Tariffs, rising arrears and a CEBA deadline: why more small businesses are restructuring instead of closing

Canada’s small businesses have absorbed a lot in the past two months. New U.S. tariffs took effect on Aug. 22, Ottawa answered with counter-tariffs on $27.6 billion of U.S. imports starting Sept. 8, and the final deadline to repay pandemic-era CEBA loans — Dec. 31, 2026 — is now less than three months away.

The latest data shows the strain, but it also shows something more hopeful: more owners are choosing to restructure rather than shut down.

Payment stress is the highest since 2019

Equifax Canada’s second-quarter commercial credit report, released Sept. 14, found that 4.0% of business financial credit is now 60 or more days past due — up 19.7% from a year earlier and the highest level since 2019. Ontario has the highest delinquency rate on financial trades of any province, at 4.44%.

Businesses are also carrying more debt. The average balance is now $30,581, up 7.3%. Younger firms are especially stretched: businesses 12 months old or less carry an average of $48,173, up 71.7% in a year.

53,000 businesses in the line of fire

The Canadian Federation of Independent Business (CFIB) estimates that 53,112 small businesses are directly hit by the current round of tariffs — 13,160 exporters and 45,414 importers. In a preliminary survey of 1,545 members, 18% of small exporters and 11% of small importers said they would no longer be financially viable if the trade dispute lasts three months or more. CFIB is calling for tariff relief of up to $70,000 per business.

For many owners, the problem isn’t one bad month. It’s tariffs raising input costs, customers delaying orders, and fixed obligations — rent, payroll, HST remittances, loan payments — that don’t move.

The encouraging signal: restructuring is up, bankruptcies are down

Here’s the number that stood out to us. In the second quarter, business restructuring proposals rose 30.3% from a year earlier, while business bankruptcies fell 8.1% (Equifax). CAIRP counted 1,281 business insolvencies in Q2 — flat year over year, but 33.7% above the pre-pandemic second-quarter average — with the biggest jumps in transportation and warehousing, and in accommodation and food services.

A proposal is a legal restructuring tool, not a closure. Under the Bankruptcy and Insolvency Act, a company (or an individual with more than $250,000 in unsecured debt) can file a Division 1 proposal: a binding offer to creditors to repay a portion of what’s owed, over time, while the business keeps operating. Filing a notice of intention brings an immediate stay of proceedings, which stops most creditor actions — including CRA collections — while the proposal is prepared.

If you’re weighing that route, this overview of how a Division 1 proposal works for a business walks through eligibility, timelines and what creditors vote on.

Don’t forget CEBA

The Canada Emergency Business Account lent $49.1 billion to nearly 900,000 businesses. Loans not repaid by Jan. 18, 2024 became three-year term loans at 5% interest, and all remaining balances are due by Dec. 31, 2026. Federal figures from late 2024 showed about 70,000 defaulted loans worth $3.5 billion had already been sent to the CRA for collection.

If CEBA is one of several debts you can’t cover, it’s worth getting advice now rather than in January. Once a debt is with the CRA, collection tools can include garnishing receivables and freezing bank accounts.

Practical steps for owners this quarter

1. Run a 13-week cash-flow forecast. It’s the single most useful document for any conversation with a lender, landlord or trustee.
2. Stay current on source deductions and HST if you can. These are the CRA debts that carry the most personal risk for directors.
3. Talk to an insolvency professional before you miss payroll, not after. The earlier you look at a proposal, the more the business is worth to creditors — and the better the deal you can usually negotiate.