Canada Economic Growth Slows, SMB Lending Cools

Data is expected to show slower economic growth across Canada for the second half of 2017 and, along with it, a slowdown in small- and medium-sized business (SMB) lending, according to new research from small business credit data and analysis firm PayNet.

In its “Small Business Lending Index,” released Tuesday (Dec. 19), PayNet found a downturn in borrowing among medium-sized businesses for the month of September, with the index itself declining to 111.4 points from its previous 115.2.

“It looks like a hiatus or a temporary hold on investment,” reflected PayNet president Bill Phalen in a statement.

According to researchers, the manufacturing industry significantly contributed to the trend, despite previous hopes that borrowing in the space would be strong, and thanks to a weaker Canadian dollar. Agriculture and wholesale also saw downturns in SMB borrowing activity.

Still, PayNet said the overall health of small businesses in Canada was “strong,” with a decline in the percentage of SMBs 30 or more days delinquent (0.88 percent, down from 0.91 percent). In addition, the percentage of small businesses 90 days or more delinquent remained at 0.28 percent.

Earlier this year, separate data from CIBC Capital Markets, an investment banking subsidiary of the Canadian Imperial Bank of Commerce, found significant growth among small businesses in Canada. Forty-two percent of job creation in the country in the past decade stemmed from firms with fewer than 100 employees, and 350,000 new businesses were created in Canada in 2016 alone.

Another report released last year by the Canadian Federation of Independent Business, a non-profit business organization representing more than 109,000 Canadian SMBs, suggested SMBs are increasingly turning away from the Big Five banks — Bank of Montreal (BMO), Bank of Nova Scotia (Scotiabank), Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD) — in favor of alternatives like credit unions and marketplace lenders. Analysts pointed to high fees from the big banks as a key factor in this shift.