Tariffs usually make headlines for their impact on global trade and politics, but for small business owners, the effects hit much closer to home. When the cost of imported goods and materials goes up, everyday operations get more expensive—and that strain can be especially tough for those relying on merchant cash advances (MCAs) to manage cash flow.
The Intersection of Tariffs and MCAs
Understanding how tariffs influence costs, consumer spending, and cash flow is key for MCA borrowers looking to protect their businesses.
How Tariffs Affect Business Costs
Tariffs are essentially taxes on imported goods, which immediately raise the cost of those items for U.S. businesses that depend on foreign products or raw materials.
For example, if a manufacturer imports steel, aluminum, or microchips from overseas, tariffs can increase the landed cost of those materials by 10% to 25% or more.
Businesses often face a difficult choice when faced with tariffs: either absorb those higher input costs — cutting into profits — or pass them on to customers through higher prices, which can reduce demand.
Tariffs can also disrupt established global supply chains. When import costs spike, many companies scramble to find domestic or alternative foreign suppliers to offset expenses. This transition can cause temporary shortages, production delays, and logistical challenges, especially for smaller companies with limited supplier networks.
The resulting bottlenecks increase lead times, inventory costs, and uncertainty in production schedules, all of which can take a toll on the business’s operational efficiency.
Even businesses that don’t directly import goods may feel the pinch as tariffs ripple through the economy. Higher material and transportation costs eventually trickle down the supply chain, affecting wholesalers, retailers, and service providers alike. If a business can’t raise prices without losing customers, it must absorb the higher costs, leading to narrower profit margins. Over time, this can reduce competitiveness, especially in sectors with thin margins or price-sensitive consumers.
Impacts on Revenue Streams for Businesses Relying on MCAs
Tariffs often lead to higher prices for consumer goods, which can squeeze household budgets and cause people to cut back on their discretionary spending.
For small businesses that rely heavily on daily consumer transactions, this decline in spending translates to fewer sales and less consistent cash flow. Since merchant cash advances are repaid as a fixed percentage of daily debit/credit card sales, a lower sales volume results in less available cash to cover MCA repayment.
Tariffs can also introduce volatility into sales patterns. For example, when consumers cut back on nonessential purchases due to price hikes or inflation fears, businesses see sharp fluctuations in daily revenue. This instability makes it harder to forecast cash flow, which is critical for businesses using MCAs. A few slow days or weeks can lead to shortfalls that trigger default risks or additional fees from MCA providers.
This is why businesses facing tariff-related slowdowns often struggle to keep up with MCA repayment schedules. Reduced sales volume means less money to allocate toward operating expenses and payroll once the MCA deduction is made. Over time, this can trap businesses in a liquidity crunch, forcing them to take out additional advances or loans and creating a cycle of debt that strains their finances even more.
Direct Consequences of Tariffs on MCA Borrowers
Increased Cost of Goods and Services
When tariffs raise the price of imported goods and materials, small businesses face higher operating costs almost immediately. For retailers, that might mean paying more to stock shelves; for manufacturers, it could mean steeper prices on essential components.
These increases are often hard to absorb, especially for businesses already paying high fees on an MCA. Passing the extra cost on to customers risks lower sales, while absorbing it cuts into already slim margins. Either way, lower profits make it harder to cover daily MCA repayments and maintain stable cash reserves.
Potential Changes in Interest Rates and Payback Terms
While MCAs don’t technically have “interest rates” like traditional loans, their fees and factor rates can fluctuate based on perceived business risk. If a borrower’s revenue declines due to tariff-related slowdowns or higher costs, lenders may view the business as higher risk. That can lead to tougher repayment terms on future advances—like higher factor rates or shorter repayment periods. In some cases, businesses may need to take out additional MCAs to bridge cash shortfalls, deepening their financial strain and increasing the effective cost of borrowing.
Effects on Cash Flow and Business Operations
Tariffs can also disrupt cash flow in less obvious ways. Delays in imported goods or materials can slow production or limit inventory, causing gaps in revenue. Meanwhile, as consumer prices rise, shoppers may cut back on discretionary spending—leading to unpredictable daily sales. For MCA recipients borrowers, whose repayments are tied directly to credit and debit card transactions, these fluctuations can be especially damaging. Less consistent cash flow means less money available for payroll, rent, and inventory, even as the MCA provider continues to deduct a percentage of each day’s receipts.
Strategies for MCA Borrowers to Mitigate Tariff Impacts
As a small business owner, there’s not much you can do about tariffs and their impact. But you can take steps to protect your business and finances.
Cost Management and Supply Chain Optimization
When tariffs increase expenses, you need to reassess your cost structure. Start by identifying where tariff-related increases hit hardest (whether that’s materials, packaging, shipping, etc.) and explore alternative suppliers who aren’t affected by the same duties.
Negotiating bulk discounts or forming partnerships with domestic vendors can help stabilize pricing. You might also look for efficiencies within your own operations, such as reducing waste, improving inventory turnover, or renegotiating contracts with logistics providers. Even small cost savings can help offset the cash flow strain that tariffs create.
Renegotiating Terms with MCA Providers
If your daily sales or profit margins drop because of tariff pressures, proactive communication with your MCA provider is key. Some funders may be willing to adjust repayment terms, such as lowering the daily holdback percentage or temporarily extending repayment periods, to help your business maintain stability. Providing transparent sales data and demonstrating a plan for recovery can improve your chances of securing more favorable terms. Waiting until you’ve missed payments can make renegotiation much harder, so it’s best to act early.
Diversification and Risk Management
Finally, consider how to make your business more resilient to external shocks like tariffs. That could mean diversifying your product mix to include domestically sourced goods, expanding into new markets, or adjusting your pricing strategy to reflect changing costs.
On the financial side, building an emergency fund or establishing access to multiple funding sources (such as a business line of credit or SBA loan) can reduce your reliance on MCAs.
When to Contact a Business Debt Attorney
Tariffs can create financial pressure that compounds quickly for businesses already managing MCA debt. While it’s possible to handle short-term challenges on your own, there are specific signs that it may be time to bring in a business debt attorney for professional guidance.
- When tariff-related costs threaten MCA repayment: If rising costs from tariffs make it difficult to keep up with daily MCA deductions — or you’re forced to take out additional advances to stay afloat — it’s time to seek help. A business debt attorney can assess your contracts and determine whether the MCA terms are legally enforceable, excessive, or open to negotiation. They can also intervene before a default escalates into legal action.
- When you’re facing aggressive collection or legal pressure: If your MCA provider has begun threatening collections, freezing accounts, calling your clients or filing a lawsuit, contact an attorney immediately. Many MCA contracts include personal guarantees and confession of judgment (COJ) clauses that can put both your business and personal assets at risk. An attorney can help you respond strategically, challenge unfair terms, and protect your rights.
- When you need to renegotiate or settle debt: A business debt attorney can also help you renegotiate MCA or other business debt into repayment terms under more favorable conditions, especially if tariffs have significantly reduced your revenue. In some cases, they may be able to negotiate a settlement for less than what’s owed or help consolidate multiple advances into a manageable payment plan.
- When you want a long-term strategy: Beyond immediate relief, an attorney can help you build a long-term strategy to reduce your reliance on high-cost financing. This might include transitioning to more traditional funding sources, restructuring business debt, or exploring SBA-backed programs that offer lower rates and longer repayment terms.
Conclusion
Tariffs can create ripple effects that reach every corner of a small business — from higher supply costs to unpredictable sales and tighter cash flow. For those relying on merchant cash advances, these challenges can quickly turn a manageable repayment plan into a financial burden.
When rising expenses or declining revenue start to threaten your MCA repayment or business stability, professional help can be invaluable. If you’re struggling to manage MCA debt in the face of tariff-related pressures, don’t wait until you’re behind on payments or facing legal action.
Tayne Law has more than two decades of experience and specializes in helping clients resolve their debts. Our team of experienced professionals has extensive experience dealing with MCA debt, and we know how to navigate its complex MCA and business debt matters. If you need help with your MCA debt, call us at (866) 890-7337 or fill out our short contact form to speak to a team member and find out if we’re the right fit.
