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Think small businesses are out of the woods with a maintained key interest rate? Think again, says new BDC study

MONTREAL, December 5, 2023 – One day prior to the Bank of Canada's next key interest rate announcement, BDC has released a study that highlights small and medium-sized businesses’ (SMEs’) vulnerability to high interest rates. While most economists expect the Governor of the Bank of Canada to hold the current rate, the study conducted by BDC—Canada's bank for entrepreneurs—highlights the challenges SMEs face in today’s financial environment, including their difficulty of repaying their debts, even at the current rate.

Higher interest rates for smaller SMEs

This study reveals a significant difference of 6.2 percentage points between the interest rates paid by large and small and medium-sized businesses (SMEs). Part of this gap can be explained by the type of rates contracted by companies: 39% of small SMEs with a commercial loan (other than a mortgage) have a variable rate, compared to 13% of large SMEs.

Uneven impact of rate hikes

The study shows that the impact of the economic context also varies depending on whether a company is smaller (with less than $3 million in sales) or larger (with more than $10 million in sales). Nearly half of smaller SMEs (47%) find it more difficult to repay their debts today than 12 months ago, compared to only a third (32%) of larger SMEs.

“As with households, the economic slowdown and rising interest rates are not affecting all businesses in the same way,” said Pierre Cléroux, Vice President, Research, and Chief Economist at BDC. “Even if the current rate is maintained, many SMEs will continue to pay a rate well above that which they had originally anticipated, particularly the smaller ones, making them particularly vulnerable.”

Investment projects cancelled or put on hold

Half of all SMEs have seen their debt levels increase over the past 12 months as a result of declining economic activity and rising interest rates. And of these, half have experienced reduced profits and a third have even had to use personal savings.

At a time when companies need to continue investing in technology to counter the labour shortage, more than a quarter of SMEs report having cancelled or suspended investments.

This is not particularly good news, according to Pierre Cléroux: “Continued high interest rates seem to have a real impact on business owners’ decisions to cancel or postpone investments, even though these may benefit them in the long term,” he points out. “Canada already lags behind in productivity, so any deferral of investment by SMEs contributes to widening that gap.”

For more information, please read the full study report here.


BDC’s survey was conducted among 1,505 business owners between September 7 and 18, 2023.

About BDC

As Canada’s bank for entrepreneurs, 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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