Trade disputes and weak consumer demand add pressure to small businesses
Canadian small businesses are feeling the squeeze as late payments and economic headwinds pile up, according to new data.
The Q2 2025 Market Pulse – Quarterly Business Credit Trends Report from Equifax Canada shows that a weakening economy, soft consumer demand, and heightened trade uncertainty are leaving many smaller firms struggling to keep pace with financial obligations.
Canada’s real GDP slipped 0.4% in the quarter, undercutting business confidence.
The Canadian Small Business Health Index, which is produced jointly by Equifax and the Business Development Bank of Canada, dropped 1.6% in the second quarter with the decline largely tied to worsening trade tensions and Canada’s growing trade deficit.
On the plus side, lower inflation and recent interest rate cuts provided modest relief for some firms, improving credit performance in pockets of the economy.
More than 286,000 companies failed to make at least one credit payment in Q2, a 5.6% increase over last year and financial loan delinquencies surged 13.5% to 3.48%. However, industrial trade (B2B) delinquencies edged down 1.7% to 5.55%.
Analysts say this indicates many businesses are prioritizing payments to suppliers to keep goods moving, even as they fall behind on bank and financial obligations.
The manufacturing sector has been particularly exposed with delinquent accounts in the heavy metal manufacturing industry jumping more than 12% while the automotive industry remained relatively steady thanks to solid sales, although supply chain risks loom for the months ahead.
Ontario saw missed payments rise 4.3% year-over-year, with both financial and industrial delinquencies increasing. Prince Edward Island recorded a 15.6% spike in businesses behind on payments, and Nova Scotia was up 8.9%. Alberta, however, bucked the trend with delinquencies down 2% compared to a year earlier.
A decline in household spending is also taking a toll with inflation-adjusted credit card spending by consumers down 0.4% from June 2024, with households directing more of their budgets to necessities.
That pullback is showing up in sectors dependent on discretionary income such as a 29.5% jump in delinquencies in accommodation and food services, 13.3% in retail trade, and 7.5% in arts, entertainment and recreation.
“Despite headline inflation easing, cost of essentials like grocery and rent continued to climb, impacting household budgets which could potentially leave less room for discretionary spending,” explains Jeff Brown, head of Commercial Solutions, Equifax Canada. “This shift in consumer spending toward essentials could be causing financial strain and delinquency in businesses that provide non-essential goods and services.”
The Growth Projection measure within the Small Business Health Index slid 2.4% year-over-year, as fewer companies sought new credit or pursued expansion.
While overall credit inquiries dipped 1% from last year, they were up 7% compared with the first quarter, largely from industries including agriculture, construction, and arts and recreation, which also faced some of the sharpest job losses this summer.
"The true economic impact of today's trade tensions and rising unemployment will not be felt all at once. For many regions and sectors, the full effects may only materialize as the year's economic headwinds continue to unfold," cautions Brown.
