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Borrowing to grow

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Just as individual Canadians borrow money to purchase a home or car, businesses borrow to invest in plants and machinery, open new stores, or develop new products and services. In recent years, Canadian companies have taken advantage of historically low interest rates and the booming economy, and have steadily increased business debt to expand their operations.

The debt load held by Canadian businesses increased for the third straight year in 2006, growing 10.7% to $444.3 billion. All told, about two million business loans were outstanding at the end of the year. Businesses turned to banks, credit unions and caisse populaires to supply three-quarters of these funds: finance companies, venture capitalists and insurance companies provided the rest.


The largest businesses did the most borrowing in 2006, accounting for 57% of all outstanding debt and for most of the increase in business debt over the previous year. Small and medium-sized enterprises accounted for 21.4% of all outstanding debt.

Not surprisingly, the most capital-intensive industries—those that rely heavily on expensive machinery, assets or property to conduct their operations—have the most debt. Canada’s agriculture, manufacturing, and real estate, rental and leasing industries were the three largest borrowers in 2006, each accounting for between 11% and 12% of all outstanding business debt. However, the knowledge-based industries accounted for 6.5% of total debt.

New financing allows businesses to grow, but not all ventures are successful. While the rate of Canadian business bankruptcies hit a 25-year low in 2005, a number of companies fail every year. In 2007, 6,293 businesses went bankrupt: construction companies, retail outlets, transportation firms and manufacturers accounted for half of all business failures.