Canadian entrepreneurs’ needs and challenges: interest rate hikes slow 2023 investments

SMEs prioritize operational efficiency over growth and debt repayment

Report highlights:

  • More than half (52%) of business owners believe the economy will deteriorate in 2023.
  • Most businesses plan to limit investments due to economic uncertainty (26%), interest rate hikes (22%) and declining sales (18%).
  • Despite rate increases, 45% of SMEs do not fear for their profitability and estimate their sales will be similar to what they were last year (42%). Three-quarters are comfortable with their current level of debt.

Montreal, December 13, 2022 – While most Canadian SMEs expect an economic downturn in the coming year, 45% do not fear for their profitability, according to BDC’s study entitled “Canadian Entrepreneurs’ Needs and Challenges: 2023 Outlook.

The study reveals that SMEs are rather pessimistic about the current inflationary environment: most companies (52%) believe that the worst is yet to come. They continue to feel the effects of persistent inflation, supply problems and the war in Ukraine. The slowdown in growth has impacted their planning, and 31% are unprepared for it.

“Most Canadian businesses (88%) say they are profitable and consider their debt level to be comfortable (75%), which may explain why about two-thirds (69%) say they are prepared to weather an economic downturn,” says Pierre Cléroux, Vice President, Research and Chief Economist at BDC.

However, businesses in accommodation and food services, which are facing greater debt, are less prepared than businesses in other sectors. The slowdown will also be more pronounced in the construction and real estate sectors, which will continue to be negatively impacted by high interest rates. Reducing losses and debt, as well as increasing productivity, are the main measures put forward to limit the impact of this slowdown.

Important challenges ahead

The next few months will be difficult for entrepreneurs in Canada, who cite rising costs (47%), the economic slowdown (40%) and internal cost control as the main obstacles to their activities. Over the next 12 months, SMEs still plan to invest and prioritize operational efficiency (38%) over growth projects and debt repayment.

“In 2023, investing to be more efficient will be a way for many businesses to limit their decrease in profitability under current economic conditions,” says Cléroux.

In 2022, the Bank adopted a renewed strategic vision with an intention to fulfill its role as a development bank even more ambitiously over the next few years, including as a shock absorber during economic downturns. As a result, BDC is creating a series of concrete and innovative measures that will expand the scope of its activities and use its solid financial footing to support more entrepreneurs in their development and growth.

BDC’s study was conducted in November of 2022 among 1,500 Canadian small business owners to find out their level of confidence in the economy, their business prospects and their investment plans for the next 12 months.

About BDC

As Canada’s development bank, BDC is a partner of choice for all entrepreneurs looking to access the financing and advice they need to build their businesses and tackle the big challenges of our time. Our investment arm, BDC Capital, offers a wide range of risk capital solutions to help grow the country’s most innovative firms. We are one of Canada’s Top 100 Employers and Canada’s Best Diversity Employers. For more information on BDC’s products and services and to consult free tools, templates and articles, visit bdc.ca or join BDC on social media.

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