Canadian Lending Steady for Now

Canadian Small Businesses

Leading Indicator for Small Business Investment Shows Small Businesses Driving Economic Growth

The PayNet Canadian Small Business Lending Index, a leading indicator of small business health and confidence, increased 7% over the prior year in December, representing the eighth consecutive year-over-year increase. While small businesses have continued to provide growth, medium-sized businesses are on a 14-month contraction streak. The PayNet Canadian Medium Business Lending Index shows mid-sized companies are still struggling with another challenging month of contraction at -19% year-over-year. Notable changes in industry sectors included Accommodation & Food, which experienced its seventh consecutive monthly decrease (-3.2% M/M) and is now up only 3% compared to a year ago, and Manufacturing, which saw its sharpest monthly decline in more than nine years and is now down 6% over the last 12 months.

"Healthy borrowing and investment at +7% compared to last year shows real activity underway by Canadian small businesses," said PayNet, Inc. President William Phelan. " Small business investment remains a growth engine for the Canadian economy, even as medium-sized businesses are continuing their downward trend.”

Delinquencies Mostly Staying Low

Higher small business borrowing and investing is partly a result of currently low levels of loans past due. The PayNet Canadian Small Business Delinquency Index measuring loans 30+ days past due remains benign at 0.96% which is steady at the average for the past 6 months. Loans severely past due also remain moderate at only 0.26% past due which is lower than the 0.31% past due over the prior six months. These consistently moderate levels signal strong financial health. The combination of investment and financial health means small businesses will provide a source of growth for the Canadian economy over the next few months.

Accommodation & Food businesses remain in their long-term range of past due at 2.09%. Manufacturing delinquencies have been on the rise for most of the last year, and the current rate of 2.42% is in the top-half of all historical readings. Two other sectors to watch are Professional Services at 1.90% and Wholesale Trade at 2.00%. Not only is the former rate in the top half of all readings, but it has increased in five of the last six months on a month-over-month basis and six consecutive months on a year-over-year basis. The latter rate is in the top 40% of all readings and has increased month-over-month by double digits for two months in a row. It has also increased year-over-year for nine consecutive months.


"The consistency of investment at healthy single-digit Y/Y rates with the low past-dues suggest that economic conditions are healthy for now," said Phelan. "While growth at low risk is good, several factors such as weaker recent trends, the persistent contraction in larger businesses, and rising delinquencies in certain key sectors like manufacturing inject some doubt and uncertainty into this expansion cycle. A downturn among the smallest businesses leaves fewer sources of growth to power the Canadian economy."