
• The top-three expenses impacting small businesses the most are products/supplies (55 per cent), fuel (54 per cent), and wages (54 per cent). Wages are significantly more likely to be the top expense impacting businesses in Quebec (30 per cent versus 16 per cent in the rest of Canada).
  

"Inflation and higher interest rates are beginning to weigh on the cash flow of small businesses," said Jeff Brown, Head of Commercial Solutions, Equifax Canada. "Small business owners are juggling more now even as the pandemic becomes less of a concern. Not only are they dealing with inflationary pressures on the cost of goods, supply chain issues and the demand for increased wages, they are taking on more debt and we're seeing delinquencies and insolvencies rise."

Debt & Delinquencies Rising

When asked to consider their overall debt and current credit standing, four-in-ten (40 per cent) of small businesses indicated taking on extra debt during the pandemic, with similar numbers choosing to take on debt through the government (pandemic loans) (23 per cent) and the banks (21 per cent) – a smaller percentage (4 per cent), took on debt through both. One-third (36 per cent) of those who took on extra debt expect to repay it by the end of 2023, however, 29 per cent do not expect their debt will be paid off until well beyond that point, especially those who feel less confident about the economy compared to Q4 of 2021.

Equifax data for Q2 2022 also indicates early signs of stress as businesses struggle:

• Average debt for small businesses has increased by 14.9 per cent year-over-year and by 4 per cent compared to the previous quarter. The average balance for a small business now sits at $37,000
• Fewer new businesses opened in the summer of 2022 as compared to past years, down 49.7 per cent
• Bankruptcies were up 11 per cent year-over-year and up 12 per cent against the last quarter
  

"These trends signal a struggling post-pandemic recovery period," said Brown. "Delinquency levels across all industries are rising with construction and manufacturing being the hardest hit. With interest rates continuing to hike, the quarters ahead might prove to be even more stressful for Canadian small businesses to manage.

"On a positive note, demand for credit is holding relatively steady since the end of 2020 with the higher growth coming from the low-risk segment. The story is the same regionally for the most part in the latest quarter. Quebec and Alberta display particularly strong growth in credit demand. Calgary reported the strongest growth in new lending."

Developing a Better Understanding of Credit

Given the current economic landscape, small business owners need to develop a better understanding of credit. Returning to the survey data, while six-in-ten (57 per cent) are aware that a business can obtain its own business credit report only 32 per cent know how/where to obtain one. Of those who know of the business credit report, only 35 per cent know what their business' credit score is, while 60 per cent admit that they don't know.

"It's clear that many small business owners are the head cook and bottle washer, meaning they find themselves so busy running their business that they miss out on the importance of managing their relationship with credit," said Brown. "Paying back loans and meeting debt obligations are critical to maintaining a healthy credit score for any business. Failure to do so can lead to a blind spot or a pain point for a small business owner. Imagine seeking a bank loan, only to find out an old debt has gone into collections. That's a serious impact to the business that could have been avoided simply by checking a business credit report."

As more than half (59 per cent) of business owners don't feel supported by their governments and 49 per cent do not feel supported by their banks. "The credit industry, banks and governments have an opportunity to counsel small business owners on how to pay down their debt as soon as possible to avoid interest accruals and possible interest rate increases. Building trust will be a crucial part in the education process," concludes Brown.

* Equifax Canada commissioned Leger to conduct an online survey with 301 Canadian small (260) and medium-sized (41) business owners/leaders/decision makers within the Food, Construction, Retail, and Travel Industries. It was completed between August 29 and September 14, 2022, using Leger's online panel.

About Equifax
At Equifax (NYSE: EFX), we believe knowledge drives progress. As a global data, analytics, and technology company, we play an essential role in the global economy by helping financial institutions, companies, employers, and government agencies make critical decisions with greater confidence. Our unique blend of differentiated data, analytics, and cloud technology drives insights to power decisions to move people forward. Headquartered in Atlanta and supported by more than 13,000 employees worldwide, Equifax operates or has investments in 24 countries in North America, Central and South America, Europe, and the Asia Pacific region. For more information, visit Equifax.ca.