More businesses are closing than opening: Canada is experiencing a startup slump
A report released by the Canadian Federation of Independent Business (CFIB) on April 27th has a headline that grabs your attention: the number of business closures in Canada has exceeded new business openings for six consecutive quarters. This isn't a one-month fluctuation; it's a year-and-a-half-long trend. If you're a Canadian SME owner or planning to start a business here, there are things you need to know.
How Bad Are the Numbers?
CFIB data shows that since the second half of 2024, more businesses have closed than opened each quarter. This isn't a provincial issue—Ontario, BC, and Quebec are all in this trend. CFIB uses a metric called 'net business change rate,' simply (new openings - closures) / existing stock. This indicator has been negative for six consecutive quarters.
Let me add some context: CFIB is Canada's largest small business advocacy group, with over 97,000 members. Its data is routinely used by the government and central bank as policy reference. So this isn't fringe data—Ottawa officials are watching it too.
The CFIB attributes this situation to several factors: rising financing costs in a high-interest environment, persistently high labor costs, raw material price volatility, and post-pandemic shifts in consumer behavior—people are buying less and being more selective. These combined factors hit thin-margin sectors like food service, retail, and personal services the hardest.
What Is CFIB Asking For?
CFIB uses this report to urge the federal government with two core demands:
- Reducing the Small Business Tax Rate from 9% to 6%:The current small business tax rate (CCPC) is 9% at the federal level, and CFIB wants it reduced to 6%. This call has been made more than once—we covered it inA previous article calculated the costsIf the policy is implemented, Chinese small businesses with annual profits under $500,000 could save thousands to tens of thousands of dollars each year.
- Raised the small business tax rate threshold:Currently, the small business tax rate applies only to the first $500K of taxable income. CFIB wants to raise this threshold to $700K. Above that, the rate jumps from 9% to 15% federal tax, and combined with provincial tax, the total rate effectively doubles.
The CFIB's logic: tax cuts give existing businesses more breathing room and reduce the chance of closure. Whether it stimulates new business creation is another question.
How Does This Affect You?
Several Angles:
- If You Are Already Operating:You've outlasted competitors who closed—that's a competitive edge in itself. Now focus on lowering your cost structure: check out Ontario's Digital Transformation Grant (Up to $7,000), or BDC's recently launchedLIFT AI Financing ProgramThese are all ways to trade technology for efficiency.
- If You're Planning to Start a Business:Competition has thinned out—this may sound harsh, but it's true. When competitors are exiting, your window of opportunity widens. The catch is that your cash flow needs to be more robust—in the current environment, the first six months of operation will likely burn cash.
- No Matter Which Type You Are:Government grants are a must-grab now. We've previously introducedAmerican Express x DMZ $10,000 Grant(deadline May 19) and the federal $5,000 small business grant, both help you weather the downturn without increasing debt.
The central bank's moves are also sending you a signal
You may have noticedBank of Canada holds interest rate at 2.25%41 economists unanimously predict no further rate hikes this year. This at least means your floating-rate business loan payments won't increase further. If CFIB's tax cut calls are implemented in the spring fiscal statement's follow-up policies, small business owners could see both financing costs and tax burdens decrease.
But don't celebrate too soon. Rates not rising doesn't mean they'll drop quickly. Trade uncertainty remains (Constant tariff newsThis means the central bank will be very cautious about cutting rates. If your business loan is coming up for renewal, locking in a fixed rate now may be more advantageous than staying variable.