Small Businesses in Canada Struggle with Borrowing Costs and Working Capital Shortages

by Staff

A significant number of small business owners in Canada are grappling with challenges related to borrowing costs and working capital shortages, according to the latest Canadian Federation of Independent Business (CFIB) Business Barometer. The report reveals that 51% of small business owners are currently facing difficulties due to borrowing costs, a statistic that has surpassed its historical average of 22% and reached its highest point since CFIB began tracking it in 2009.

In addition to high borrowing costs, a record 36% of businesses cited a shortage of working capital as a major limitation on their growth. This sharp increase in the past two months underscores the financial pressure experienced by many small enterprises.

The CFIB report also highlighted other cost-related challenges faced by businesses in September. A significant 67% of businesses reported that fuel and energy costs were causing difficulties, marking a 9% increase since August. Meanwhile, 62% of businesses continued to struggle with wage costs, and 61% flagged tax and regulatory costs as ongoing challenges.

Andreea Bourgeois, Director of Economics at CFIB, explained the situation, saying, “The Bank of Canada tapped the brakes more firmly with its rate hikes in June and July. Although it kept the rate unchanged at 5% this September, a large and growing number of businesses now deal with significant financing challenges on top of the already very difficult business environment. Small businesses reinvest 66 cents of every dollar earned back in their communities. With the holiday season fast approaching, this is another reminder to support local businesses whenever possible.”

Despite these challenges, the small business confidence index for the next 12 months experienced a significant drop, declining by six points to 48.7. Notably, the provinces of Ontario (48.9) and Quebec (49.8), the country’s two largest, recorded confidence levels below 50, indicating reduced optimism among business owners.

When examining sectors, agriculture (38.0), retail (42.3), and wholesale (47.4) showed the lowest levels of confidence. In contrast, businesses in service sectors, including information and recreation (63.2) and health and education (65.7), ranked highest in terms of confidence.

Simon Gaudreault, CFIB’s Chief Economist and Vice-President of Research, summarized the situation, stating, “Many of the Business Barometer indicators this month continue to point to a tough business environment and sluggish recovery. Small businesses weren’t overly optimistic and had challenges accessing financing even before the recent Canada Emergency Business Account (CEBA) and Employment Insurance (EI) announcements. One can only presume that things will get worse for them if there’s never any relief in sight.”

The report underscores the pressing need for support for small businesses as they navigate these challenging economic conditions.

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