Benjamin Tal predicts a wave of bankruptcies after the government winds down support programs

While extremely low insolvency rate is definitely good news, it may soon change. According to CIBC Deputy Chief Economist Benjamin Tal, as soon as the government support ends, Canada will face a wave of business bankruptcies.

He says insolvency rate was down by almost 30% from last year due to different government programs. Otherwise, there would have been a significant increase in bankruptcies.

In addition to it, Tal wonders to what extent the support programs are keeping businesses alive artificially, regardless of COVID-19’s influence. He says the number of expected insolvencies will bring more challenges, that’s why the government should lift its funding support very carefully in order to manage a strong wave of bankruptcies.

“In case all businesses go down at the same time, and there is no government support, it will be chaotic,” – Tal noted. “That’s the reason why the government needs to choose a cautious and gradual approach to winding down the support.”

As the pandemic is hitting small businesses hard, Tal also believes business owners’ views on business insolvencies will change.

“In my opinion, the stigma of declaring bankruptcy will not be as strong as it used to be before the pandemic”, – Tal says. “If you have to shut down, it’s not your fault, it’s not because you’re bad at managing your business. It’s just reality”.