Small businesses squeezed by Trump's tariffs turn to risky cash advances

July 31, 2026 - 00:00

A growing number of small business owners are turning to merchant cash advances to stay afloat, a sign that President Donald Trump's tariffs are squeezing operations that were already running on thin margins. According to a recent Federal Reserve survey, applications for these high-cost financing products have jumped noticeably over the past year, particularly among import-dependent firms.

Merchant cash advances offer quick capital in exchange for a cut of future credit card sales. But the convenience comes at a steep price. Annual percentage rates can easily top 100 percent, and some lenders charge effective rates above 200 percent. For a small retailer or manufacturer, that kind of debt can quickly spiral into a trap.

The tariffs, which have raised costs on steel, aluminum, and a wide range of Chinese goods, are hitting businesses that rely on imported materials or finished products. Many cannot pass the full cost onto customers without losing sales. So they borrow. But traditional bank loans are often out of reach for smaller firms with limited collateral or uneven cash flow. That leaves cash advances as one of the few options.

Industry experts warn that the trend could backfire. If a business takes on a cash advance with a 150 percent effective rate, a slow month could mean default. And default on a merchant cash advance often leads to aggressive collection tactics, including daily sweeps of bank accounts.

The Fed survey did not offer a national estimate of how many firms have turned to these products, but the uptick in applications was described as "notable." For now, small business owners are left to weigh the risk of a cash crunch today against the danger of a debt spiral tomorrow.