For weeks, I’ve been hearing the same concern from entrepreneurs across Toronto’s Innovation Corridor. Last Tuesday, it became impossible to ignore when I met Sarah Nguyen at her once-bustling café in Vancouver’s Gastown district.
“Three years ago, I had lineups out the door,” she told me, gesturing to a dining room operating at half capacity during what should be the lunch rush. “Now I’m wondering if we’ll make it to Christmas.”
Sarah isn’t alone. A new survey from the Canadian Federation of Independent Business shows 68% of small business owners now believe Canada has entered a recession, regardless of what official economic indicators suggest. This perception gap – between technical definitions and on-the-ground reality – may explain why consumer spending continues to lag despite economists’ cautious optimism.
The survey, which polled 1,740 business owners across the country between June 4-20, found British Columbia entrepreneurs particularly pessimistic, with 74% reporting recessionary conditions in their operations. This marks the highest regional sentiment of economic contraction since the pandemic recovery began.
“Small businesses are the canaries in the economic coal mine,” explains Corinne Pohlmann, Senior Vice-President at CFIB. “They feel changes in consumer behavior months before it shows up in quarterly GDP figures.”
What’s driving this gloomy outlook? Beyond the usual suspects of rising costs and interest rates, business owners point to a perfect storm of challenges.
The debt hangover from pandemic-era loans continues to weigh heavily. Statistics Canada data shows that 43% of small businesses that took government support during COVID-19 still carry significant portions of that debt. With the Business Credit Availability Program’s repayment deadlines approaching for many, cash flow pressures are intensifying.
“We’re asking businesses to repay emergency loans in an environment where their customers are also feeling squeezed,” notes Carl Dionne, an economics professor at Simon Fraser University. “It’s a recipe for contraction.”
The Bank of Canada‘s recent interest rate policies have created additional pressure. While the central bank finally began its cutting cycle this spring, many small businesses locked into higher-rate commercial mortgages or equipment loans during the peak rate environment are still feeling the pinch.
For Raj Patel, who owns three convenience stores in Surrey, the cost of servicing debt has increased by 41% since 2022. “My margins were already razor-thin,” he says. “Now I’m basically working to pay the bank.”
Perhaps most concerning is the divergence between big business and small business experiences. While the TSX continues to perform relatively well and large corporations report stable earnings, Main Street is struggling. This bifurcation suggests structural issues beyond normal economic cycles.
The labor market paradox adds another layer of complexity. Despite signs of cooling, many small businesses still report difficulty finding qualified workers – but now can’t afford the wage premiums needed to attract them. This leaves owners working longer hours to fill gaps, further straining their capacity to innovate or expand.
Regional variations tell an important story as well. While British Columbia shows the highest perception of recession at 74%, Alberta entrepreneurs report slightly more optimism, with 62% believing Canada is in recession. This provincial difference likely reflects Alberta’s resource economy benefiting from stable commodity prices versus BC’s greater exposure to the struggling real estate and tourism sectors.
“We’re seeing a two-speed economy,” observes Tiffany Chow, chief economist at Meridian Credit Union. “Resource-based regions are weathering the storm better than service-heavy urban centers.”
The psychological impact shouldn’t be underestimated either. After enduring pandemic shutdowns, supply chain chaos, inflation, and staffing challenges, business owner resilience is waning. Mental health concerns among entrepreneurs have reached concerning levels, with 53% reporting significant stress in the CFIB survey.
What does this mean for Canada’s economic trajectory? History suggests small business sentiment often predicts broader economic turns before official statistics catch up. In 2008, small business owners reported recessionary conditions nearly six months before economists officially acknowledged the global financial crisis.
“When small businesses pull back on investment and hiring, it creates ripple effects throughout local economies,” says David Ticoll, innovation researcher at the University of Toronto. “They’re typically the first to feel downturns and the last to recover.”
Policy responses remain contentious. Business groups continue calling for tax relief and regulatory easement, while economists debate whether additional fiscal stimulus would help or simply fuel inflation’s embers. The federal government’s recent small business support package, announced last month, has been criticized as insufficient given the scale of the challenge.
For consumers, the small business recession perception matters because it shapes neighborhood commercial landscapes. Vancouver’s Commercial Drive has seen a 14% increase in storefront vacancies since January, changing the character of a historically vibrant shopping district.
What should concerned entrepreneurs do? Financial advisors recommend proactive conversations with landlords and lenders about potential restructuring options before cash flow problems become critical. Many suggest exploring cooperative arrangements with complementary businesses to share costs.
The coming months will prove pivotal. As we enter the critical holiday shopping season, consumer spending patterns will likely determine which businesses survive into 2026. Early indicators from summer tourism revenues suggest continued caution among Canadian consumers.
“People aren’t spending like they used to,” Sarah tells me as we finish our conversation. “They come in for a drip coffee instead of a latte, or share a pastry instead of getting one each. Those small decisions add up to big problems for businesses like mine.”
As Canada navigates this period of economic uncertainty, the disconnect between official statistics and small business experience deserves closer attention. The entrepreneurs who form the backbone of local economies are sending a clear warning signal. The question remains whether policymakers and consumers will hear it in time.
