Missed payments increase in Q2 2024, while insolvencies slow and businesses brace for holiday season
Equifax Canada’s Q2 Business Credit Trends Report shows a rise in businesses missing credit payments.
Over 56,000 businesses missed at least one financial trade payment in Q2 2024, an increase of 10.2 percent from the same period in 2023.
The financial trade delinquency rate for payments more than 60 days overdue increased from 2.8 percent to 3.1 percent over the past 12 months, with installment loans driving this rise.
Many businesses rushed to take out installment loans to pay off their Canada Emergency Business Account (CEBA) loans before the deadline, alongside elevated interest rates, contributing to the surge in loan arrears.
Industrial trade delinquencies also rose, with the 60+ day delinquency rate moving from 5.1 percent in Q2 2023 to 5.7 percent in Q2 2024. Businesses that started within the past 24 months are beginning to miss more payments, though their delinquency rates remain lower than the national average.
The construction and retail sectors have faced significant financial stress. In the construction industry, the 60+ day financial trade delinquency rate rose from 2.9 percent in Q2 2023 to 3.3 percent in Q2 2024, while delinquency rates for asset-based loans more than doubled.
In the retail sector, financial trade delinquencies increased from 3.7 percent to 4.2 percent year-over-year. The decline in consumer credit card spending and a rise in missed payments are expected to impact retail businesses as the holiday season approaches.
Retailers are pushing holiday promotions earlier in the year, reflecting a growing reliance on holiday sales to boost revenues. However, the sector may continue to struggle with high delinquency rates as inflation and unemployment strain household budgets.
Despite an increase in missed payments, business insolvencies have begun to slow. In Q2 2024, over 1,500 businesses filed for bankruptcy, a decrease of 23.1 percent from the previous quarter. However, insolvencies are still 41.4 percent higher than in Q2 2023.
While fewer businesses filed for bankruptcy, higher delinquency rates in many sectors reflect ongoing economic uncertainty, elevated interest rates, and external pressures such as natural disasters.
Wildfires in Western Canada, particularly in Alberta and British Columbia, are expected to worsen financial pressures for small businesses.
In these provinces, delinquency rates already exceed the national average, and the recovery from these natural disasters, combined with economic challenges, may be difficult.
However, Alberta's high interprovincial migration over the past 12 months could create new demand and provide short-term relief for some businesses.
“As we analyze the current landscape, while business insolvencies are stabilizing, delinquency rates continue to rise across the board,” noted Jeff Brown, head of Commercial Solutions for Equifax Canada. “Sectors like retail and construction could be feeling the pressure as consumer spending weakens and uncertainty remains high for many Canadian businesses.”
He also highlighted the challenges posed by natural disasters, inflation, and fluctuating interest rates.
Interest rates have gradually been lowered, potentially offering some economic relief to businesses. However, the slow pace of these reductions may be keeping businesses and consumers cautious about making large investments.
“As we head into the holiday season, businesses are preparing for one of the most crucial periods of the year, but many are entering it from a weakened position,” Brown added.
“There is still a lot of uncertainty in the market, and businesses are being very prudent with their financial planning.”
