With small businesses continuing to drive economic growth, the
newly released Fall 2019 TransUnion (NYSE: TRU) Business Lending
Barometer shows that overall business credit balances in Canada
increased year-on-year (YoY) in September 2019, up 6.1% over the
previous year. At the same time, lenders also increased the overall
number of open credit accounts, up 5.4% for the same 12-month
period.
Importantly, delinquency rates, defined as accounts with
payments 90 or more days past due (DPD) remained low at 1.95% for
September 2019, which represented an improvement of 26 basis points
(bps) compared to the same period in 2018.
The TransUnion Business Lending Barometer draws from
Transunion’s Business Exchange Database. The database typically
includes businesses with up to 99 employees and incorporates data
for sole proprietors. It is estimated that this size of business
accounts for almost 70% of employment across all industries and
over 40% of GDP (based on Statistics Canada Labour Force Survey,
and Innovation, Science and Economic Development Canada data). The
Barometer looks at the main lending categories available from banks
and other credit grantors for this segment of the business
landscape and analyzes market dynamics to help understand business
behavior over time and across different geographic locations.
“Although the rate of growth in the Canadian economy has slowed
in recent quarters, clearly there is still optimism amongst
businesses and the lenders that support them. With many businesses
still recording growth, particularly in the small business segment,
they are willing to take on credit to help manage their day-to-day
operations and invest for expansion,” said Matt Fabian, director of
financial services research and consulting for TransUnion Canada.
“Average balances per business borrower grew over the past year for
most categories of credit products. This indicates that businesses
have continued demand for credit and that lenders are making
additional credit available – a positive formula for growth.”
Business borrowing summary (September
2019)
|
Average Balanceper Business
Borrower |
Y-o-Y Change (%) |
Delinquency Rate (% Trades 90+
DPD) |
Y-o-Y Change (bps) |
Credit Cards |
$ 8,598 |
-0.66% |
1.52% |
-10 |
Lines of Credit |
$ 43,601 |
4.76% |
3.24% |
-107 |
Instalment Loans |
$ 174,159 |
4.49% |
2.13% |
-7 |
Demand Loans |
$ 8,465 |
-0.39% |
9.35% |
-196 |
Auto Loans |
$ 29,721 |
1.88% |
0.62% |
-9 |
Business Mortgages |
$ 1,532,174 |
7.80% |
0.29% |
-12 |
Overall |
|
|
2.02% |
-30 |
The report identified growth in average balance per business
borrower across almost all of the main lending product types except
credit cards and demand loans, which remained essentially flat.
Looking at products at an account level, average business mortgage
balances grew 8.5% YoY in September 2019, in contrast to the
residential market, which saw growth just below 3%. While the
residential mortgage market in Canada has seen significant shifts
in its dynamics as a result of the new mortgage qualifying rules
implemented in 2018, the business and commercial mortgage industry
was not subject to the same rules.
Of businesses that have an instalment loan, the average balance
is $130,206 having increased 5.61% YoY. For lines of credit this
figure is $42,058, having increased 4.99% YoY in September 2019.
Lines of credit are popular with smaller businesses as they are
typically amongst the least expensive funding sources available and
provide access to operating cash flow at a lower cost.
Average account balances for demand loans, which generally serve
as short-term funding for new businesses for a variety of
purposes—such as business expansion, equipment purchasing, working
capital and bridge loans—fell marginally by 0.4% over the same
period.
Delinquencies remain stable
Business delinquency rates, measured as the percentage of all
accounts 90+ DPD, declined to 1.95% in September 2019 from 2.20% in
September 2018. In contrast, the consumer delinquency rate,
measured as the percentage of consumers 90+ DPD on one or more
accounts, was 5.54% as of Q3 2019.
Despite the generally stable trend for overall business
delinquencies, some categories saw significant YoY improvements.
Demand loan delinquencies fell 196 bps to 9.35%. This may be
reflective of a combination of steady economic growth and low
interest rates that provided more favorable lending conditions for
this type of credit product, where borrowers can repay the loan in
full or in part at any time, without penalty.
“The current, relatively benign interest rate environment has
provided Canadian business owners with an opportunity to invest in
their businesses through a mix of credit products, while managing
repayments and maintaining healthy delinquency rates. As trade wars
continue and economic headwinds increase, it will be interesting to
see how this situation evolves and the impact on demand and
performance for business credit,” observed Fabian. “Our experience
has been that small businesses typically have a lower overall
delinquency rate compared to consumer credit as owners use a mix of
business and personal credit to fund their businesses. In early
2019, TransUnion presented a research study that looked at payment
and delinquency behaviour of business owners between their personal
and business credit. That study found that, generally, business
owners under financial stress tend to protect their business credit
at the expense of their personal credit.”
The TransUnion Small Business Hierarchy Study looked at the
credit payment behaviour of small businesses compared to the
personal credit payment behaviour of their owners over a three-year
period to understand priorities and trade-off decisions made when
under financial stress. The study showed that business owners were
nearly three times more likely to pay their business accounts first
and allow personal accounts to go delinquent. The spread between
business and personal account delinquencies narrowed during the
later period of the study, but this was against a backdrop of
generally stable or improving overall business and consumer credit
delinquency rates.
The payment hierarchy research results also showed that, in most
cases, credit cards were the first product in a portfolio of
lending products to go delinquent, and as such can be seen as a
leading indicator of a business’ distress. Importantly, the
Business Lending Barometer showed the delinquency rates for
business credit cards to be stable.
Regional variations
The Business Lending Barometer showed significant regional
variation in both average balance growth and delinquency
performance.
Provincial business borrowing summary
(September 2019)
|
Average Balance per Business |
YoY Change (%) |
Delinquency Rate (% Trades 90+ DPD) |
YoY Change (bps) |
British Columbia |
$ |
136,653 |
16.1 |
% |
2.03 |
% |
-31 |
Alberta |
$ |
20,821 |
9.1 |
% |
3.04 |
% |
-26 |
Saskatchewan |
$ |
31,912 |
-4.8 |
% |
3.91 |
% |
-309 |
Manitoba |
$ |
25,275 |
-5.7 |
% |
2.86 |
% |
-325 |
Ontario |
$ |
28,605 |
4.3 |
% |
2.47 |
% |
-31 |
Quebec |
$ |
39,297 |
-8.7 |
% |
1.49 |
% |
-5 |
New Brunswick |
$ |
26,728 |
-1.7 |
% |
1.93 |
% |
19 |
Nova Scotia |
$ |
18,878 |
9.2 |
% |
2.43 |
% |
-10 |
PEI |
$ |
23,707 |
2.4 |
% |
3.18 |
% |
45 |
Newfoundland |
$ |
16,464 |
3.2 |
% |
2.21 |
% |
-12 |
British Columbia recorded the largest growth in average balance
per business at 16.1% YoY in September 2019. The province also had
the highest average balance per business, over 3 times as high as
the next highest province, Quebec. This gap is likely largely due
to elevated property costs in BC, which drove significantly higher
average mortgage loan balances. Nova Scotia and Alberta also
experienced strong growth YoY in September 2019 at 9.2% and 9.1%,
respectively.
Quebec and Manitoba saw the largest declines in average balance
per business at 8.7% and 5.7%, respectively, YoY in September 2019.
Saskatchewan’s economy has slowed as the agriculture sector had a
mixed start to 2019 resulting in lower spending and a decline in
certain sectors like residential construction. Trade tensions with
China, and slow growth in consumer spending are weighing on
Manitoba.
Applying a tailored approach
“With the economic outlook remaining uncertain, it will be
critical for businesses to maintain access to credit to finance
their operations and investments. It is important that lenders take
the time to understand small business borrower needs at the
individual level and avoid uniform underwriting and portfolio
management strategies. There are clear regional variations in
performance, and by looking at both business credit performance and
the credit performance of business owners, banks can apply a more
informed view of the overall lending risk involved,” concluded
Fabian.
More information about the TransUnion Canada Business Lending
Barometer, including details about a variety of credit products,
can be found here. Among the details are more information about
balance and delinquency trends, including for auto loans,
installment loans, lines of credit and mortgage loans. Please visit
the following website to register for TransUnion's Fall Business
Lending Barometer webinar scheduled for 13 November 2019 at 2 pm
ET.
About the TransUnion Business Lending
BarometerTransUnion’s Canada Business Lending Barometer is
based on data from Transunion’s Business Exchange Database which
includes both account-level and business-level views of key metrics
and trends. It looks at different loan product types including
credit card, auto, business mortgage, instalment loans and lines of
credit. By leveraging the Business Lending Barometer, lending
institutions can analyze market dynamics, helping to understand
business behavior over time and across different geographic
locations throughout Canada. Businesses can access more details
about and subscribe to the Business Lending Barometer here.
About TransUnion (NYSE: TRU)Information is a
powerful thing. At TransUnion, we realize that. We are dedicated to
finding innovative ways information can be used to help individuals
make better and smarter decisions. We help uncover unique stories,
trends and insights behind each data point. This allows a variety
of markets and businesses to better manage risk and consumers to
better manage their credit, personal information and identity.
Today, TransUnion reaches consumers and businesses in more than 30
countries around the world on five continents. Based in Burlington,
Ontario, TransUnion Canada provides local service and support
throughout Canada. Through the power of information, TransUnion is
working to build stronger economies and families and safer
communities worldwide. We call this Information for Good. Visit
www.transunion.ca to learn more.
For more information or to request an interview,
contact:Aabida Madhani,
Ketchumaabida.madhani@ketchum.com416-355-7424
TransUnion (NYSE:TRU)
Historical Stock Chart
From Mar 2024 to Apr 2024
TransUnion (NYSE:TRU)
Historical Stock Chart
From Apr 2023 to Apr 2024