In 2024, Canada experienced a significant surge in insolvency filings, with a notable 12.1% increase compared to the previous year. This rise was predominantly driven by business insolvencies, which escalated by 28.6%. Sectors such as construction, transportation and warehousing, and accommodation and food services were among the hardest hit.

Factors Contributing to the Rise in Business Insolvencies

Several interrelated factors have contributed to the uptick in business bankruptcies:

1. Economic Aftershocks of the Pandemic: The lingering effects of the COVID-19 pandemic have left many businesses vulnerable. Despite initial recovery efforts, numerous companies continue to grapple with disrupted supply chains, altered consumer behaviors, and accumulated debts.
2. Inflationary Pressures: Rising costs for raw materials, labor, and transportation have squeezed profit margins. Businesses, especially small and medium-sized enterprises (SMEs), often lack the pricing power to pass these costs onto consumers, leading to financial strain. Given what’s happening in global trade currently, there’s a real danger that inflationary pressures will continue to weigh heavy on Canadian businesses.
3. Interest Rate Fluctuations: The Bank of Canada’s adjustments to its benchmark interest rate, which peaked at 5% before settling at 3%, have impacted borrowing costs. Businesses with variable-rate loans or those seeking new financing have faced higher interest expenses, affecting cash flow and financial stability.
4. Supply Chain Disruptions: Global events, including geopolitical tensions and natural disasters, have led to supply chain bottlenecks. Industries reliant on timely deliveries have faced production delays and increased costs, contributing to financial distress.
5. Labor Market Challenges: A tight labor market has resulted in increased wages and a shortage of skilled workers. Businesses unable to adapt to these changes have struggled to maintain operations, leading to insolvencies.

Outlook for 2025: Emerging Challenges

As we progress through 2025, Canadian businesses face additional challenges that could influence insolvency trends:

1. Potential U.S. Tariffs: President Donald Trump has announced plans to impose a largely unprecedented 25% tariff on Canadian goods entering the US, set to take effect in early March 2025. These tariffs aim to address concerns over undocumented migration and trade imbalances. The impending tariffs have created uncertainty, particularly for industries heavily reliant on cross-border trade, such as automotive manufacturing and agriculture.
2. Global Economic Uncertainty: Ongoing geopolitical tensions, fluctuating commodity prices, and potential shifts in global trade policies contribute to an unpredictable economic environment. Businesses must navigate these uncertainties, which can impact investment decisions and operational strategies.
3. Consumer Behavior Shifts: The pandemic accelerated changes in consumer preferences, with a significant move towards e-commerce and digital services. Businesses that fail to adapt to these shifts may find themselves at a competitive disadvantage, potentially leading to financial difficulties.
4. Technological Advancements: Rapid technological progress necessitates continuous investment in innovation. Companies unable to keep pace with technological changes risk obsolescence, which can contribute to a higher risk of insolvency.

How Can Canadian Businesses Adapt?

With economic uncertainty and rising protectionist policies, Canadian businesses must be proactive in securing their future. Here are five key strategies to navigate these challenges and build resilience:

1. Diversify Markets and Suppliers
   Relying too heavily on the U.S. market poses risks. Expanding into Europe, South America, and Asia can create new revenue streams and provide supply chain stability. A diversified business is a stronger business.

2. Eliminate Interprovincial Trade Barriers
   Reducing internal trade restrictions—on trucking, alcohol distribution, and professional mobility—can unlock new opportunities and keep the economy moving. Removing these roadblocks makes Canadian businesses more competitive at home and abroad.

3. Strengthen Industry Collaboration
   Business leaders, policymakers, and trade associations must work together to map critical supply chains and identify gaps. Understanding where products come from and where they go is the first step in building a more secure, diversified supply network.

4. Regionalize and Integrate Supply Chains
   Setting up production facilities in multiple regions reduces exposure to tariffs and supply disruptions. Vertical integration—owning more stages of the supply chain—also enhances visibility, lowers risks, and ensures greater control over operations.

5. Move Up the Value Chain
   Rather than exporting raw materials, Canadian industries should focus on producing high-value finished goods for global markets. Selling to Europe, China, and India allows businesses to absorb transport costs within higher-margin products, making them more competitive in an evolving global economy.

At Sallyport, we understand the challenges businesses face and provide the capital and strategic support to help them adapt, grow, and thrive—no matter the economic climate.

Navigating the Uncertainty: The Role of Financial Support

In this challenging landscape, access to capital and value-added resources is crucial for business resilience. Financial partners like Sallyport offer tailored solutions to help businesses navigate financial complexities. By providing not only capital but also strategic guidance, Sallyport empowers businesses to adapt to changing market conditions, manage cash flow effectively, and seize growth opportunities.

While the economic outlook for 2025 presents challenges, proactive financial management and strategic planning can equip businesses to withstand uncertainties. Collaborating with experienced financial partners ensures that companies have the necessary support to navigate the evolving economic landscape and emerge stronger.

If you’re already considering insolvency as an option, it still may not be too late for Sallyport to help but reaching out early is the key – contact our team today to talk through your options.