Canadian Small Business Lending in Decline

4/12/2019
Canadian Small Businesses

PayNet Data Show Eighth Consecutive Monthly Decrease in Small Business Lending

Monthly Decrease for PayNet Canadian Small Business Lending Index

The PayNet Canadian Small Business Lending Index (CSBLI) seasonally adjusted originations decreased 1.7% from 113.5 in January 2019 to 111.6 in February 2019 — its eighth consecutive monthly decline — and remains below more than half of all historical readings. However, despite the monthly decline, the index still edged up 0.9% on a year-over-year basis because of the strong gains in the index that were achieved in March, April, and May of 2018.

Small Business Lending Remains Healthy in Majority of Industries

On a monthly basis, the majority of major industries saw small business lending expand in February, led by Wholesale Trade (+3.8% M/M). Notably, lending climbed to all-time highs in Professional Services (+1.4% M/M) and Retail (+1.0% M/M). Compared to year-ago levels, lending increased in most industries, including Transportation & Warehousing (+21.0% Y/Y), Agriculture (+15.7% Y/Y), and Retail (+10.0% Y/Y). However, Manufacturing continues to struggle (-14.6% Y/Y) and is now at its lowest point in 8.5 years.

Regional Small Business Lending Activity Still Solid

Compared to January, small business lending increased in four of the seven major regions in February, including British Columbia (+1.4% M/M) which climbed to its highest level in nearly 11 years, and Ontario (+0.1% M/M) which reached a new record high for the 14th consecutive month. However, Quebec (-0.9% M/M) posted its third straight monthly decline after steady increases throughout 2018. On an annual basis, lending rose across all major regions, most notably in Atlantic Canada (+19.3% Y/Y), Alberta (+11.4% Y/Y), and Manitoba (+10.0% Y/Y).

Small Business Delinquencies Continue to Climb

The PayNet Canadian Small Business Delinquency Index (CSBDI) 31-180 Days Past Due jumped eight basis points to 1.03% in February 2019, the sharpest monthly increase in nearly three years. On an annual basis, delinquencies increased 15 basis points, marking the seventh consecutive year-over-year increase. The majority of industries saw delinquencies rise in February compared to year-ago levels, with double-digit increases in Professional Services (+48bp Y/Y), Wholesale Trade (+32bp Y/Y), and the Other composite industry (+31bp Y/Y). Delinquencies also increased across most major regions, led by Ontario (+28bp Y/Y), Atlantic Canada (+21bp Y/Y), and Saskatchewan (+20bp Y/Y). The lone exception to the trend of rising delinquencies was Quebec (-13bp Y/Y), where the current delinquency rate is among the lowest recorded since 2005.

Mid-Sized Lending Poised to Follow Small Business Lending Trends

The PayNet Canadian Medium Business Lending Index (CMBLI) increased 1.0% from 165.7 in January 2019 to 167.3 in February 2019. However, the index fell 12.7% on an annual basis, its 14th double-digit decline over the past 15 months. The CMBLI continues to indicate a major downshift in lending activity by mid-sized firms.