Canada's Entrepreneurial Drought Deepens as Business Closures Outpace New Starts
A new report from the Canadian Federation of Independent Business (CFIB) has sounded a stark alarm about Canada's economic landscape, revealing that the country is entrenched in what it terms an "entrepreneurial drought." The study documents a troubling trend where business closures are consistently outpacing new business creation, posing significant risks to innovation and competitiveness.
A Wake-Up Call for Government
CFIB policy analyst Joseph Falzata described the findings as a critical "wake-up call" for all levels of government. "If we want a more productive and competitive economy tomorrow, we need more small businesses today," Falzata emphasized. He highlighted that in Ontario, where 98% of all businesses are small, maintaining a supportive environment is essential for nurturing new enterprises and fostering their growth.
The report, titled "Canada's Entrepreneurial Drought," shows that business entry rates have plummeted by nearly 50% since the mid-1980s, remaining at historic lows. The current drought phase began in 2024 and shows little sign of easing. In the second quarter of 2025, exit rates decreased slightly to 5.6%, while entry rates fell to 4.8% by the fourth quarter of 2025. These figures represent some of the highest closure rates and weakest startup activity observed outside of pandemic periods.
Policy Barriers Deterring Entrepreneurs
The core issue, according to the report, is not a lack of entrepreneurial spirit but rather systemic policy challenges that discourage potential business owners. "One in two business owners say they would not recommend starting a business today, citing financial risk, regulatory barriers, and doubts about long-term viability," the report states. This reluctance among existing entrepreneurs to encourage new ventures weakens the pipeline of new firms, risking a deeper and more persistent drought.
Julie Kwiecinski, CFIB's Ontario Director of Provincial Affairs, outlined necessary measures to reverse this trend. "Reducing the cost of doing business, eliminating administrative and regulatory burdens, and responding to evolving labour challenges are general ways to address the entrepreneurial drought," she said. Kwiecinski acknowledged Ontario's efforts to cut small business taxes, reduce red tape, and improve labour mobility as positive steps, but stressed that the work of cultivating job creators is ongoing.
Public Willingness Hampered by Costs and Red Tape
The report also sheds light on public sentiment, revealing that 16% of Canadians express willingness to start a business but are deterred by high costs and bureaucratic complexities. This highlights a significant gap between entrepreneurial aspiration and practical execution, driven by financial and regulatory hurdles.
CFIB asserts that reversing this drought should be a national economic priority, requiring immediate actions to strengthen Canada's business-incubation environment and restore confidence among would-be entrepreneurs. The prolonged imbalance between business exits and new entries threatens not only economic dynamism but also the country's capacity for innovation and global competitiveness.
As Canada grapples with these challenges, the report underscores the urgent need for policy reforms that lower barriers to entry, support small business sustainability, and foster a more vibrant entrepreneurial ecosystem. Without such interventions, the entrepreneurial drought may continue to undermine economic resilience and growth prospects for years to come.
