PayNet: Canadian Private Companies Recover ‘Full Circle’
PayNet reported that Canadian private companies have finally returned to levels last achieved in 2007 before the Great Recession. The Canadian Business Lending Index (CBLI) measures the amount of new private investment in property, plant and equipment by hundreds of thousands of private Canadian businesses.
Standing at 162 in Q1/07, the CBLI grew all the way to nearly 190 by first-quarter 2008. The effects of the recession knocked business investment down to an indexed level of 128 in the third-quarter 2010, which represents a 33% collapse. With this latest report of the CBLI, Canadian private companies have recovered to an indexed rate of 165, which is on par with that last seen in 2007.
“More investment means more capital formation, more earning assets, and more wealth creation which all bode well for the Canadian economy,” stated Anthony Zambon, director, PayNet Canada. “The recession severely impacted business investment as companies pulled back on capital projects to conserve cash and de-lever their balance sheets by paying down debt,” Zambon added.
Similarly, the financial health of Canadian small- and medium-sized businesses has repaired. Late payments on bank loans and commercial credit have fallen to .44% in this latest report. That is equivalent to the 90-day loan delinquencies reported in the second quarter of 2007.
“This low loan delinquency represents a vastly improved financial condition; having the ability to make loan payments on-time and according to terms means these businesses are well positioned for future economic growth,” Zambon noted.
Real private capital investment for Canadian small- and medium-sized businesses bottomed out at levels higher than their U.S. counterpart. Canadian companies are investing at a level equal to 2007, whereas U.S. private companies show investment level equal to 2005 on an indexed basis. Canadian private companies never experienced the severity of the recession that U.S. businesses felt, and in fact this is borne out by the business failure rates which peaked at 7% for U.S. companies and less than 4% for Canadian companies.
“There is no longer a question as to whether there has been a recovery in Canada,” said Zambon. “The issue now for Canadian private firms is how long this expansion will last and whether or not business investment will continue to be a big driver.”