You had to know that the federal emergency assistance to business during the pandemic would eventually exhibit knock-on effects.
And you also had to know that the frailty of small- and medium-sized businesses from the effects of the pandemic would reveal themselves once the assistance expired and they were swept into a period of high inflation.
And so here we are, with first-quarter 2024 credit data suggesting some dramatic impacts across Canada, including some significant above-average results signalling trouble in British Columbia.
One of the best barometers to understand underlying trends in the economy is the quarterly Equifax Canada report on business credit trends. The latest one last week featured some worrisome economic information.
Payment delinquencies are on the rise nationally and longer-term delinquencies are really on the rise in B.C. Single-digit delinquencies are jumping by double-digit amounts, the data reveals in year-over-year first-quarter results in 2024 over what they were in 2023.
The 30-plus-day delinquencies in industrial trades (the credit between businesses and suppliers) rose nationally to 12.2 per cent in 2024’s first three months, up from 10.1 per cent in 2023. Of course, when the early-term delinquencies rise, the late-term ones ought to rise, too.
In B.C., we had the sharpest increase anywhere in Canada in late-term or 60-plus-day delinquencies: a 7.5-per-cent year-over-year increase that moved the total to about six per cent. Historically that means a three-fold likelihood of 90-plus-day delinquencies.
Agriculture, forestry and fishery industries in B.C. experienced the highest increases in delinquencies of any sectors – a 24-per-cent year-over-year rise to about 7.5 per cent overall.
Nationally, it’s the retail and transportation businesses most unable to pay their debts on time – the retailers suffering from people working from home, the transporters not shipping as many goods. The most troubling news is the two-decade high of delinquencies on asset-based loans – for the truck or the pizza oven, as examples – that spell eventual trouble for the business’ future.
Jeff Brown, Equifax Canada’s head of commercial solutions, notes: “There isn’t a silver lining in their future.” He doesn’t share the senior government narrative of business being on the mend, much less thriving.
We don’t quite pay attention to the bankruptcy numbers in Canada, but they are stunning: up 56.7 per cent year-over-year in March, 58.6 per cent in April. Brown says that while troubling, the data isn’t even telling the full story. Some retailers, including restaurants, stay open long enough for an event or special day to salvage some last-minute income, and then close—avoiding bankruptcy and the reputational damage that comes with it, but leaving creditors high and dry.
Some of this has a relationship to the end of free money to borrow. From April 2022 to April 2024, when interest rates rose, the percentage of businesses that had at least one episode of delinquency in this country increased to 4.9 per cent from 4.3 per cent.
We can recall much about those intense pandemic years, and one was the criticism of the federal business assistance, particularly the $60,000 interest-free loans that, if paid back by last Jan. 18, would have forgiven $20,000 of it. It looked like free money, like a free $20,000 at least, but it’s clear that many businesses didn’t see it that way.
Consider that in the last half of 2023 there was a 74-per-cent year-over-year increase in new installment loan originations. Why? To pay down the Canadian Emergency Business Account (CEBA) loan during the pandemic in order to qualify for the forgiveness. In effect, businesses took out loans – at higher interest rates than in recent history, it should be added – to pay down a loan. If they couldn’t get a loan from the Big Five banks to pay the federal government and gain the forgiveness, or couldn’t find an alternative lender, the federal government moved them into another loan with a five per cent interest rate. In short, CEBA is not in the rear-view mirror.
“They were kicking the CEBA can down the road,” Brown said.
Is there good news to be found? Perhaps it can be found in the future considerations. Brown notes the commencement of interest rate reductions ought to provide some relief for the record $31.9 billion in business debt, a 7.4-per-cent increase from a year earlier. And there was a serious uptick of 30 per cent in the number of new businesses, which still suggests ambition. The question is always whether they can sustain and keep debt’s grip off their paths.
A good sign: credit card delinquencies are low. A bad sign: businesses opening new credit accounts in the last two years are missing payments at a much faster rate on those cards. It never ends.
Kirk LaPointe is a Glacier Media columnist with an extensive history in journalism.
