Canada

Canadian Business Credit Demand Slows, Signaling A Slowdown For Economic Growth

Canadian businesses are borrowing less cash, and that could be a sign of things to come. Bank of Canada (BoC) numbers show business credit outstanding hit a new record in November. Despite the record high, growth continues to come in lower and lower. This is often a sign that businesses are seeing fewer growth opportunities.

Why Do You Care?

Business credit growth is one of the areas you want to see grow – and fast. Generally, growth accelerates as businesses see their future prospects grow. After all, companies generally borrow when they see expansion only limited by capital. High growth is good for the most part, with a few exceptions.

Businesses begin to borrow less when they max out their credit or growth. If companies are floating in too much debt, or they don’t see expansion opportunity – they stop borrowing. When this happens, especially suddenly, the economy can experience a general slowdown. If employers aren’t seeing growth, employees can start to see that trickle down. Hey, I guess trickle down economics do work – at least sometimes.

Business Credit Growth Slows To Slowest Pace In Years

Canadian businesses have been slowing down how much they borrow recently. The balance of outstanding loans reached $2.24 trillion in October, up $3.78 billion from a month before. That works out to an increase of 5.33% from the same month a year before. It seems like a big number in contrast to household debt, but it’s actually slow for the past decade.

Canadian Business Credit

The outstanding balance of Canadian business credit.

Source: Bank of Canada, Better Dwelling.

The pace of growth is slow for the period, and has been getting slower recently. The 5.33% 12-month growth is the lowest for October since 2016. It’s also the highest in 12-month growth for any month, since January 2017. Generally, the trend has been moving lower since peaking two years ago.

Canadian Business Credit Growth

The 12-month growth rate for the outstanding balance of Canadian business credit.

Source: Bank of Canada, Better Dwelling.

Canadian credit growth in general has been trending lower over the past year. Household credit has been seeing mild acceleration over the past few months. However, the pace of growth has been near historic lows. Now business credit is starting to follow the same slowdown. On the upside – almost a decade of consistently high growth wasn’t too shabby.

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5 Comments

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  • Tommy 3 months ago

    Why invest in businesses, if your house is going to make more than a business can? 🤪

    • Cash 3 months ago

      You’d be shocked to learn how many small/medium businesses have levered up their companies to buy residential real estate.. Cough cough… looking at all you bankers who read BD..

      • Tom Wolfe 3 months ago

        True, and the flip side to my comment below.

        At only $2B profit every 90 days for the each of the big 5, I’m sure a bailout is the talk of all the NYE parties in Forest Hill.

  • Simon 3 months ago

    I guess we’ll have to lower interest rates even further! That will obviously help, said Japan.

  • Tom Wolfe 3 months ago

    Possibly because small business relies on home valuation to leverage credit. Is the impact of foreign investment and money laundering going to destroy our small business ecosystem?

Comments are closed.