Canada Prepares for Wave of Business Bankruptcies Amid Economic Slowdown

21 Feb, 2024

Canada Prepares for Wave of Business Bankruptcies Amid Economic Slowdown

Thousands of Canadian small businesses are teetering on the brink of bankruptcy as government pandemic support ended last month amidst a slowing economy and soaring interest rates. These small firms, employing fewer than 100 people, play a crucial role in Canada's economic landscape, employing nearly two-thirds of the nation's 12 million private workers. The prospect of a surge in bankruptcies, up by 38% in the first 11 months of 2023, poses a significant threat to economic growth, warn lobby groups and economists.

For those unable to secure loans before the deadline, the burden of repayment now entails regular payments over two years at 5% annual interest. Stephen Tapp, chief economist at the Chamber of Commerce, anticipates a rise in insolvencies over the next six months. The Conference Board of Canada forecasts a further decline in consumer spending per capita in 2024, while first-quarter corporate profits are estimated to nearly halve from the previous year.

As government support recedes, the vulnerability of small businesses becomes more apparent. Approximately a fifth of the 900,000 businesses that received government aid have yet to repay their loans, according to Finance Minister Chrystia Freeland. The Canadian Federation of Independent Businesses estimates a quarter missed the repayment deadline, with many potentially forced to borrow at higher interest rates to settle debts. Despite reassurances from government officials, concerns loom over the potential ripple effects on an economy heavily reliant on its small business sector, which contributes over a third to the country's GDP.