Small business confidence in Canada took a nosedive in October, dropping to levels not recorded since early in the pandemic, new research released Thursday said.

The Canadian Federation of Independent Business said its latest business barometer survey found many businesses are struggling to repay debt accumulated during Covid-19 lockdowns as interest rates climb.

A third of Canadian small business owners now say borrowing costs are causing difficulties, compared with about a fifth of businesses at the start of the year, the business group said.

“Small businesses are facing a lot of worries right now,” Simon Gaudreault, chief economist and vice-president of research at CFIB, said in a statement.

“Many have not yet repaid the debt they accumulated during the pandemic, while also facing another interest rate hike from the Bank of Canada due to the unresolved inflation challenge.”

The central bank raised its key lending rate by a half-percentage point to 3.75% on Wednesday, up from 0.25% in March.

Among provinces, Ontario saw the lowest short-term outlook and the biggest drop in confidence this month, the CFIB said.

Businesses in the retail sector posted the largest short-term drop in optimism and were the least confident of the sectors polled, despite the holiday shopping season around the corner, according to the CFIB.

Typically the retail sector sees a boost in optimism this time of year, said Andreea Bourgeois, CFIB’s economics director.

“It’s concerning that the sector is showing such a negative outlook for the next three months,” she said. “It really speaks to the anxiety business owners are feeling about inflation and lower consumer spending intentions.”

In its 2022 holiday retail outlook, Deloitte Canada said overall holiday spending is expected to drop this year as inflation shrinks consumer buying power.

The Deloitte report, based on a Leger survey of more than 1,000 Canadians, found 76% of those polled plan to rein in holiday spending because of higher food prices, followed closely by inflation worries and overall economic concerns.

The CFIB’s monthly business barometer survey in October was based on 752 online responses from business group members.

The polling industry’s professional body, the Canadian Research Insights Council, says online surveys cannot be assigned a margin of error because they do not randomly sample the population.