Advisors serving small business owners may wish to consider the latest research from the Canadian Federation of Independent Business (CFIB) which shows that an increasing number of small businesses are struggling with borrowing costs, more are being asked to put up personal collateral, such as their homes, to secure financing and many have not yet repaid pandemic debts.

“Businesses are in a precarious position,” says the CFIB director or research, Marvin Cruz. “Governments and the banking sector need to consider the current state of small business and support their financing needs if we want to see them succeed and continue contributing to Canada’s economy.” 

Those advising on financial matters should note the share of small businesses seeking financing has surged in the last decade, according to the latest report in the CFIB’s Financing Main Street series. They also say the increased cost of borrowing is putting businesses at risk.

“Since the Bank of Canada started raising its key interest rate to combat inflation, the share of small businesses struggling with borrowing costs has surged from 21 per cent in January 2022 to 39 per cent in May 2023. Businesses with variable financing are currently paying around 9.05 per cent in interest annually, which means they are significantly impacted by increases in borrowing costs,” the CFIB states in an announcement about the research.

The report found that banks are more likely to approve loans to larger firms: 94 per cent of mid-sized firms were approved for financing while only 77 per cent of micro businesses could say the same. “Smaller businesses are also the most likely to have to provide some form of personal guarantee which puts them at personal financial risk,” the CFIB adds, saying in the past year, 52 per cent of micro businesses had to make a personal guarantee; 29 per cent needed to pledge their primary residence as collateral.

In 2022, 58 per cent of small businesses needed financing, they add. This is up notably from the 35 per cent who needed the same in 2012.