StatCan: COVID-19 Forced More Business Closures than the 2008 Financial Crisis

According to a new report from Statistics Canada, the COVID-19 pandemic had a greater economic impact than the 2008 financial crisis, leading to the closure of more businesses. Many of these businesses did not file for bankruptcy but simply closed down permanently. Statistics Canada refers to this as “business exit,” which is defined as the permanent closure of a business and its exit from the marketplace. The report states that the percentage of private sector employer businesses exiting in 2020 showed a larger increase compared to the 2008/2009 financial crisis.

The report explains that a business exit can occur when a business owner chooses to abandon the business without undergoing a formal process. The report also revealed that approximately 14 percent of small businesses permanently closed in 2020, as indicated by the number of businesses that stopped issuing payroll tax slips for employees. Small businesses were among the hardest hit by the pandemic’s impact on businesses, leading to an increase in business exits while bankruptcies decreased due to court lockdowns. The report emphasizes that formal insolvencies do not fully capture the extent of business distress and closure.

These businesses, sometimes referred to as “zombie” companies, struggle to generate sufficient profits to cover their debts and often rely on borrowing to survive. The CEO of the Canadian Federation of Independent Business has suggested that there are hundreds of thousands of zombie businesses that have not yet completed the closure process. A Bank of Canada survey estimated that half of the businesses closed during pandemic lockdowns remained closed five months later.

The report also highlighted that the majority of businesses that exited the market in 2020 were small businesses, while bankruptcies primarily involved larger businesses. This indicates that small businesses, especially the smallest ones, experienced more significant consequences from COVID-19 compared to larger businesses. Quebec had low business exit rates but the highest bankruptcy rates in the country, according to the report.