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Posthaste: 'Using a credit card to keep the lights on' — New report shows 'alarming' shift in business borrowing Back to video

Good morning,

We have already seen it with consumers, but now new data show financial stress is forcing more Canadian businesses to fall back on credit cards to make ends meet.

Equifax Canada says its business credit trends report for the first quarter shows an “alarming” pattern of credit expansion and “significant” shift in credit use among Canadian businesses.

The outstanding balance on bank-issued instalment loans fell by 2.4 per cent, the first decline since 2019 when the credit reporting agency began monitoring this data.

At the same time, credit card balances rose by 15 per cent and lines of credit increased 11 per cent.

“It’s never a good sign if you’re using a credit card to keep the lights on,” said Jeff Brown, head of commercial solutions at Equifax Canada.

“The decline in instalment loans and the shift towards credit card usage could be impeding their growth potential and hindering their ability to make larger investments.”

Industrial and financial trades are also showing signs of stress.

Brown said late delinquencies in industrial trades have risen by 9 per cent within a 60-day window, annually, and are now nearing pre-pandemic levels.

Businesses typically try to pay suppliers first to maintain operations so it is “disturbing to see consecutive quarterly increases in delinquencies on the supplier side as well,” he said.

“This will challenge the financial health of businesses and has the potential for ripple effects on the overall economy.”

The report says this is occurring mainly in trades located in British Columbia and Alberta, suggesting that businesses in these regions are particularly challenged.

Another worrying trend is a slump in new business openings.

For the past two years, business starts have increased in the first three months of the year as the economy recovered from the pandemic, but this year there was a “noticeable dip” at the start of 2023.  At the end of February, startups were down year over year by 16.5 per cent in Ontario, 14.2 per cent in British Columbia, 11.4 per cent in Alberta and 7.5 per cent in Quebec.

“This is a concerning trend. Given the likelihood of more interest rate hikes, it really raises concerns about the overall economic outlook for business owners in Canada,” said Brown.

Earlier this month Equifax flagged that credit card use among consumers is also on the rise.

Canadians on average are spending 21.5 per cent more each month on their credit cards compared to before the pandemic, the agency said in its first-quarter consumer credit report. Credit card balances rose by 14.5 per cent year over year and missed payments were up almost 19 per cent.

Normally, in the first-quarter non-mortgage debt drops because people cut back on spending after the holidays.

“While interest rates and cost of living remain high, we expect to see more groups of consumers experiencing financial difficulties over the coming months,” said Equifax Canada’s vice-president of advanced analytics Rebecca Oakes.

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Canada’s population just exceeded California’s — America’s most populous state — for the first time since the early 1980s.

The number of Canadians rose by more than one million for the first time in 2022, says National Bank chief economist Stéfane Marion, who brings us today’s chart.

Marion says the addition is even more staggering when you consider that the previous record for annual population growth of 624,000 was set in 1949 when Newfoundland joined the federation.

“With Canada now adding the equivalent of two Newfoundlands a year to its population, the world’s demographic ranking is changing very rapidly,” he said.

Canada may be gaining in the population race, but it’s falling behind in productivity, said the economist. California’s gross domestic product was 1.7 times that of Canada in 2022.

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Kelley Keehn, founder of Money Wise Workplaces, offers some tips on how to stay within a budget when you travel this summer and avoid fraud. In conversation with the Financial Post’s Larysa Harapyn, Keehn explains why you also might  want to go on a spending diet when you come back from your vacation. Watch the video for more tips 

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Today’s Posthaste was written by Pamela Heaven, @pamheaven, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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