Canadian businesses are experiencing deepening financial strain in early 2025, with delinquencies surging to levels not seen since the 2009 financial crisis. A new Equifax report highlights a significant rise in missed payments and a decline in the small business health index, driven by slowing consumer spending and growing debt.
The cautious optimism that briefly flickered at the close of 2024 for Canadian businesses appears to have been extinguished, replaced by a palpable sense of trepidation and growing financial strain.
A new report from Equifax Canada paints a sobering picture of an economy where the cracks are widening, revealing a business landscape caught in a relentless squeeze between dwindling consumer spending and an escalating mountain of debt.
The first quarter of 2025 has delivered a stark wake-up call.
The Canadian Small Business Health Index, a crucial barometer of the nation’s commercial vitality, dipped to 99.3, marking a 1.5 per cent decline from the previous quarter.
While marginally above last year’s levels, this downturn signals a concerning loss of momentum, suggesting that the gains made late last year were fleeting.
More alarmingly, delinquencies are surging across the country, with rates in some key sectors not seen since the depths of the 2009 financial crisis.
This isn’t merely a statistical blip; it’s a widespread affliction.
Over 309,000 businesses – a significant 11.3 per cent of all credit-active enterprises – found themselves unable to meet at least one credit payment in Q1 2025.
This represents a staggering 14.6 per cent year-over-year increase in missed payments, a clear indicator of the mounting pressure.
Simultaneously, the lifeline of new credit is drying up, with applications down six per cent compared to the same period in 2024.
It suggests that many business owners, facing the double whammy of rising costs and uncertain revenues, are choosing to hunker down and manage existing obligations rather than taking on new risks, even as whispers of easing interest rates and stabilizing inflation begin to circulate.
Jeff Brown, Head of Commercial Solutions at Equifax Canada, articulates the grim reality with stark clarity.
“The early months of 2025 are revealing the pressures the business landscape could be facing,” Brown noted.
“Many businesses are caught in a squeeze from both slowing household consumption on one hand and growing business debt stress on the other.”
This “squeeze” is particularly acute in sectors directly tied to the consumer purse strings.
Accommodation & Food Services, the very heart of Canada’s hospitality industry, saw missed payments jump to 16.9 per cent.
Retail Trade, grappling with evolving shopping habits and tight margins, fared little better, with 13.2 per cent of businesses missing payments.
These figures are not abstract; they represent restaurants dimming their lights, shops struggling to keep their doors open, and the jobs that depend on them hanging precariously in the balance.
The connection to consumer behaviour is undeniable.
Equifax data reveals that average monthly consumer credit card spend per cardholder plummeted by $107 during Q1, reaching its lowest point since March 2022.
This pullback is akin to a sudden withdrawal of oxygen for businesses that rely on discretionary spending.
“This seems to be a classic ripple effect,” Brown explained.
“Equifax data suggests when households pull back, restaurants, retailers and local service providers feel it first — and hardest.”
“This can then travel up the supply chain, where everyone from manufacturers to transport companies feel its effects.”
The initial tremor felt in a local café quickly becomes a seismic event for the logistics company transporting its supplies, and the farmer growing its produce.
Perhaps one of the most telling insights from the report is the strategic shift businesses are making in how they manage their dwindling cash flow.
While the 60+ day delinquency rate for financial trade (loans, lines of credit) rose by a significant 15.5 per cent year-over-year, climbing to 3.4 per cent, industrial trade delinquencies (money owed to suppliers) saw a more modest increase, from 5.5 per cent to 5.7 per cent.
This disparity suggests a deliberate choice.
“Businesses are paying suppliers, but with little to spare, they may be missing banking obligation payments,” Brown observed.
“This may signal that businesses are strategically recalibrating, with many businesses prioritizing supplier relationships to keep operations moving.”
It’s a desperate gambit: sacrificing good standing with lenders to maintain the operational integrity of their supply chains, hoping to weather the storm long enough for conditions to improve.
The pain is also unevenly distributed across the Canadian map.
While the national trend is concerning, certain regional flashpoints are flashing red.
Ontario and British Columbia, economic powerhouses, led the country in financial trade arrears, with year-over-year increases of 18.8 per cent and 19.9 per cent respectively.
Meanwhile, Quebec and Prince Edward Island experienced unusually sharp increases in industrial trade delinquencies, up 26.6 per cent and 15.9 per cent, signaling localized stress in supplier-based credit relationships.
Beyond retail and food services, a diverse array of sectors are feeling the strain, including Agriculture (+19.5 per cent), Transportation & Warehousing (+19.3 per cent), Real Estate (+17.0 per cent), Finance & Insurance (+16.4 per cent), and Manufacturing (+10.2 per cent), all recording double-digit increases in missed payments.
The overarching message is clear: Canadian businesses are navigating an increasingly treacherous economic environment.
The resilience and careful planning that Jeff Brown champions will be more critical than ever.
As the initial months of 2025 unfold, they reveal not just numbers on a report, but the real-world struggles of entrepreneurs and their employees, caught in an economic tightening that demands both grit and ingenuity to survive.
The path ahead remains uncertain, but the current trajectory suggests that the squeeze on Canadian businesses is far from over.
