Canada’s Small Business Crisis: More Shops Are Shutting Down Than Opening Up

For the first time in decades, Canada is losing businesses faster than it’s creating them. A report released Wednesday by the Canadian Federation of Independent Business (CFIB) puts a stark name to what many small business owners have already been feeling on the ground: an entrepreneurial drought and by the organization’s own definition, that drought is now well into its second year.

The CFIB defines the term as any sustained stretch of four or more consecutive quarters where business closures outpace new openings. Canada crossed that threshold in early 2024, and the gap has only grown wider since. The final quarter of 2025 October through December saw that gap hit its widest point yet.

In the second quarter of 2025, exit rates climbed to 5.6 per cent of all businesses, while entry rates the pace at which new businesses were being born slipped to just 4.9 per cent. These figures represent some of the worst startup conditions Canada has seen outside of the COVID-19 pandemic. By the fourth quarter, entry rates had fallen further still, to 4.8 per cent.

To put it in historical context: the rate of new business formation in Canada has been declining gradually since the mid-1980s. But for most of that period, new openings still managed to stay ahead of closures. That balance has now broken down and economists aren’t optimistic about a quick reversal.

“It’s a bad business environment,” said Moshe Lander, an economist at Concordia University. “I don’t think business ever fully recovered from COVID, let alone all of the shocks that have come after it all the way up to Trump’s tariffs and the recent closing of the Strait of Hormuz.”

While the trend is national, the pain isn’t evenly distributed. BMO economist Erik Johnson points out that more than 70 per cent of the gap between business entries and exits is being driven by a single province: Ontario.

The struggling sectors are also concentrated. Transportation, professional services, and finance, insurance and real estate are taking the hardest hits industries that, notably, tend to carry significant regulatory and overhead burdens.

Small business owners themselves aren’t shy about naming what’s hurting them. In CFIB’s survey, businesses pointed to high operating costs, tax and payroll pressures, complex regulations, and persistent labour shortages all set against a backdrop of global uncertainty that shows no sign of easing.

Lander argues that regulatory complexity hits smaller operators disproportionately hard. “Small businesses that have to comply with the same laws as large businesses don’t have access to the accountants, the lawyers, the various departments that can pore over those regulations,” he said. “It’s always going to swallow them up more.”

The sentiment among business owners reflects that burden. Two-thirds of small firms surveyed said they feel unsupported by their provincial governments, and just three per cent said they strongly believed their government had a clear vision for entrepreneurship. At the federal level, confidence is even thinner 73 per cent of respondents said they don’t trust Ottawa to deliver.

Perhaps the most telling statistic: more than half of Canadian small and medium enterprises 55 per cent said they would not recommend starting a business right now.

Beyond the immediate economic pressures, the CFIB report flags a longer-term structural shift: market concentration. As large corporations tighten their grip on key sectors, the space for independent businesses to establish themselves and grow is narrowing. The rise of private equity firms buying out smaller operations is also a contributing factor, the report notes.

“Although consolidation can benefit some firms, a healthy economy depends on preserving room for independent businesses and new entrants,” the CFIB said.

Brianna Solberg, CFIB’s director for the Prairies and the North, was blunt in her assessment of what governments need to do next.

“Canada’s economic foundation is crumbling,” she said. “Governments need to stop just papering over the cracks and really refocus efforts on policies that improve the small business environment.”

Whether that message lands and translates into meaningful policy action may well determine whether the entrepreneurial drought deepens further, or whether Canada can find its footing again.