Canadian Small Businesses

PayNet Data Show Ninth Consecutive Monthly Decrease in Small Business Lending

The latest data release from PayNet continues to show a slowdown in lending activity to Canadian small businesses. Lending fell for the ninth consecutive month in March and has now fallen on a year-over-year basis for two months in a row, with further annual declines likely in the months ahead. Canadian small businesses appear to be taking a more cautious posture after experiencing robust expansion throughout much of last year.

Another Year-over-Year Decrease for PayNet Canadian Small Business Lending Index

The PayNet Canadian Small Business Lending Index (CSBLI) decreased 0.9% from 109.8 in February to 108.8 in March, marking its ninth consecutive monthly decline. Compared to last March, the Index is down 6.0%, its second straight year-over-year decrease. On a monthly basis, most sectors saw lending contract in March, including Manufacturing (-1.9% M/M), which has fallen in each of the last 11 months and is now at its lowest point since September 2010. However, Professional Services (+2.7% M/M) and Retail (+1.0% M/M) reached all-time highs in March. Across regions, lending growth was mixed. Manitoba (-2.4% M/M) and Alberta (-1.7% M/M) saw moderate decreases, while British Columbia (+2.3% M/M) experienced its fastest monthly growth in nearly two years and Atlantic Canada (+1.4% M/M) reached an all-time high.

Small Business Delinquencies Remain Slightly Elevated

The PayNet Canadian Small Business Delinquency Index (CSBDI) 31-180 Days Past Due held steady at 1.02% from February to March. On an annual basis, delinquencies rose nine basis points, marking the eighth consecutive year-over-year increase. Most industries saw delinquencies increase slightly on a monthly basis, led by Retail (+4bp M/M), Manufacturing (+3bp M/M), and Transportation (+3bp M/M). However, two industries experienced sizable delinquency declines in March: Wholesale Trade (-12bp M/M) and Agriculture (-9bp M/M). On a regional basis, delinquencies rose in four of the seven major regions compared to the prior month, led by Alberta (+4bp M/M) and British Columbia (+4bp M/M). However, current delinquency rates remain in the bottom half of all historical readings across most regions.

The View Ahead

While general economic conditions in Canada remain generally positive, consistent declines in the PayNet Canadian Small Business Lending Index over the last nine months suggest that small firms are exhibiting more caution toward borrowing than they did last year. The recent agreement with the United States to remove US-imposed steel and aluminum tariffs (as well as retaliatory Canadian tariffs on select US products) is encouraging news and may improve small business confidence. However, PayNet data suggest that lending activity is unlikely to return to 2018 levels and may well continue to fall on an annual basis in the months ahead.