Many Canadian businesses in life and death situation

Significant business exits during the pandemic will leave a void that will need to be filled by new businesses once the crisis is over

The COVID-19 pandemic poses a major challenge for Canadian business, putting many firms in a life and death situation and for nearly a third of firms revenues have declined by 30 per cent or more, with small and medium businesses especially hard hit, says a new report released Tuesday by TD Economics.

The report, Assess the Stress: Checking In On The Health of Canadian Businesses, said nearly one-in-five firms state that they cannot survive at their current level of revenue for more than six months.

“Given the severity of the crisis, all levels of government have rolled out significant financial support measures. These have helped many businesses to stay afloat despite large revenue shortfalls,” it said. “Still, even as fiscal taps remain open, many firms, already weakened by the first bout of the health crisis, will find it harder to survive the second wave. The start of vaccine distribution offers a glimmer of hope, but many businesses are running out of time. Of those that do survive, higher debt burdens are likely to weigh on profitability and growth for years to come.

“Surprisingly, even as other indicators are flashing red, business insolvencies have remained relatively benign last year. Depressed insolvency rates may offer more reasons for concern than optimism, as it likely captures increased reliance on borrowed funds as well as higher business exits. Only time will show the true rate of business survivorship and scarring, which will only become evident when temporary financial supports recede along with the pandemic.

“Significant business exits during the pandemic will leave a void that will need to be filled by new businesses once the crisis is over. Elevated personal saving and lower commercial rents should help new businesses to start on a solid footing.”

 

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