In recent comments to Bloomberg, Canadian Federation of Independent Business president Dan Kelly predicted the damage done to the economy by measures to slow the COVID-19 pandemic will spell the end for an obscene number of businesses.
Kelly said on Wednesday that, even with the assistance provided by government support programs, he sees “no scenario under which there are not tens of thousands of permanent business closures.”
It’s an alarming projection, but according to BMO chief economist Doug Porter, Kelly’s estimate is reasonable.
“Those numbers seem quite realistic,” Porter told MBN in an email. “I would point out that in a typical year, there are often as many as 140,000 new businesses created in Canada and almost that many that “exit” every year. That is by no means to downplay the figure, and there will no doubt be plenty of hardships among small businesses.”
A series of weekly surveys conducted by the CFIB illustrates growing anxiety among the Federation’s members. The most recent data show that 80% of businesses are either partially or fully closed because of COVID-19, an increase of approximately 27% over the past four weeks.
That lack of business has left a gaping hole where revenues should be. The CFIB survey found that 55% of respondents have experienced a decrease in gross sales revenue of at least 50% since the outbreak of COVID-19. As of April 16, the average amount the extended disruptions have cost respondents was $203,461.
(Interestingly, 44% of respondents said they are unsure if their businesses will survive if current conditions are kept in place until the end of May, yet only 36% have tried to apply for the Canada Emergency Business Account.)
Just how many of these impacted businesses wind up going broke remains to be seen. But if Kelly’s prediction is even marginally accurate, it will mean fewer businesses turning to lenders for funding.
“As far as the lending space is concerned, certainly loan losses will rise,” says DLC’s Dr. Sherry Cooper, who stresses the uncertainty of the current situation. “Banks and other lenders are already increasing reserves for these losses. How much these losses will be depends on how long this lasts.”