Canada is experiencing an entrepreneurial drought: a sustained period when business exits consistently outpace new business starts, leading to a shrinking entrepreneurial base and reduced confidence in the viability of entrepreneurship. Small and medium-sized enterprises (SMEs) are facing one of the most challenging business environments in decades. Escalating input costs, tax burdens, labour shortages, regulatory pressures, and global economic uncertainty are collectively constraining entrepreneurial activity nationwide.
Since early 2024, business exits have consistently exceeded new entries. In the second quarter of 2025, exit rates decreased slightly to 5.6%, while entry rates fell to 4.8% (fourth quarter of 2025), marking some of the highest closure rates and weakest start up activity outside the pandemic. This prolonged imbalance between business exits and new entries places us in an entrepreneurial drought—a trend that threatens Canadian innovation, competitiveness, and business dynamism.
The difficult conditions contributing to the entrepreneurial drought are also eroding entrepreneurial confidence. In fact, 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. When entrepreneurs themselves are reluctant to encourage new business creation, the pipeline of new firms weakens, risking a deeper and more persistent drought.
Reversing Canada’s entrepreneurial drought must be treated as a national economic priority. Strengthening the environment for starting and growing a business, while restoring confidence in the viability of entrepreneurship, is critical to rebuilding Canada’s economic momentum and prosperity.
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Key takeaways
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