Canadian Commercial Debt Surge: Construction Defaults at 10-Year High

Canadian Commercial Debt Leads Surge: Construction Sector Defaults Hit 10-Year High

Toronto, September 2025 – Canada is facing a sharp and accelerating rise in commercial debt defaults, with the construction industry bearing the brunt of the financial strain. Data from the first quarter of 2025 reveals that contractor insolvencies in Ontario jumped by 37% compared with the same period last year, the steepest rise in more than a decade.

The wave of failures is spreading beyond Ontario into other provinces and across multiple sectors, fueling concerns that a broader economic downturn may be unfolding. Insolvency trustees, industry associations, and financial regulators are all pointing to a convergence of rising costs, tight credit conditions, and delayed payments as the primary drivers of the surge.

Ontario Insolvencies at the Core of the Crisis

Ontario’s construction industry, long considered the backbone of the national economy, has been hardest hit. Court filings show that more than 210 construction companies in the province entered insolvency proceedings in Q1 2025, compared with 153 during the same period in 2024.

Many of the affected firms are medium-sized contractors working on residential housing, public infrastructure, and commercial real estate projects. Reports suggest that multiple large-scale developments have been stalled as financing dried up, leaving subcontractors and suppliers unpaid.

Industry groups monitoring the data emphasize that the increase is not limited to small-scale operations. Companies with decades of experience and hundreds of employees have been unable to withstand the dual pressure of higher borrowing costs and delayed receivables.

Data Snapshot: Insolvencies by Sector

The broader economic impact is evident across industries.

The construction sector accounts for the sharpest rise, but retail, manufacturing, and transport firms are also registering significant increases.

Causes: Rising Costs, Tight Credit, and Payment Delays

The surge in insolvencies is being attributed to three interconnected pressures:

• Escalating material and labor costs – Steel, concrete, and lumber prices remain above pre-pandemic levels. Ongoing shortages of skilled labor, particularly in Ontario and Alberta, have pushed wages upward.
• Restricted access to credit – Commercial lenders have imposed tighter lending conditions since late 2024, limiting refinancing opportunities for businesses already under debt pressure. Contractors dependent on short-term financing have been hit hardest.
• Delayed payments from clients – Firms report long delays in payments from developers and public bodies. Subcontractors face cascading cash flow crises as payments stall further down the supply chain.

Regional Breakdown: A National Trend Emerging

While Ontario has recorded the largest increase, other provinces are also feeling the strain.

• Quebec: Insolvencies in construction rose 18% in Q1 2025. Residential developers in Montreal are reporting financing difficulties, with several high-rise projects delayed.
• Alberta: Contractors in oilfield services are seeing heightened financial distress due to volatile energy markets and postponed capital projects. Insolvencies rose 22% in the first quarter.
• British Columbia: Residential construction firms are under pressure from higher borrowing costs, with Vancouver’s overheated housing market showing signs of slowing. Insolvency filings climbed 16%.
• Atlantic Canada: Smaller contractors in Nova Scotia and New Brunswick are struggling with housing affordability initiatives that have been delayed due to budget constraints. Insolvency rates grew by 14%.
• Prairies: Manitoba and Saskatchewan report rising insolvencies among agricultural equipment manufacturers and suppliers, reflecting spillover from construction and transportation slowdowns.

The regional breakdown underscores that the issue is not localized but reflects systemic weaknesses across Canada’s commercial debt market.

Historical Context: A Decade-High Default Rate

The latest numbers represent the highest level of construction-sector insolvencies in 10 years. Data shows that the last comparable peak occurred in 2015 during the commodities downturn, when resource-linked industries triggered widespread defaults.

However, the current situation bears a closer resemblance to the 2008 global financial crisis in terms of scale and speed. In that downturn, credit markets froze, construction stalled, and unemployment rose sharply. Analysts caution that the present crisis, while so far concentrated in construction, could expand into a broader commercial debt challenge if left unchecked.

Employment and Supplier Impact

The fallout from rising insolvencies is reverberating through Canada’s workforce and supply chains. Thousands of construction workers have faced layoffs or reduced hours as projects stall. Subcontractors report struggling to pay wages, while suppliers of building materials and equipment have warned of rising unpaid invoices.

Industry observers stress that the ripple effects are particularly damaging for small businesses. Many subcontractors operate on thin margins and cannot absorb payment delays. Once a primary contractor defaults, subcontractors often have little recourse to recover lost funds.

Retail and Manufacturing Under Pressure

The construction sector is not the only industry under stress. Retail insolvencies rose 21% year-on-year in Q1 2025. Analysts point to a combination of changing consumer habits, high commercial rents, and rising interest payments as key drivers. Smaller independent retailers have been the most affected.

Manufacturing insolvencies increased 23%, particularly in machinery and equipment segments. Export demand has weakened due to global economic headwinds, leaving firms heavily exposed to debt obligations.

Transportation insolvencies also rose 25%, with operators squeezed between high fuel costs and fluctuating freight demand.

Credit Market Exposure

Canada’s financial institutions are monitoring exposure closely. While major banks are diversified, smaller credit unions and private lenders may face concentrated risks due to their heavy reliance on local construction lending.

Reports indicate that lenders are already tightening credit conditions, demanding higher collateral, and increasing rates on commercial loans. This has created a feedback loop, where struggling firms face higher borrowing costs, accelerating insolvency risks.

Policy Monitoring and Possible Responses

Federal and provincial authorities are tracking the insolvency surge and considering possible interventions. Options under discussion include:

• Strengthening payment protection for subcontractors.
• Extending emergency credit lines for essential projects.
• Introducing fast-tracked arbitration mechanisms for delayed payments.

Policymakers are treading carefully given fiscal pressures, but with infrastructure and housing delivery at risk, calls are mounting for targeted support.

International Comparison

Canada’s surge in contractor defaults is part of a broader global pattern. Insolvencies in the U.S. construction sector rose 15% in early 2025, while several European countries have reported double-digit increases in business failures linked to credit tightening and delayed public projects.

Industry analysts note that while the pressures are global, Canada’s heavy reliance on construction as an economic driver makes the impact particularly acute. Unlike some countries, Canada’s housing shortage and infrastructure backlog mean that insolvencies could directly affect national growth targets.

Outlook: Risks of Widening Impact

With more than 1,278 insolvency filings recorded across industries in Q1 2025 alone, the outlook for the rest of the year remains uncertain. If current trends persist, observers warn that Canada could face:

• Delays in housing projects exacerbate affordability issues.
• Stalled infrastructure developments in transit and energy.
• Rising unemployment among construction workers.
• Strained regional economies are dependent on construction activity.

Financial institutions, policymakers, and industry groups are closely watching Q2 data for signs of stabilization. Until then, the Canadian commercial debt landscape remains under severe strain, with the construction sector at the center of the storm.