CIBC (RSX:CM) is forecasting a wave of business closures once government pandemic supports begin to be lifted later this year.
CIBC says record-low insolvencies are not a true metric for Canadian businesses that are currently being propped up by government support. The bank said insolvency rates are falling by about 30% from last year thanks to various government programs that would otherwise lead to a sharp rise in bankruptcies.
Many of the government assistance programs are keeping hard-hit businesses alive artificially, regardless of COVID-19’s impact, says CIBC. The bank added that the number of anticipated insolvencies that should inevitably happen will come with challenges, and that Ottawa should carefully lift its funding support to curb a sudden wall of bankruptcies.
With the pandemic wreaking havoc on the small business community, CIBC expects business owners' attitudes towards insolvency will also change and that many business owners will inevitably accept that they have no choice but to file for bankruptcy because of the pandemic.
