Financial difficulties of SMEs | Bankruptcies are “just the tip of the iceberg”

(Toronto) Corporate bankruptcies are on the rise in Canada and more small businesses are at risk of being closed, according to a group of small and medium-sized enterprises (SMEs).

Posted at 11:26 am
Updated at 10:05 p.m

Karim Benessaieh

Karim Benessaieh
The press

After a dramatic drop early in the pandemic, the number of business bankruptcies has been rising since early 2022, data from Canada’s Office of the Superintendent of Bankruptcy shows. For example, in April 2020, 164 bankruptcies or business proposals were reported in Canada, including 80 in Quebec. Last June, 303 were registered in Canada and 175 in Quebec. The construction, accommodation and catering sectors were particularly affected.

The Canadian Federation of Independent Business (CFIB), which has 95,000 members nationwide, also has its own statistics that paint an even bleaker picture. In fact, the number of bankruptcies is “marginal” to get an idea of ​​the financial difficulties faced by SMEs, said Jasmin Guénette, vice-president for national affairs at the CFIB.


Jasmin Guénette, Vice President for National Affairs at the Canadian Federation of Independent Business

“Bankruptcy is the last resort, the most complex and consequential,” he explains. The majority will want to sell the business, close it for good, strike a deal with creditors on a voluntary basis. »

In fact, according to a CFIB survey conducted last June, bankruptcy is the preferred option for only one in ten entrepreneurs.

In addition, 17% of entrepreneurs, or one in six, say they are considering bankruptcy or closing their business. Across Quebec, about 45,000 companies with fewer than 500 employees could therefore close their doors.

“We went through two years and a few months of the pandemic, economic restrictions and restrictions,” recalls the CFIB vice president. Added to this are the labor shortages, inflation, which also affects entrepreneurs, and the problems in the supply chains, many find it unmanageable. »

earned earnings

Rising gross domestic product statistics until recently obscure another reality: 54% of SMEs have not returned to pre-pandemic sales levels, according to the latest CFIB survey. Two in three entrepreneurs, 62% to be exact, still carry debt related to the pandemic through loans from financial institutions or governments. Almost 10% state that they have reimbursed them.

Canadian SMEs have thus accumulated an average debt of $158,000, $108,034 for Quebec SMEs.

Hence the CFIB’s two requests in this regard, first in relation to loans of up to $60,000 made to some 900,000 companies under the Canada Business Emergency Account (CEBA). The repayment period scheduled for December 2022 has been extended to December 2023. The CFIB is requesting a further extension until December 2024.

In addition, a company that repays its loan before its due date is granted a partial write-off of one-third of the loan, up to $20,000. Instead, CFIB is requesting that this write-off be set at 50% or $30,000.

Taxation to the rescue

For Mr Guénette, “governments have an obligation to take action to help companies get out of this situation”. Other options are proposed by the CFIB, including increasing the portion of income taxed at the lower small business tax rate, currently $500,000, to $600,000 and lowering that rate from 9% to 8%. Long-standing demands such as lowering state wage taxes and freezing or reducing labor insurance and pension contributions are being revived. Finally, we call for a reduction in credit card usage fees for small merchants.

“During the pandemic, government support programs allowed many SMEs to remain open, but those programs have now ended,” said the CFIB vice president. The return to normal promises to be long and complicated. »

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