Canadian businesses are increasingly falling behind on their credit payments, even as they reduce their overall credit usage. According to a new report from Equifax Canada, the national 60-plus day delinquency rate for financial trades—including bank loans, credit cards, and lines of credit—rose by 11.37% year-over-year in the first quarter. In contrast, the 60-plus day delinquency rate for industrial trades, which covers payments to suppliers and partners, fell by 26.15%.
Businesses Prioritize Supplier Payments Over Bank Debt
Jeff Brown, head of commercial solutions at Equifax Canada, noted that many businesses appear to be protecting their day-to-day supplier relationships essential for operations while managing bank debt and other lender obligations. This trend continues a divide observed late last year, highlighting a strategic shift in how companies manage their financial obligations.
Regional Variations in Delinquency Rates
Regionally, financial trade delinquencies were highest in Ontario at 4.22%, while Prince Edward Island recorded the lowest rate at 2.88%. However, Prince Edward Island experienced the highest year-over-year growth in delinquencies across Canada, indicating widespread challenges despite low absolute rates.
Despite the national rise in delinquencies, businesses are paring down their credit usage. Total line-of-credit balances fell by 21.3% in the quarter, and business credit-card balances dropped by 17.2%. However, loan instalment debt climbed by 3%, reaching an average of $129,421. Brown cautioned that reducing credit-card and line-of-credit balances can be a sign of discipline but does not automatically indicate improving business conditions. The concern is that some businesses are carrying more longer-term debt, and if late payments rise on those obligations, it could cause deeper cash-flow strain.
Economic Uncertainty Deters New Business Formation
Rising costs and economic uncertainty are making it harder for Canadians to start new businesses. The number of businesses two years old and younger decreased by 38.7%, and fewer people are inquiring about loans to start a business, according to Equifax. This trend is echoed by the Canadian Federation of Independent Business (CFIB), whose monthly business barometer fell below 50 in May, indicating that more than half of small businesses expect weaker performance in the next three to twelve months.
On a more positive note, the Business Development Bank of Canada’s Canadian Small Business Health Index climbed by 1.5% in the first quarter, driven by improved economic sentiment. However, analysts expect the ongoing geopolitical tensions, such as the Iran war, to bring sentiment back down.
Lenders Urged to Adapt Credit Decision Approaches
Sinead Gleason, commercial solutions lead at Equifax Canada, emphasized that the current economic environment makes business decisions more difficult. She stated that it is more important than ever for lenders to get business credit decisions right. While lenders have traditionally relied on the personal credit profile of the business owner, Equifax data suggests that a different approach may be necessary to accurately assess risk in these challenging times.
