Around 1 in 4 Canadian business owners have been highly impacted by interest rates and credit is a top concern.
As the old saying goes, you have to spend money to make money. Growing a business requires investment. But paying upfront isn’t always possible—that’s where business loans come in.
In 2024, tough market conditions continue to drive up the demand for business credit, although tighter lending criteria is making it harder to get approved.
Businesses are struggling in the post-pandemic world, with Equifax reporting a jump in business insolvencies and missed payments last year as the grace period for government pandemic loans wrapped up, consumer spending tapered off and interest rates surged.
Key Canadian business loan statistics in 2024
Here’s a snapshot of the business lending market in Canada as of the first quarter of 2024:
Non-financial Canadian businesses hold over $550.8 billion in outstanding business loan debt (excluding non-residential mortgages).
The average business loan interest rate in Canada is 6.96% for newly-advanced funds and 6.39% for outstanding loans.
76.2% of private sector businesses have the cash or liquid assets needed to operate.
70.7% of private sector businesses do not plan to pursue debt financing within the next three months.
73.2% of private sector businesses report being impacted by interest rates, of which, 28.0% report being highly impacted.
Credit among the top concerns for Canadian business owners
Over 1 in 4 Canadian business owners are concerned about credit in 2024, according to a recent Bank of Canada Business Outlook Survey. Of the 100 firms surveyed, 28 chose credit as one of their top three concerns this quarter (Q1).
Financial uncertainty is top of mind for business owners (56), followed by cost pressures (52) and demand or sales (49).
Credit has risen in priority over the past year. Only 19 firms chose this as a top concern in Q1 of 2023, which rose to 27 firms by Q4.
Lenders pull back despite borrowers’ rising focus on business credit
High interest rates and skyrocketing inflation are a double-edged sword. Amidst the financial squeeze, borrowers hunting for financial support may find that lenders are getting pickier about parting with their capital.
What does this mean for Canadian business owners? The criteria for getting approved for a business loan is getting stricter.
The effect is that outstanding (unpaid) debt has grown faster than newly-issued debt.
Sure enough, the Bank of Canada reports that outstanding business loans (excluding non-residential mortgages) have gone up by 4.7% between January and March 2024. Over the same time, funds advanced for business loans (excluding non-residential mortgages) have gone down by about 2%.
In the first half of 2023, the Biannual Survey of Suppliers of Business Financing showed that the value of credit outstanding grew by 3.7%, while the value of disbursements only grew by 1%. Large businesses led the growth in credit outstanding, while small businesses led the growth in credit disbursements.
Recent spike in insolvencies led by small businesses
The 2024 Bank of Canada Financial Stability Report identified a recent jump in business insolvencies driven largely by small businesses.
Some economic experts attribute the spike in small business insolvencies to high borrowing costs, a slowing economy and pandemic loans coming due in January 2024.
Insolvency refers to being unable to make debt repayments on time. Bankruptcy, which is different, refers to being unable to repay debt at all. Though not the same, it’s unsurprising that business bankruptcies are increasing alongside insolvencies.
Across Canada, a staggering 52.6% more businesses (1,270) filed for bankruptcy in the year leading up to the end of Q1 2024 compared to the prior period (832). Almost 94% of these were filed in Quebec (609), Ontario (351), Alberta (136) and British Columbia (97).
Around 27% more proposals were filed across Canada in Q1 of 2024 (404) than Q4 of 2023 (318), with Quebec and Ontario once again representing the lion’s share of filings in both quarters.
If your business is in need of financing, here’s how to improve your chances of getting approved for a business loan.
Tips to get approved for a business loan
Check and make sure your business meets the eligibility criteria before applying for any loan. Generally, business loan applications look at your business age, minimum credit score and monthly or annual revenue.
Keep your documents in order. Required documents vary by lender, but some common requirements include business bank statements, tax returns and a profit and loss statement among others. Making sure these documents are always updated and accurate will make for a smoother application.
Know which type of business loan you need. There are several loans available for business owners all offering different terms and benefits. Understand which type of loan works best for your situation so as to avoid delays. Check out our guide to getting a business loan to compare providers and learn more.
Tips for paying off your business loan faster
Create a strict budget and stick to it. When working on your business plan, you need to consider the states of both your debt and your budgets. Study your current cash-flow situation so you can assess how much you can afford to set aside for debt repayment.
Make extra payments. Paying more than the minimum amount on your loan repayment may sound like a pain in the budget, but in the long run, it’ll be beneficial to reduce the time it takes to repay your loan. This is especially the case if you get a larger monthly revenue than anticipated: Consider putting some of that extra cash toward repaying your loan.
Reduce your expenses. Even if you feel you can set aside a decent amount to repay your loans monthly, reducing your expenses may still be beneficial. This can be as simple as selling any equipment or software your business rarely uses to re-evaluating your expenses for costly operations such as marketing.
Refinance or consolidate. When better rates are offered, it’s wise to jump on them because you’ll ultimately end up saving money. And, if you consolidate multiple loans, you’ll save yourself the headache of having two or three different payments a month.
Get a balance transfer credit card. Sometimes credit card providers will offer interest-free and low balance transfer rates. This is a smart decision if you have a small amount to pay off on your loan. You’ll pay no interest if you can lock in a card with a 0% balance transfer rate, but be careful to pay attention to the time frame of the promotion.
Stacie Hurst is an editor at Finder, specializing in loans, banking, investing and money transfers. She has a Bachelor of Arts in Psychology and Writing, and she has completed FP Canada Institute's Financial Management Course. Before working in the publishing industry, Stacie completed one year of law school in the United States. When not working, she can usually be found watching K-dramas or playing games with her friends and family. See full bio
Nicole McKnight is the Canada PR Manager at Finder. Nicole completed her Honours Bachelor of Arts (English Literature) at McMaster University and holds a certification in Corporate Communications. You can contact her at nicole.mcknight@finder.com. See full bio
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