Canada is facing an “entrepreneurial drought.”
That’s according to a new report from the Canadian Federation of Business (CFIB) released Wednesday that says more businesses have been closing than opening in Canada each quarter since early 2024.
The “drought” began in early 2024, the CFIB said, with the gap between openings and closures reaching a new high in the last quarter (October to December) of 2025.
“Canada’s economic foundation is crumbling. Governments need to stop just papering over the cracks and really refocus efforts on policies that improve the small business environment,” said Brianna Solberg, CFIB’s director for the Prairies and the North.
CFIB defines “entrepreneurial drought” as a “sustained period of four or more quarters where business exits outpace new business entries.”
In the second quarter of 2025, exit rates — or the number of businesses closing — reached 5.6 per cent of businesses while entry rates, the number of businesses opening, fell to 4.9 per cent, marking some of the highest closure rates and weakest startup activity outside of the pandemic.
In the fourth quarter of 2025, the entry rate fell to 4.8 per cent. The exit rate for the final two quarters of 2025 was not available, CFIB said.
Closure rates reached a high in 2020, when the pandemic forced many businesses to close down shop. There was a bounce back by 2021, data shows.
While the rate of new businesses opening has been in steady decline since the mid-1980s, it has largely outpaced closure rates, the report said.
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“That’s not the case anymore,” the report said, adding that closure rates overtook rates of new businesses opening in 2024 and the gap has consistently widened since then.
“It’s a bad business environment,” said Concordia University economist Moshe Lander. “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.”
A closer look at the data reveals that the losses seem to be concentrated in one province, said BMO economist Erik Johnson.
“More than 70 per cent of the gap in entrance versus exits (of businesses) is coming from the province of Ontario,” he said.
The losses are also concentrated in a few sectors of the economy, he said.
“It’s really focused on transportation, professional services, and finance, insurance and real estate,” he said.
Two‑thirds of small firms surveyed by CFIB said they feel unsupported by their provincial governments, with only three per cent saying they strongly believed their government had a clear vision for entrepreneurship. And 73 per cent are not confident in the federal government.
More than half (55 per cent) of Canadian small and medium enterprises say they would not recommend starting a business at this time, CFIB said.
Businesses cited “high costs, tax and payroll pressures, complex rules, red tape, and ongoing labour challenges against a backdrop of persistent global uncertainty” as the biggest challenges facing them.
Red tape disproportionately affects smaller businesses, Lander said.
“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 pour over those regulations. It’s always going to swallow them up more,” he said.
The trend also points to “market concentration,” which means the dominance of a few large corporations in the economy is leaving very little room for small businesses to grow.
Private equity firms buying out smaller firms may also be affecting the trend, it added.
“Although consolidation can benefit some firms, a healthy economy depends on preserving room for independent businesses and new entrants,” the report said.
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