The Green Sheet Online Edition
May 12, 2025 • 25:05:01
Turbulent financial markets limit financing for businesses
As this article goes to press, U.S. tariff policies have been shifting rapidly, with import duties on goods from China escalating to 145 percent—up from 125 percent just the day before. Earlier, across-the-board tariffs of at least 10 percent were announced for nearly all trading partners, with many rates rising much higher. These developments, alongside temporary pauses for some tariffs, highlight the volatility businesses now face when managing global supply chains.
Such unpredictability has rattled financial markets, creating waves of sharp gains followed by steep declines. This environment of uncertainty can make it increasingly difficult for businesses to secure the financing they need to sustain operations and growth.
In this article, I'll be talking from a purely U.S.-business perspective. I can imagine that businesses located overseas, and not dealing only with the United States, may have an easier time obtaining financing, since things are a little bit more stable in many other locales. However, if this market turmoil throws us into a recession, then things may become a lot harder for everybody worldwide.
Why business financing may become more difficult
Those who finance companies rarely do it from the goodness of their hearts. They want to know that they'll get their money back. The only way they can do this is if a business continues to generate cash. They earn nothing from businesses that close down. Lenders can attempt to recover money from a failing business, but meaningful returns are virtually impossible. It just doesn't happen.
Even now, during the early stages of market uncertainty caused by tariffs, some smaller businesses have stated that they are teetering on the edge of failure.
Many small businesses import their goods solely from China, since it is prohibitively expensive attempting to get products from the United States.
If the current tariffs stick (they might have gone up or down in the time it has taken me to write this article to this point), then their import price will have effectively multiplied several times.
According to a recent BBC News article, a small business that makes sauces in the United States is considering closing up shop, since the only way the owners of the business can can get their spices is from India (the spices they need cannot grow in the United States), and if Indian imports become subject to a large tariff, the businesses will be forced to sell products at a price the end-consumer won't be happy to pay.
It isn’t just businesses that import goods that will be directly impacted, either. Nearly every product-based business will see costs rise because somewhere along the line imported products will be used.
So costs will go up across the board, and there will be less money for people to spend. And less money for people to spend will cause many, many businesses to crumble.
Let’s be honest, if you were a financier, would you want to loan cash to, or invest in, businesses that could have their entire income wiped out almost overnight? Probably not. The markets will need to settle first, and I don’t see that happening soon.
What businesses can do to find potential funding
This is where things become a bit complex because, as I mentioned, the majority of businesses depend on imports somewhere along the line. Even when a business does not realize imports are required for it to function, imports factor in somewhere in its supply chain. I doubt many products are made with 100 percent U.S. resources. Take the agricultural industry: while numerous food products may be grown in the United States, farmers require imports from Canada to sustain their crops.
There is also the problem of tariffs happening so quickly that very few companies have had time to shield themselves from their repercussions.
It takes an immense amount of time to switch up supply lines, even for smaller businesses. In fact, smaller businesses are now importing products that they paid for months ago, but they now need to pay extra tariffs for them, which they didn’t expect.
All businesses will struggle to gain financing in these uncertain times. The businesses that may stand a chance of receiving financing are those that demonstrate that they have:
- Reasonable cash reserves, to help ease them through the harder times on the market.
- A supply chain that is reasonably isolated from the countries that have the largest tariffs applied – China, Taiwan, etc.
- A robust business model
Given current conditions, I do not believe many new businesses will receive financing in the near future, unless they are service-based businesses or ones that require purely U.S. resources. Even in those cases, the tough economy means that financiers may think twice about who they lend cash to.
The future
We are now living in the heart of uncertainty and, honestly, the United States is showing itself to be rather unpredictable. And I don’t see things changing anytime soon. Even if the United States pauses tariffs for a while (as it has done, albeit with a 10 percent baseline in place), the markets are still unlikely to settle substantially. This is because the country has demonstrated that it can change its mind at a moment’s notice.
Companies are scared to deal with the United States right now, even if it is a large market. And lenders are unlikely to lend masses of cash in this market. I don’t know what the future holds, because there has been no indication that things will stabilize in the near future.
However, I can tell you that if you're having a difficult time finding business financing, or if some of your merchant clients are experiencing the same thing, you are not alone. It's an extremely difficult market right now. It's possible, though, that alternative funders might be able to find creative ways to help you out.
Chad Otar is CEO of Lending Valley Inc. For information about the company, please visit www.lendingvalley.com. To reach Chad, send an email to chad@lendingvalley.com.
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