VANCOUVER: Business insolvencies have been on an upward trend since mid-2021, according to StatsCan data, but a new report by the Canadian Federation of Independent Business (CFIB), entitled Small Business Insolvency: The Tip of the Iceberg?, finds that only 9% of B.C. small 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 51% of B.C. business owners are yet to return to normal, pre-pandemic revenue levels. More than half of B.C. businesses (56%) are still carrying pandemic debt, and only 12% have been able to pay it back in full.
But it’s not just the lingering effects of the pandemic that has led to the surge in business closures and insolvencies. Rising operating costs, coupled with a lack of demand and interest rate hikes, are significantly affecting BC small businesses, causing 17% to actively consider claiming bankruptcy or winding down their business.
“We’re suffering from a severe staffing shortage. And the drastic increase in the cost of materials and supplies has eaten into our profit margins and made it impossible to pay back any debt we took on during the pandemic,” a business owner from Hospitality sector, Alberta.
Another business owner from Professional Services sector, British Columbia was quoted in the report, saying, “The first quarter of this year was the hardest since the pandemic began. We’re still feeling the aftershocks. When it comes to increasing our business, my hands are still tied because many of our clients haven’t fully returned. The impact of the pandemic isn’t over for me or our company.”
“BC small businesses are in for a rough recovery, but governments can step in and help by taking concrete measures,” said Annie Dormuth, BC Provincial Affairs Director at CFIB. “The BC government has the ability and tools to help small businesses by refunding WorkSafeBC’s $3.4 billion surplus, providing school tax property relief, and helping businesses afford 5-employer paid sick days.”
“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 federal government to help ensure the viability of small businesses and help keep their operating cost down. The recommendations include:
- Increasing the forgivable portion of the Canada Emergency Business Account (CEBA) loan to at least 50%
- Extending the repayment deadline for CEBA loans to qualify for partial loan forgiveness to December 2024
- Increasing the small business deduction to $600,000 (currently $500,000)
- Freezing planned federal tax hikes, including the 2022 increase in CPP, EI, carbon and liquor taxation, and reducing the provincial payroll tax burden
- Immediately implementing the promised reduction in credit card fees for small merchants
“Small firms are in for a rough recovery, but governments can step in and help by taking concrete measures,” Kelly added. “Governments need to decide whether they will make the problem worse by raising taxes or take immediate actions to keep many businesses from disappearing for good.”
