Canadian Small Business Health Index, September 2025

Canada: A cautious outlook clouds growth prospects

The national index continued its descent in Q2 2025, falling to 97.0, a 2.5% decline from the last quarter. Tariffs on certain Canadian exports to the U.S. and China darkened the economic outlook at the beginning of the second quarter. As a result, business sentiment weakened further in Q2, prompting many SMEs to pause their growth projects.

These tariffs’ effects on the Canadian economy have, to date, been less severe than previously anticipated. Towards the end of Q2, uncertainty began to ease as businesses and consumers adapted to the current environment. Goods compliant with CUSMA continued to flow, largely untariffed. Recent indicators suggest Q2 may mark the low point for this year’s pessimism, as business trade inquiries and consumer credit card spending rising to Q4 2024 levels. The business environment component has also been holding, supported by solid employment and normalizing interest rates.

Lower interest rates are also starting to help​​, as​​ delinquency and insolvency rates have remained stable over the first half of the year​​. This resulted in​​ ​​​a small improvement ​in credi​t performance ​​on a quarterly basis (+0.7%) but remains below last year’s level. Overall, some optimism returned as consumers continued to spend. Businesses seem to have avoided their worst-case scenarios as related to trade tensions, but confidence remains subdued.​

Atlantic : A challenging quarter

The index for the Atlantic region dropped by 7.8% in Q2, falling to 93.8, its lowest level since the index began. After a confident start to 2025, SMEs in Atlantic regions felt the weight of shifting markets.

The decline was largely driven by weaker growth projections and deteriorating business sentiment. In Q2, only 8% of businesses in the Atlantic provinces planned to increase investment spending, while 68% expected economic conditions to worsen over the following 12 months.

Credit performance in Atlantic provinces remained relatively unchanged from Q1, at levels seen only in 2023. Insolvencies and average overdue loan amounts are at their highest since Q1 2022. However, delinquency rates remain stable overall. Early delinquency rates (30-60 days) on non-financial trades remain elevated but declining late delinquency rates (90 days or more) are offsetting this risk.

The broader business environment also contributed to the downturn in Q2. Wage growth slowed, and inflation in the Atlantic provinces fell to 1%, the lower end of the Bank of Canada’s target range. Economic uncertainty remained a key concern as a 25% tariff on seafood exports to China affected Nova Scotia and New Brunswick’s economies.

Quebec: Confidence slipped in Q2

Quebec’s index dropped sharply in Q2, falling to 95.9, a level in line with the weakest moments in 2023. This decline reflects a significant deterioration in business sentiment and growth projections, which fell by 16.8% and 6.8%, respectively, compared to Q1 2025. The U.S. tariffs on steel and aluminum had a direct impact on Quebec’s economy as these two products represent 5.1% of the province’s exports to the United States. The tariffs’ increase from 25% to 50% in early June will further exacerbate this pressure.

In this context, SMEs were visibly less optimistic, with 70% expecting economic conditions to deteriorate over the following 12 months, a sharp rise from 45% at the beginning of the year. Trade tensions and persistent uncertainty weighed heavily on financial health and growth ambitions, leading to downward revisions in investment, sales and hiring plans.

Despite this, Quebec businesses are resilient, with delinquency and insolvency rates remaining stable over the last three quarters. This resulted in an improved credit performance of 0.4% over Q1 2025.

Regardless of these challenges, the broader economic environment remained stable throughout Q2. Employment held firm, inflation stayed within the Bank of Canada’s target range, and SMEs benefited from lower borrowing costs compared to the previous year. In turn, businesses’ financing request​s rebounded to Q4 2024 levels. ​​As the economy holds on and uncertainty decreases, the index could start gaining back some lost ground as of next quarter.

Ontario: Outlook offsets gains

Ontario’s index came in at 97.5 in Q2 2025, a 1.5% drop from Q1 2025 and 1.0% from the same time last year.

Business sentiment and growth projections hit their lowest in Q2 2025, as economic uncertainty continued to affect the automotive, metals and forestry industries. Several factors drove this weakness, including declining economic and cashflow outlooks, as well as pessimistic investment, sales and hiring expectations heading into the second half of 2025.

The business environment in Ontario remains healthy, partly offsetting declines in other components of the index on an annual and quarterly basis. Stable inflation near the Bank of Canada’s target, a resilient labour market, and normalizing bond yield spreads are all contributing to this improvement. Consumer credit card average spend has rebounded to 2024 levels, as well.

Credit performance in Ontario was healthier in Q2 2025, increasing by 0.5% from Q1 2025. Delinquencies, insolvency rates, loan utilization and overdue loan amounts remained stable. Despite reduced expectations, businesses remain committed to repaying debt and maintaining regular operations.

Manitoba and Saskatchewan: Sentiment weighs on growth prospects despite a stronger environment

The index for Manitoba and Saskatchewan declined for a second consecutive quarter, to 102.9, a 0.9% decrease from Q1 2025. However, the index remains above last year’s level.

This quarter’s decline was largely attributed to a significant drop in business sentiment. It fell 7.8% quarter-over-quarter, mainly due to concerns surrounding the economic outlook. Tariffs and slowing trade are weighing on growth, with exports declining year-to-date. Manitoba remains highly sensitive to the U.S. demand for its goods, while Saskatchewan is more vulnerable to China’s 100% tariff on canola oil and meal. However, the recent increase in canola prices could partially buffer the impact in Saskatchewan.

While more SMEs anticipate sales to decline in the coming months, hiring intentions remain stable. Investment intentions showed improvement, with 37% of SMEs indicating plans to increase their investment spending. Despite a cautious outlook, the business environment improved by 4.4% from the last quarter, driven by higher employment rates.

Credit performance slightly increased in Q2 by 0.1% from Q1 2025 but remains well below last year’s level. Loan utilization, insolvency and most delinquency rates remain stable since 2024. However, non-financial trade delinquency rates (30-60 days) and overdue loan amounts have stayed high, posing higher overleverage risk for businesses compared to last year. Looking ahead, we expect federal and provincial government plans to invest in large-scale resource projects, particularly in critical minerals, renewable energy and infrastructure development, will bolster the region’s economy.

Alberta: Pessimism dampens strong economic performance

Like other regions in Canada, Alberta’s index is down to 2023 levels at 98.2, a 3% decline quarter-over-quarter and 3.6% drop year-over-year.

Alberta’s environmental factors are positive, with inflation at 1.6%. The labour market remains solid, and the yield spread shows positive momentum, which brings it to 2021 levels.

This does not account for business owners’ expectations for the future. Although confidence showed signs of improvement in the summer, Alberta’s business sentiment reached its lowest level in Q2. A 13.8% year-over-year decrease contributed to the overall decline in the index during the same period (-2.7 percentage points). Business sentiment grew more pessimistic regarding economic and cashflow outlook. Although new business openings and financing requests were stable, weaker sales, hiring and investment intentions limited growth projections. Together, these components significantly lowered Alberta’s index in Q2 2025.

Despite remaining below last year’s level, credit performance is a bright spot compared to last quarter (+0.2%). Delinquency rates and overdue amounts declined, while insolvencies and loan utilization remained stable and contributed to a healthy credit environment. Businesses remained resilient, maintaining normal operations despite ongoing uncertainty in trade relations and federal oil and gas investment.

British Columbia: Sentiment slips further

The index in British Columbia fell to 93.9 last quarter, down 1.1% from the previous quarter and 4.9% year-over-year. The principal factor contributing to the decline was weakening business sentiment, which impacted the index on both a quarterly and annual basis. This increasingly cautious outlook also tempered expectations for future growth. In Q2, 27% of businesses in B.C. expected their total revenue to decrease in the next 12 months.

SMEs in B.C. scaled back their hiring and sales expectations over the next year in Q2 2025. While the province is less exposed to tariffs, uncertainty impacted the real estate market, with fewer housing sales in June compared to last year. Higher wages and employment boosted the business environment component this quarter, but it remained a negative influence on the index year-over-year.

SMEs’ financial health is showing signs of improvement. The credit performance component rose 0.9% quarter-over-quarter. Loan utilization continued its declining trend quarter-over-quarter, while delinquency and insolvency rates remained stable relative to Q1 2025. In the months ahead, we can expect lower interest rates, improved sentiment and government initiatives in housing and natural resources projects to bolster small business health.