Using Loans to Avoid Tariffs: A Smart Small Business Tactic
About 36% of small businesses have already experienced negative effects from tariffs, according to a 2025 U.S. small business survey by Goldman Sachs. Additionally, 38% expect to be negatively impacted in the coming months.
To combat tariffs, companies often raise prices to absorb the higher costs of importing products and materials. However, your business may be able to prevent this by using loans to avoid tariffs.
In this article, we’ll walk you through the financing strategies to avoid or minimize tariff-related costs. You’ll learn:
The impact of tariffs on small businesses
How to use loans to avoid tariff-related costs
The types of loans that work best for tariffs
Tips for managing tariff impacts
Why Tariffs Create Financial Strain for Growing Businesses
Tariffs are government-imposed taxes on imported goods. As such, they can often result in international trade wars, where governments implement retaliatory tariffs.
For example, in February 2025, the Trump administration imposed a 10% to 25% tariff on Canada, Mexico, and China. In response, Canada implemented a retaliatory tariff of 25% on certain U.S. imports. Meanwhile, China implemented a 10% retaliatory tariff in February 2025, followed by an additional 15% tariff a month later.
Caught in between these tariff increases are businesses that rely on imported products for manufacturing and retail. Economists have warned that tariffs can increase the cost of doing business, which may ultimately be passed on to consumers. According to a May 2025 survey by the Federal Reserve Bank of New York, manufacturers in the region have increased their prices by an average of 20% over the past six months due to tariffs.
Below are the major reasons why tariff policies can disrupt your cash flow and slow down revenue:
Global supply chain disruptions: Many small businesses are partnering with foreign suppliers, particularly China, to keep the costs of goods and materials low. Higher tariffs mean that companies now have to look for alternative vendors from other countries or regions, which might not be as efficient or cost-effective.
Lower profit margins: With increased costs, businesses face a dilemma. They can either pass these costs to their consumers via price increases or absorb the cost themselves, resulting in a squeezed profit margin. Lower profit margins can then disrupt short-term cash flow, potentially leading to downsizing production and staff.
Lower consumer spending: Higher prices can deter customers or lead to lower purchase volumes. This means you’ll have less working capital, which can disrupt operations and delay investments.
Using Loans to Avoid Tariff-Related Costs
Without an emergency fund or cash reserves, tariff-related costs can be disastrous for small businesses. One way to manage this challenge is to access extra capital through a loan or alternative financing.
Contrary to what most people think, financing is not just for emergencies. It can also help you strategize and invest wisely, such as buying your inventory in advance, to prepare for potential disruptions.
Below are some ways that you can use loans to avoid added costs from tariffs or minimize their financial impact.
Use the Funds to Boost your Working Capital
Having extra cash can give you some wiggle room to keep production going. These funds will allow you to bridge any cash flow gaps so you can maintain inventory flow, pay your bills and workers, and avoid production delays.
Having enough working capital can also buy you time to look for another supplier or experiment with in-house manufacturing. This will allow you to absorb the costs in the short term as you look for long-term solutions, rather than immediately raising your prices and losing customers.
Negotiate for bulk purchase discounts and offers
If the tariffs have not yet been implemented in your supplier’s region or have been paused, you can use the funds to stockpile inventory. This can buy you time to stabilize your expenses despite the price volatility. That said, it’s not advisable to keep too much inventory on hand as there may be lower consumer demand, so ensure you calculate your needs carefully.
Having the ability to purchase in bulk can also be helpful during sudden changes to tariff rates, as it allows you to respond quickly and effectively. Additionally, some suppliers, especially if you have a good long-term relationship with them, might be open to negotiating a discount or better payment terms if you decide to keep your partnership going.
Diversify your supply chains
Looking for alternative suppliers can be complicated and involves a lot of upfront costs, such as hiring services to help vet new vendors, identify regions that are less likely to be exposed to high U.S. tariffs, and negotiate contracts. You may also need to adjust your production line or even redesign your products, depending on the new vendor’s specifications and regional regulations.
However, if you have sufficient funds to distribute your production to multiple suppliers, you may be able to avoid additional or new tariffs altogether, especially if you opt for domestic production. Additionally, you might also discover better materials or processes that are more cost-efficient in the long run.
What Type of Loan Works Best for This Situation?
There are different types of loans and financing that can help improve your cash flow, but below are some of the best options for small businesses.
Small Business Loans
Small business loans are term loans available from banks, credit unions, and private lenders. These providers give you a lump sum upfront that you will have to repay in monthly installments with interest.
The interest rates and loan amount depend on the lender, but banks typically offer more competitive rates and repayment terms. Secured business loans can have higher loan amounts and longer repayment terms, depending on the value of the collateral.
SBA Loans
The U.S. Small Business Administration (SBA) partners with authorized lenders to offer SBA loans. These term loans offer some of the best interest rates and repayment terms in the market, as they are subsidized by the government.
In particular, the SBA 7(a) loan can be used for any business need and offers up to $5 million in funding. You can use it for short- and long-term working capital and inventory financing.
The downside to term loans is that they can have lengthy and complicated application processes. Below are some alternative financing options that can give you funds much more quickly and with more flexibility.
Business Line of Credit
A business line of credit is a revolving fund that you can draw from at any time and for any purpose. It has a higher credit limit than business credit cards, allowing for more expensive purchases, such as equipment upgrades.
You’ll only owe interest on the amount you withdraw, and once you repay the borrowed amount, you can use it again. This financing also has fewer requirements than term loans and is often used to cover operational expenses during lean months or to invest in market opportunities.
You can apply for a business line of credit in minutes, and be approved in less than 24 hours with some lenders. That makes it an agile option that you can secure quickly and keep on hand as you make strategic moves.
Working Capital Advance
A working capital advance is a lump sum given to you upfront, which you then repay at set intervals, such as daily, weekly, or semi-monthly. The amount you get depends on your cash flow and annual revenue.
This financing can increase your working capital so you can reinvest into your business and diversify your revenue streams. For example, you can use the funds for new product research and development or exploring new markets.
Tips for Staying Ahead of Tariff Impacts
Sharing resources and identifying cost-cutting measures can help your business weather this storm. Below are some tips to ensure your business stays on top of tariff developments.
Join forces with other local businesses
Networking with other small businesses can help you share costs and resources. For example, you might be able to bulk order the same materials at much lower prices and share shipping costs.
Attending trade shows, industry conferences, and even joining a small business online forum can help you stay updated about tariff policies. You might also meet your future supplier at these events or get leads on alternative sourcing options.
Make a price increase communication plan
There may come a point where you’ll have to raise prices to recoup your losses, so it’s good to make a plan on how best to prepare and notify your customers in advance. It’s also important to be transparent about why you’re raising prices and when you’re implementing these new prices so that you can maintain trust and accountability.
In addition, gradually raising your prices can ease the transition — the last thing you want is to shock customers with a steep price increase. Knowing how much your competitors are raising their prices can help you adjust accordingly. Plus, you can add value elsewhere, such as better customer service or a rewards program.
Cut your expenses where you can
While you may not have control over the price of raw materials, there might be other ways to save money. For example, you might be able to move to a location with cheaper rent.
You can also reevaluate your manufacturing and delivery processes to identify areas for improvement and streamline them to reduce your production hours. Aside from making assembly more efficient, you can consider alternative packaging that can be produced domestically.
Get Quick and Flexible Funding With Backd
Tariffs can make you feel helpless, but there are ways to take back some control as a small business owner. Using loans to avoid tariffs can set your business up for success despite the uncertainty. There are also other options that can help you get the funding you need.
For example, Backd’s Working Capital Advance offers up to $2 million in funding, with flexible payments (daily, weekly, or semi-monthly). Meanwhile, our Business Line of Credit provides up to $750,000 and can be used for any purpose.
We do a soft credit pull during the application process to protect your credit score. Plus, you can receive a decision within as little as 6 hours after you submit your application.
Our eligibility requirements include:
$100,000 in monthly revenue
A credit score of 650+
Established business credit
Based in the U.S. with a brick-and-mortar address
Been in business for one year for a Working Capital Advance and two years for a Business Line of Credit
Apply now to stop worrying about tariffs and start focusing on growth.
