A recent Market Pulse Business Credit Trends Report reveals a shifting credit usage pattern and increased financial stress in key sectors.

Decline in Instalment Loans and Increasing Credit Card Usage

The Equifax Canada Market Pulse Business Credit Trends Report for the first quarter of 2023 has highlighted a trend of credit expansion and a significant shift in credit usage, suggesting potential difficulties for businesses. An increase in financial stress in the industrial and financial trades is also evident.

Currently, the total outstanding balance on bank-issued installment loans in Canada stands at $12.9 billion, marking a year-over-year decline of 2.4 per cent. This is the first such decline since 2019, when Equifax started tracking this data. Conversely, credit card balances grew by 15 per cent, and lines of credit saw an 11 per cent increase during the same period.

Jeff Brown, Head of Commercial Solutions at Equifax Canada, pointed out that this trend of declining instalment loans and increased credit card usage could restrict business growth potential and impede their ability to make larger investments.

The report also highlights the significant decrease in loan balances, despite instalment loan balances growing more than 35 per cent compared to 2020. This trend indicates that borrowers may be shifting towards credit products that offer more flexibility in repayment periods and interest rates, particularly in light of recent interest rate hikes by the Bank of Canada.

Drop in New Business Starts

The first quarter of 2023 has also seen a slowdown in new business openings, breaking from the growth trend of the past two years. New business starts have fallen year-over-year by 16.5 per cent in Ontario, 14.2 per cent in B.C., 11.4 per cent in Alberta, and 7.5 per cent in Quebec.

Industrial and Financial Trades Under Pressure

Rising financial stress is apparent in the industrial and financial trades. Brown noted that late delinquencies in industrial trades are nearing pre-pandemic levels, increasing by nine per cent within a 60-day window annually. This stress seems particularly concentrated in trades in British Columbia and Alberta.

Furthermore, early delinquencies in both financial and industrial trades are persistently rising. Brown explained, “Typically, businesses prioritize paying their suppliers to maintain operations, but it is concerning to see consecutive quarterly increases in delinquencies on the supplier side as well.”

Canadian Businesses Stay Optimistic

Despite the challenges of rising interest rates and high inflation, 73.5 per cent of businesses surveyed by Statistics Canada remain optimistic about their future over the next 12 months.

Brown acknowledged regional gains in the demand for commercial credit as a positive sign of resilience and optimism among Canadian businesses. “However, it is essential to consider the potential consequences of the current credit landscape,” he said. Equifax Canada continues to monitor the situation, providing critical data to support businesses and lenders in making informed credit decisions during these uncertain times.

The report underscores the importance of financial institutions and lending organizations adapting their offerings to meet evolving borrowing behaviours, aiding individuals and organizations in making informed decisions about their credit choices.