Canadian entrepreneurship falls as credit strain rises

Canadian entrepreneurship declined in the first quarter of 2026, according to Equifax Canada's latest business credit data, which also showed more companies falling behind on payments to banks and lenders.

The figures point to weaker business formation alongside mounting strain in parts of the credit market.

Across 2025 and into early 2026, fewer people sought loans to start a business, with inquiry volumes down across a range of sectors. The number of active young businesses aged 24 months or less fell 38.7 per cent, a sharp contraction in a segment that makes up a large share of the country's business base.

That drop came even as Equifax Canada's Small Business Health Index rose to 100.9 in the quarter, up 2.3 per cent from the previous quarter and 1.5 per cent from a year earlier. The gain was driven by stronger future expectations, with small-business economic sentiment up 6.5 per cent quarter on quarter.

Credit strain

The credit picture was mixed. Nationally, the 60-day-plus delinquency rate for financial trades rose 11.37 per cent from a year earlier to 3.83 per cent, while the equivalent rate for industrial trades fell 26.15 per cent to 4.32 per cent.

Financial trades cover missed payments on bank loans, business credit cards, lines of credit and other lender obligations. Industrial trades track how reliably businesses pay suppliers and trade partners.

At the more severe 90-day-plus threshold, financial trade delinquencies climbed to 3.6 per cent, while industrial trade delinquencies fell to 3.1 per cent. The pattern suggests many businesses are protecting supplier relationships needed for day-to-day operations while allowing more stress to emerge in repayments to lenders.

The total number of commercial entities in delinquency fell 10.4 per cent year on year, indicating that pressure is becoming more concentrated among certain businesses rather than spreading evenly across the market.

"Many businesses seem to be protecting the day-to-day supplier relationships needed to keep operating, while also managing bank debt, longer-term loans, and other lender obligations. This appears to be a continuation of the divide we saw late last year," said Jeff Brown, Head of Commercial Solutions at Equifax Canada.

"Businesses are cutting back on credit cards and lines of credit, but late payments to banks and lenders are still rising. That suggests many companies are being very deliberate about where their cash goes, prioritizing supplier payments over other financial obligations," Brown said.

Shift in borrowing

Businesses reduced their use of short-term revolving credit in the quarter. Total line of credit balances fell 21.3 per cent year on year to CAD $1.55 billion, while business credit card balances declined 17.2 per cent to CAD $5.54 billion.

At the same time, average instalment loan debt, which includes longer-term business borrowing repaid in scheduled amounts, increased 3 per cent to CAD $129,421. That suggests some companies are moving away from flexible short-term borrowing and relying more on structured debt.

Brown warned that lower revolving balances did not necessarily signal healthier operating conditions.

"Reducing credit card and line-of-credit balances can be a sign of discipline, but it does not automatically mean business conditions are improving," Brown said.

"The concern is that some businesses are carrying more longer-term debt. If late payments start to rise on those obligations, it could cause deeper cash-flow strain," he said.

There are already signs of that pressure. The 60-day-plus delinquency rate for instalment loans reached 3.98 per cent in the first quarter, overtaking the rate for business credit cards, which stood at 3.86 per cent. Because more established firms often use instalment loans, the increase suggests stress is extending beyond early-stage or thinly capitalised businesses.

Higher-risk firms

Debt pressure was not evenly distributed. The fastest growth in debt loads came from newer businesses with credit files open for 13 to 24 months, while firms with files open for 36 months or more saw debt levels flatten or edge lower.

Businesses in the highest-risk tier posted a 35.8 per cent increase in debt levels from a year earlier. They also carried the largest average debt load at CAD $108,138 per business, up 32.2 per cent and nearly double the level in any other risk category.

"Higher-risk businesses are carrying more of the strain," said Sinéad Gleason, Commercial Solutions Lead at Equifax Canada.

"That matters because it can point to where future credit losses, closures or restructuring pressures may emerge if conditions stay the same," Gleason said.

Gleason said business owners do not always fit the same credit profile as consumers. Equifax Canada's data on business principals showed they had 44 per cent more trades, more than double the average balance, and more than 30 per cent higher utilisation than the average Canadian consumer.

"The current economic environment means that it is more important than ever for lenders to try and get business credit decisions right. While lenders have traditionally relied on the personal credit profile of the business owner to make the credit decision, Equifax data shows that lenders might want to consider a different approach," Gleason said.

"One of our key findings is that traditional credit risk indicators do not always lead to higher delinquency outcomes for the business principal population. Who you are as an individual doesn't always correlate to who you are as a business owner. Business owners may have different credit usage patterns than the average person, but that doesn't mean they are not a good candidate for credit," she said.

Regional splits

Ontario recorded the highest financial trade delinquency rate in the country at 4.22 per cent, up 13.93 per cent from a year earlier. Its industrial trade delinquency rate was 4.31 per cent, down 25.56 per cent.

Quebec showed a different pattern, with financial trade delinquencies rising 3.20 per cent to 3.60 per cent and industrial trade delinquencies falling 25.88 per cent to 3.41 per cent. Stronger commercial credit demand in the province may indicate some businesses are using borrowing to manage operating pressure rather than to expand.

In Western Canada, financial trade delinquencies also rose, while supplier payment stress eased. Alberta's financial trade delinquency rate reached 3.72 per cent, and British Columbia's rose to 3.32 per cent. In comparison, Alberta and Saskatchewan recorded the highest industrial trade delinquency rates nationally at 5.34 per cent and 5.33 per cent, respectively.

Atlantic Canada also registered sharp increases in lender-payment stress, including Prince Edward Island, where financial trade delinquencies rose 21.60 per cent year on year, and Nova Scotia, where they increased 19.26 per cent.

"Equifax is committed to partnering with small-business lenders to support the growth and long-term health of Canadian small businesses," Gleason said.