Toronto, Aug. 18, 2022 — Business insolvencies have been on an upward trend since mid-2021, according to the federal government, but a new report by the Canadian Federation of Independent Business (CFIB), entitled Small Business Insolvency: The Tip of the Iceberg?, finds that only 10% of business owners would file for bankruptcy if they were to permanently close down.
“Official Canadian data on small business bankruptcies doesn’t account for zombie companies or businesses that would rather wind down than file for bankruptcy. Our research provides a broader perspective on business insolvencies in Canada and shows that the rising number of small business bankruptcies is just the tip of the iceberg,” said Simon Gaudreault, Chief Economist and Vice-President of Research at CFIB.
CFIB’s recent data shows 54% of business owners are yet to return to normal, pre-pandemic revenue levels. Nearly two out of three Canadian businesses (62%) are still carrying pandemic debt, and only 10% have been able to pay it back in full.
But it’s not just the pandemic that has led to the surge in business closures and insolvencies.
Rising operating costs, coupled with a lack of demand and hikes in interest rates, are significantly affecting small businesses.
“During the pandemic, government loans and subsidies helped many small businesses to stay open, but now those programs have closed, despite the fact that a majority of businesses are still not back to their pre-pandemic sales levels,” said Dan Kelly, CFIB president. “With an average debt of $158,000 per business and mounting cost pressures on virtually every line of a small business budget, it’s no wonder many businesses are unable to pay off their debt and continue to struggle.”
CFIB is urging the governments to help ensure the viability of small businesses and help keep their operating cost down. The recommendations include: