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Debt Pressure Building Up for Canadian Businesses

1. Delinquencies among Canadian businesses have increased significantly in Q1 2025. 2. Credit demand dropped by 6% year-over-year, reflecting cautious business sentiment. 3. The Canadian Small Business Health Index declined, signaling potential economic pressures. 4. Certain sectors, like Retail and Accommodation, struggle with high delinquency rates. 5. Businesses are prioritizing supplier payments over banking obligations amid cash flow issues.

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FAQ

Why Bearish?

Rising delinquencies and declining credit demand suggest deteriorating business conditions. Historical precedent shows similar scenarios often lead to economic downturns, negatively impacting financial institutions like EFX.

How important is it?

The emerging trends in business delinquencies and credit demand are critical metrics for Equifax's operations. An increase in delinquencies directly relates to a decrease in demand for credit reports, thereby affecting EFX's earnings.

Why Short Term?

Immediate effects will be felt as increased delinquencies can lead to tighter credit conditions in the near future, impacting Equifax's revenue from credit reporting and analysis services.

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- Delinquencies climb, credit demand dips, and regional cracks deepen - Equifax® Canada Market Pulse — Q1 2025 Quarterly Business Credit Trends and Insights Report TORONTO, June 10, 2025 (GLOBE NEWSWIRE) -- After a cautiously optimistic end to 2024, Canadian businesses seem to have entered 2025 with trepidation. According to the Equifax® Canada Q1 2025 Business Credit Trends and Insights Report, delinquencies are rising for businesses across the country and credit demand is slowing, while key sectors are showing early signs of distress — especially those tied closely to consumer trends, with delinquency rates not seen since 2009. The Canadian Small Business Health Index1, a benchmark of business credit health and business sentiment, dropped to 99.3 in Q1 2025, a 1.5 per cent decline from the previous quarter. While still slightly above its year-ago level, the dip signals a loss of momentum following gains made late last year. Alongside rising delinquencies, Equifax data shows a noticeable slowdown in credit demand, as fewer businesses applied for new credit in Q1 2025, a decline of six per cent when compared to the same time period in 2024. Lower new originations and growing balances could signal growing caution among small business owners, many of whom could be choosing to manage existing debt rather than take on new risk, even with interest rates easing and inflation stabilizing. "The Canadian Small Business Health Index shows that business sentiment is down three per cent in Q1 2025 compared to the previous quarter," noted Jeff Brown, Head of Commercial Solutions at Equifax Canada. "The early months of 2025 are revealing the pressures the business landscape could be facing. Many businesses are caught in a squeeze from both slowing household consumption on one hand and growing business debt stress on the other." Credit Warning Signs Widen In Q1 2025, over 309,000 businesses — 11.3 per cent of credit active businesses — missed at least one credit payment. This marks a 14.6 per cent year-over-year increase in business delinquencies and highlights the growing financial strain across sectors. _______________________________ 1 The Canadian Small Business Health Index provides a holistic view of Canadian business conditions by combining data collected by Equifax Canada, Business Development Bank of Canada, Statistics Canada and the Bank of Canada. Accommodation & Food Services and Retail Sector Missing PaymentsThe impact is particularly acute in Accommodation & Food Services, where missed payments jumped to 16.9 per cent, and in Retail Trade, where the rate hit 13.2 per cent. Both sectors are likely suffering from weak consumer spending, rising operating costs, and growing household debt levels. Average monthly consumer credit card spend2 per cardholder fell by 107 dollars during Q1, dropping to the lowest level since March 2022. “This seems to be a classic ripple effect,” said Brown. “Equifax data suggests when households pull back, restaurants, retailers and local service providers feel it first — and hardest. This can then travel up the supply chain, where everyone from manufacturers to transport companies feel its effects.” Businesses Prioritize Suppliers Over LendersDelinquency trends suggest a shift in how businesses are managing limited cash flow. The 60+ day delinquency rate for financial trade (loans, lines of credit) rose from 3.0 per cent to 3.4 per cent, a 15.5 per cent increase year-over-year. In contrast, industrial trade delinquencies (typically money owed to suppliers) rose more modestly, from 5.5 per cent to 5.7 per cent. “Businesses are paying suppliers, but with little to spare, they may be missing banking obligation payments. This may signal that businesses are strategically recalibrating, with many businesses prioritizing supplier relationships to keep operations moving,” added Brown. Regional Flashpoints in PEI, Quebec, Ontario and British Colombia While delinquencies are rising nationwide, some provinces and industries are flashing red: Ontario and British Columbia led the country in financial trade arrears, up 18.8 per cent and 19.9 per cent year-over-year, respectively.
Quebec and Prince Edward Island posted unusually sharp increases in industrial trade delinquencies, up 26.6 per cent and 15.9 per cent year-over-year, respectively, signaling localized stress in supplier-based credit relationships.
 Certain sectors are showing strain Sectors showing double-digit increases in year-over-year missed payments include Agriculture (+19.5 per cent), Transportation & Warehousing (+19.3 per cent), Real Estate (+17.0 per cent), Finance & Insurance (+16.4 per cent), and Manufacturing (+10.2 per cent).
 “Businesses across the country and across a variety of industries are showing increased vulnerabilities as broader economic uncertainty continues,” noted Brown. “Businesses will continue to need resilience and careful planning to navigate this economic environment.” _______________________________ 2 Average monthly consumer credit card spend comparisons have been adjusted for inflation. Province Analysis - 60+ days Delinquency Rates (Account Level) ProvinceDelinquency Rate : Financial Trades (Q1 2025)Delinquency Rate Change: Financial Trades(Q1 2025 vs. Q1 2024)Delinquency Rate: Industrial Trades (Q1 2025)Delinquency Rate Change: Industrial Trades (Q1 2025 vs. Q1 2024)Ontario3.71%18.85%5.63%4.97%Quebec3.49%13.31%4.59%26.55%Nova Scotia2.47%1.06%6.19%8.05%New Brunswick2.82%5.17%4.73%-6.22%PEI2.37%0.34%4.45%15.90%Newfoundland2.71%-1.15%4.90%-12.19%Eastern Region3.58%16.67%5.21%12.51%Alberta3.49%8.90%7.07%-13.30%Manitoba3.10%16.43%4.54%-1.60%Saskatchewan2.79%-0.11%6.47%3.36%British Columbia2.94%19.93%6.56%-10.66%Western Region3.17%13.00%6.50%-9.74%Canada3.44%15.50%5.69%3.52%      * Based on Equifax data for Q1 2025 About EquifaxAt Equifax (NYSE: EFX), we believe knowledge drives progress. As a global data, analytics, and technology company, we play an essential role in the global economy by helping financial institutions, companies, employers, and government agencies make critical decisions with greater confidence. Our unique blend of differentiated data, analytics, and cloud technology drives insights to power decisions to move people forward. Headquartered in Atlanta and supported by nearly 15,000 employees worldwide, Equifax operates or has investments in 24 countries in North America, Central and South America, Europe, and the Asia Pacific region. For more information, visit Equifax.ca. Contact: Andrew FindlaterSELECT Public Relationsafindlater@selectpr.ca(647) 444-1197 Angie AndichEquifax Canada Media RelationsMediaRelationsCanada@equifax.com

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