Canadian Small Business

Small Businesses Feeling Less Helpless After PayNet Data Show First Monthly Increase in Nine Months

The latest data release from PayNet shows that lending activity to Canadian small businesses improved slightly in April after declining for nine consecutive months. Although small business lending activity remains well below levels experienced during the first half of 2018, the April uptick is welcome news and consistent with recent general improvements in the Canadian economy.

Another Year-over-Year Drop for Canadian Small Business Lending Index

The PayNet Canadian Small Business Lending Index (CSBLI) rose from 109.7 in March to 112.3 in April, a 2.4% increase and its first monthly gain since mid-2018. On an annual basis, however, the Index fell 7.0%, its second consecutive year-over-year decrease.

On a monthly basis, five sectors saw lending contract in April, including Manufacturing (-4.1% M/M), which fell  for the 12th consecutive month to its lowest point in nearly nine years. Accommodation and Food (-4.0% M/M) also experienced a sharp decline in April. Three sectors saw lending expand in April, including two (Professional Services, +3.1% M/M; and Retail, +0.6% M/M) that reached all-time highs. Wholesale Trade (+3.0% M/M) also experienced solid growth in April. Across regions, lending growth was mixed, as Manitoba (-2.3% M/M), Alberta (-1.6% M/M), and Saskatchewan (-1.1% M/M) saw moderate month-on-month declines, while Atlantic Canada (+1.5% M/M) climbed to a new record high for the second month in a row.

Small Business Delinquencies Climbing Steadily Year-over-Year

The PayNet Canadian Small Business Delinquency Index (CSBDI) 31-180 Days Past Due held steady at 1.03% from March to April, and the index remains near the bottom third of historical readings. On an annual basis, delinquencies rose 10 basis points, marking the ninth consecutive year-over-year increase.

Roughly half of industries saw delinquencies increase on a monthly basis, led by Retail (+8bp M/M) and Accommodation and Food (+5bp M/M). Wholesale Trade (-11bp M/M) and Agriculture (-2bp M/M), the two industries that experienced significant delinquency declines in March, continued on this trajectory in April. On a regional basis, delinquency levels were also mixed. Manitoba (-7bp M/M) and Saskatchewan (-6 bp M/M) saw delinquency rates decline on a monthly basis, and delinquency levels remain low relative to historic readings in most regions. One notable exception is Alberta (+9bp M/M), which experienced its fifth consecutive monthly rise, driving delinquency levels to their highest point since mid-2017. Delinquencies also ticked up in Quebec (+2bp M/M) and British Columbia (+1bp M/M), though they remain near all-time lows in both provinces.

Looking Ahead

The monthly expansion in small business lending in Canada is consistent with solidifying economic conditions in the second quarter. Canadian economic confidence has rebounded in recent months, as job gains in April hit record highs, posting the largest single-month gain in over 40 years with broad-based employment growth. An uptick in the Canadian SBLI aligns with these broader trends and points to improved economic performance after a sluggish start to the year — though trade risks remain, particularly as US-China disputes threaten to catch Canada in the crosshairs.