Policy Fixes for a Shrinking Small Business Sector

With business closures in Canada outpacing new starts for six consecutive quarters, the Canadian Federation of Independent Business (CFIB) is calling on governments to turn around this trend and fix the shrinking business landscape.

“Governments have spent years prioritizing big business needs, while small firms have been largely ignored,” says Michelle Auger, CFIB director of trade and marketplace competitiveness. “It’s time to put small businesses first and reverse the entrepreneurial drought.”

An entrepreneurial drought is defined as a sustained period of four or more quarters where business exits outpace new entries. CFIB says the current drought has been ongoing since early 2024.

While the overall trend of business creation in Canada has been declining since the mid-1980s, openings had mostly outpaced business closures. That’s not the case anymore. In the second quarter of 2025, exit rates reached 5.6 per cent, while entry rates fell to 4.8 per cent in the fourth quarter of that same year, marking some of the highest closure rates and weakest start-up activity outside the Covid-19 pandemic.

The challenges behind the entrepreneurial drought go beyond business entry and exit trends. CFIB reports that two-thirds of small enterprises feel unsupported by their provincial governments, while nearly three-quarters lack confidence in the federal government. High costs, tax and payroll pressures, complex regulations, red tape, labour shortages and persistent global uncertainty are making entrepreneurship both more difficult and less appealing.

“Governments need to wake up,” says Auger. “If we want a more productive and competitive economy tomorrow, we need more small businesses today.”

CFIB has identified three key areas of action to address Canada’s entrepreneurial drought.

The first involves reducing the cost of doing business. CFIB is calling on the federal government to lower the small business corporate tax rate (SBCTR) to six per cent from nine, while urging provincial governments to permanently lower their SBCTRs to zero by 2030. In addition, both levels of government should raise SBCTR thresholds to at least $700,000 and index it to inflation. Financing should also be made more accessible and affordable, and government programs and procurement processes made more available to small firms to create a level playing field.

Next, CFIB says it’s necessary to cut red tape. The association recommends eliminating two regulations for every new one introduced.

Finally, current labour market challenges, including the shortage of skilled flooring installers, must be addressed, while opportunities for business succession must be improved, says CFIB. Governments need to offer training incentives, create strong partnerships with educational institutions, increase awareness — particularly among young entrepreneurs — about the opportunities and advantages of purchasing an existing business, and allow small corporations to defer capital gains taxes on the transfer of a business to the owner’s children.

“Governments need to stop just papering over the cracks and really refocus efforts on policies that improve the small business environment,” says Brianna Solberg, CFIB’s director for the Prairies and the North. “We cannot afford to regulate ambition out of our economy. When more than half of current small business owners are telling you they wouldn’t recommend starting a business, it’s time to listen.”

Clare Tattersall is an interior designer and decorator in Toronto, and the editor of Canada’s floor covering magazine, Coverings and Home Goods Merchandiser.