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Loan delinquincies on the rise

The percentage of small- to -mid-size businesses that experienced at least one delinquency rose between April 2022 and April 2024 rose from 4.3% to 4.9%, according to data reported in the Equifax Canada’s Market Pulse Q1 2024 Business Credit Trends Report.

Credit accounts — loans and lines of credit — between businesses and suppliers also show a significant increase in the 30-day-plus delinquency rate — rising from 10.1% in Q1 2023 to 12.2% in Q1 2024.

Similarly, financial trades – or credit accounts between businesses and financial institutions – also experienced an increase in delinquency rates with 30-day-plus delinquencies rising from 3.3% in Q1 2023 to 3.4% in Q1 2024.

Types of business loan delinquincies

Financial trade delinquencies are primarily being driven by missed payments on installment loans and lines of credit. The percentage of businesses that missed repayments by more than 30 days rose from 2.4% and 3.3% in Q1 2023, respectively, to 2.7% and 3.9% in Q1 2024.

Overall credit card delinquencies remained low. However, businesses that have opened new credit cards over the last two years are missing payments at a much faster rate. This may impact delinquency levels later in 2024, the Equifax report states.

Hardest hit industries

The industries leading with this rise in delinquencies on asset-based loans are the transportation and retail industries.

”The rise in missed payments strongly deviates from what would be expected, and may be cause for long-term concern," explained Brown. "The asset-based loans include equipment leases that traditionally have lower-than-average delinquency [rates]." As Brown explained, “this makes sense because if, for example, you're running a pizza restaurant, you don't go delinquent on the lease of your pizza oven or if you’re a trucking company you won’t want to go delinquent on your trucks either because if you do, it's game over for your business.”

Canadian businesses continue to struggle in 2024

More than 53,000 businesses have opened in Q1 2024, up 30% from the first quarter of 2023. However, Canadian businesses are struggling under the weight of rising debt with outstanding financial trade balances hitting a new high of $31.9 billion in Q1 2024 — a 7.4% increase from last year.

Recent interest rate cuts may help

Brown notes that the recent rate cut may become a trend, allowing some breathing room for businesses on debt payments.

Inquiry volumes for financing during the first quarter of 2024 increased 2.4% year-over-year, reflecting strong demand from businesses.

While access to credit may be uneven with lower-risk borrowers receiving a larger share of new trades, there are positive trends emerging. More than 53,000 businesses have opened in Q1 2024, up 30% from the first quarter of 2023.

The industrial sector saw a 6.5% increase in new originations in 2023 compared to 2022. Financial trades also increased with a 3.4% jump in the last quarter and a significant 14.4% boost year-over-year. In spite of some adaptations to the lending environment, these developments are promising for future economic activity according to Brown.

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Nicholas Sokic Contributor

Nicholas completed his master's in journalism and communications at Western University. Since then, he's worked as a reporter at the Financial Post, Healthing.ca, Sustainable Biz Canada and more. Aside from reporting, he also has experience in web production, social media management, photography and video production. His work can also be found in the Toronto Star, Yahoo Finance Canada, Electric Autonomy Canada and Exclaim among others.

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