Surge in loan delinquencies following CEBA conversion: Equifax

Many Canadian businesses are facing an uphill battle, as evidenced by a 41.4 percent surge in business insolvencies in 2023 when compared to 2022. The latest data from Equifax Canada’s Market Pulse Quarterly Business Credit Trends Report also points to a 14.3 per cent uptick in the number of businesses that missed a payment on a credit product (Q4 2023 vs. Q4 2022).

One significant contributor to this mounting stress is the repayment of Canada Emergency Business Account (CEBA) loans. With the deadline for CEBA loan repayments now passed, many businesses find themselves navigating the financial strain of monthly payments accompanied by a higher interest rate _ a stark contrast to the initial terms of interest-free and no monthly payments. On January 19, 2024, CEBA loans converted to a three-year term loan with five per cent interest payable per year.

“Canadian businesses are facing a perfect storm of economic pressures,” says Jeff Brown, Head of Commercial Solutions for Equifax Canada. “The end of the initial grace period for CEBA loans, combined with high input costs, labour expenses, a slowdown in consumer spending and high interest rates, is creating a challenging environment.”

“These factors are contributing to a growing trend of business failures,” continues Brown. “The sharp rise in insolvencies, representing a 30.3 per cent surge since 2019, underscores the financial pressures faced by businesses. There is a need to manage
debt and adapt to changing market conditions through strategic financial planning and proactive measures.”

Delinquencies across business credit accounts continued to rise, with industrial and financial trades experiencing increases in account-level delinquencies. In Q4 2023, industrial trades experienced an 8.8 per cent increase in 30+ day account-level delinquencies, reaching 11.2 per cent.  Installment loan delinquencies reported a significant surge, with early-stage delinquencies up by 12.5 per cent and late-stage delinquencies up by 16.3 per cent year-over-year, suggesting that businesses are struggling with monthly loan payments. Revolving credit (cards and line of credit) delinquencies of 30+ days grew by 1.3 per cent year over year, reaching 3.2 per cent in Q4 2023. Real estate, rental, leasing, and retail trades also witnessed substantial increases in missed payments.