Small businesses cautiously optimistic as COVID-era challenges linger

what is the state of Canadian small business in 2023 overall optimism but also real challenges ahead that's Josh a jabz vice president of small business at Scotia Bank he's summarizing the results of a recent poll the bank commissioned one of those challenges is that many small business owners are still feeling the economic impacts of covid lockdowns that's because siba loans interest free loans that were made available to businesses to help them through the pandemic are about to come due combin that with persistent inflation and high interest rates as well as lingering issues around labor you can get a sense of just some of the hurdles entrepreneurs face but that's nothing new for small business owners who are nothing if not resilient look there are Untold challenges facing small business but there always are that's Dan Kelly president and CEO of the Canadian Federation of Independent Business there are always big events that create both opportunities for small businesses and create challenges October small business month and Dan as well as josa who you heard earlier they're our guests this episode they'll talk with armina leaya from our prospectives team to take the Pulse of this important sector and break down those challenges opportunities and reasons for optimism on the horizon I'm Steven Maurice and this is [Music] perspectives now here's ARA legaya Dan josa thanks for joining us thanks so much for having me it's great to be here maybe we can start with you josa scoa Bank just conducted their annual survey of small business owners across Canada can you sum up what you found what's the big headline there I think we're seeing optimism from small business which is very encouraging frankly given the significant impact that the pandemic had the restrictions had across small businesses in Canada so today you know the report is showing uh higher level of optimism reflected by sales and revenue compared to two years ago we have to temper that with caution because the inflation challenges that small business are facing are reaching in some cases critical levels with higher input costs payroll challenges there's a real need for a small business to be on the lookout and to ensure that they're positioning themselves to continue on that path of recovery and resilience Dan I'm wondering what are you hearing from your members in the cfib well look uh cautious optimism I would say is certainly there for some our data at cfib is slightly less bullish many businesses have just a ton of worries right now you know one of the big issues that is centered to uh our advocacy right now is worries about the debt load that small businesses are carrying post pandemic many businesses really needed to take out some form of lending during the pandemic just to keep the lights on Scotia was certainly very helpful in helping many small business members members of cfib through that process the Canada emergency business account was also a helpful program but there is a deadline an important one that's coming up at the end of this year now kicked to the first few days of January but businesses are worried about whether they're going to have enough money to pay back their SEO loans right now in order to keep the forgivable component so that is a big item on their agenda cost increases on almost every line of their budget is biting pretty hard we also have a lot of external uncertainty about what's what's happening in the markets this is a long road to recovery we are starting to see recovery and more and more sectors are starting to be there but many in retail Hospitality the service sector arts and entertainment travel and tourism many of these sectors that were subject to some of the worst of the pandemic restrictions still sadly have a ways to go Dan what are you hearing from members how are they adapting or handling that debt load looka is a really really important public policy question right now the program was super helpful at the beginning and I was really happy to see Banks and government working on behalf of small business owners across the country this one was really helpful 900,000 sea loans extended to small business owners across the country they were delivered quite quickly they've already kicked the deadline back a year to repay in order to keep the forgivable component but most businesses have a $60,000 seable loan and if they pay back 40,000 they get to keep that important 20,000 forgivable chunk we've been advocating that many businesses need more time in order to repay that se bone and Ottawa extended it by 18 days uh instead of the deadline of December 31st of this year the government has kicked it back to January 18th of 2024 at this stage though we're doing two things one we're advocating for a further Kickback of that date and that's an ambitious challenge given the Prime Minister himself made the announcement only a few short weeks ago the other thing that we're doing though is urging businesses to talk to their financial institutions now to make sure that those that can qualify for a loan to replace their seable loan we see right now the business Community split into three groups there's about a third of small businesses that have the money they've either repaid their cable loan already or you know they're going to find it secondly there's about a third of small business owners that report to us that they're going to borrow the money in order to repay the SE Bel loone in order to keep the forgivable chunk and then there's a about a third of businesses though that say they're not in a position to borrow more and they are going to face a 50% increase in their loan amount if they flip past January 19th and that's the group that I'm very worried about there are some small business owners that let's face it are not going to make it that's part of Entrepreneurship that businesses start that some of them end and we don't want to insulate businesses from that cold reality at the same time a lot of the reasons that businesses may be subject to shutdown right now are as a result of damage that they took on from pandemic restrictions and that's just not fair I do want to touch on Dan's siba point because at the bank we have over 60,000 small businesses that hold these loans and the numbers that Dan shared very much reflect what we have heard directly from small business owners that hold these loans I think to support and drive the advocacy that the cfib has done is important these are tough choices that small business are facing in this raid environment there are trade-offs to be made I think the role that we have to play and over 221 financial institutions participated in Sia programs you know 900,000 businesses as Dan mentioned took out almost $50 billion in loans they're actually needed now because of the nature of what the business cycle has been for many of these businesses and they've become part of the lending mix that businesses have so I think there's a a number of ways that people can restructure their lending position our role now is to take stock of where government has laid down the marker and help as many small businesses succeed in that framework josa maybe we can dig into that a little bit more I'm wondering what the report showed about small businesses with the SE alone what are some of the main findings so we've seen that one in three small business owners in Canada somewhere between you know one in three one and four reported having an outstanding loan about a third of Canadian small businesses took up a seal loone we saw a lot of uptake in Ontario A Little Less in some other provinces and you know most of the businesses plan on paying it back by the deadline the real question is the how and I think when you think of those three buckets of customers that Dan mentioned unfortunately that first bucket of people whose businesses have the liquidity has been a shrinking bucket because of the challenges of inflation input costs and also you know something that we're seeing increasingly The Limited ability to pass on cost increases because at the end of the day I think consumers alongside small business are feeling the reality of higher inflation and all of us see that and small businesses just like consumers face those input costs whether it's higher energy costs higher food costs staff costs those are all realities that make repayment more challenging especially at this time the pandemic saw unfortunately a number of small businesses not survive and I think the resilience data that we see in the report probably speaks to some of that survivorship bias the reality is the pandemic affected small business very harshly and I think the responsibility we have is to see through as many of these small businesses that have the financial wherewithal to that Finish Line Dan I wanted to get your perspective on that point of survivorship as well we're a few years out from lockdowns now has it gotten a bit better on that front or are there new challenges that make survivorship just as hard look there are Untold challenges facing small business but there always are there are always big events that create both opportunities for small businesses and create challenges for those that are operating at that moment we can't as a society insulate people from societal Trends so for example lending money to businesses when the world has changed fundamentally is not a good long-term strategy it'll stretch the ability of the government to provide that kind of support and we need to make sure that we don't stunt new business Creation in exciting and emerging areas where I take some issue is we had essentially two years with on andof restrictions for businesses which mounted their debt level and there are loads of otherwise viable businesses that have made all sorts of pivots have done everything right they've responded to where the client is going not just where they used to be and yet still because of the debt level that they car ing they're struggling to outrun it to get to that brighter pathway for the future that's the group that I think we need to support I think we owe it to small businesses that were affected by government impos shutdowns or restrictions for a couple of years to make sure that they are at least given a shot to survive and that's the issue that we're facing at this moment right there are a lot of challenges that small businesses have to navigate right now one thing that stood out to me from the report was some of the way ways that small businesses are trying to either adapt or innovate and one way is by embracing technology Josh I wonder if you could tell me a bit more about what you found there I think small business is becoming increasingly Innovative and we're seeing that with how they're going digital so digital enhancements are driving increased revenue and allowing them to access new customers new markets 18% of Canadian businesses have accelerated their digital capabilities the other part of this is that for small businesses with employees remote and hybrid work Arrangements have allowed them to access New Pools of employees new advisors over 41% of them have programs for virtual meetings you know that was in single digits a few years ago over a third have introduced robotics to streamline their operations a third now use cloud-based data platforms I don't think many of them knew what a cloud-based data platform was a decade ago it's incredible to see The Innovation on the payment side for example Scotia Bank has partnered with Chase to deliver Payment Solutions now that involve in person online mobile on the go it's incredible to see the options available to small business and I also want to recognize the cfib for their advocacy on interchange and other areas where they have been able to really provide small business with some great lowcost solutions that I think will help them manage that pressure on the cost side I would just say that perhaps the area that is the most impressive is on AI where I think we've gone from Fear to opportunity and the number of businesses that are now starting to harness the power of AI in their operations to think about lowering their cost improving their service is incredible so today I I actually reading through the report was thinking about not just the resilience of small business but in some areas the path forward is going to involve very different face for a number of businesses and it's exciting Dan what about you what are you hearing from your members about technology Josh is quite right there has been huge technology adoption on the part of small businesses in fact I think small businesses were a bit of behind the eightball prior to the pandemic and they've made huge efforts during the pandemic to adopt and I see some of that having long-term advantages for many of the small businesses that have gone in that direction the same with respect to working from home working from home is an opportunity for sure for businesses to use but it has created challenges for businesses that serve downtown cores across the country because with large employers government offices being empty often 2 3 days a week that has limited the number of customers that visit the local convenience store the dry cleaner the shoe repair place in many parts of the country those trend lines are likely to stay they may e and flow over time and there's both opportunities and challenges that are presented by it there are a lot of business owners that are optimistic about their future but the cost pressures are still enormous and hopefully now that there seems to be some curbing of inflationary pressures we may start to see businesses move forward or at least have a little bit more of a predictable pathway for the next number of months or years we're sure hoping that's the case also super pleased with the partnership that we've had with Scotia with Chase in providing support for businesses helping them in many ways lower their costs to enable them to dedicate that money to some of these new areas that they need to be in definitely a lot to contend with for businesses but one finding from the report was that there is also resilience and optimism so I want to go back to you josha to delve into those findings particularly something that stood out to me was for bipo owned that's black indigenous people of color those bipoc owned businesses were more optimistic about the current and future state of their business can you tell me a bit more about that so we saw more optimism from bipo business owners more than half said their business was doing better today than two years ago I think many of them have seen higher sales and revenue over the last few years and I think that's very positive again you know as I said with regards to the broader small business population we have to temper this because nearly a quarter experiened systemic barriers that have put their business at a disadvantage around access to credit and managing payroll I think greater awareness of these challenges has certainly helped and at scoa Bank in particular you know we've have a number of programs in place to support bipo owned businesses you know the survey showed that we're on a positive trajectory but the work is not done absolutely I just have one final question for both of you which is what's next what do you think is key for Canadian small businesses to thrive in the year ahead Dan I'll start with you sure look the shortage of skilled labor is still an issue that's on the lips of virtually every small business owner you know common question is where it help the people go that we need to keep the economy moving industry after industry is facing significant labor market shortages right now it is affecting of course many major service providers at the government level and a large business sector but certainly small and mediumsized firms are challenged by it small businesses have always been part of the ecosystem that helps train the workforce for more senior and better paying parts of the economy too so many people get their start in a Hospitality job I washed dishes at a pizza shop in Winnipeg many years ago and that train training and and mentorship that happens in those small businesses really helps feed the full food chain for those that then go and work in a medium-sized company or large business or government agency down the road the challenge is is that with fewer young people in Canada small businesses are struggling to find those new entrance into the workforce that they've typically relied upon wage levels have also gone up significantly not just statutory minimum wages but just general wages that people are expecting are way up a good news of course from an employee perspective but challenging for many small and medium-sized firms who do struggle from time to time to compete on a wage basis so small firms have to be a lot more creative about how they're going to go about filling their Human Resources needs obviously technology can play a role in offsetting some of that but when you need people you need to make sure that you as a small business owner are becoming an employer of choice looking at the tools you have available like flexibility in the workplace access to decision makers some of those things where small businesses typically are rated quite well well but it is a big Challenge and josa how about you what is key for Canadian small businesses to thrive in the year ahead I think the first is uring access to capital for small business to grow protecting that cash flow and I think the investment in digital tools that we touched on is going to be a big part of how small business can maintain and grow their impact and finally I think getting advice you know the cfib has tremend resources on their website Banks such as Scotia Bank can help small businesses navigate a lot of these challenges whether it's government programs loan Solutions advice Solutions relying on Partnerships and relationships I think is key because you know one of the things we've talked about is the resilience so far but there's a lot of unknowns ahead positioning your small business for certainty is the shest way to ensure success Dan josha thanks so much for joining us thank you very much thank you I've been speaking with Josh jabz vice president of small business at scoa bank and Dan Kelly the president and CEO of the Canadian Federation of Independent Business the perspectives podcast is made by me arm legaya Steven Maurice and our producer Andrew Norton for a transcript of this episode visit our website scotiabank.com perspectives we'll see you next time [Music]