Exclusive: Lights Flash Red for 1 in 5 US Small Businesses as Tariff Economy Sets In

When the economic winds start to howl, small- to medium-sized businesses (SMBs) turn up their collars. As the Trump administration’s global tariffs send shock waves through stock markets and prompt fears of a recession, businesses across America may be in store for particularly acute pain.

While large companies typically have financial safety nets through retained earnings, lines of credit and options such as raising capital through debt or equity offerings, fully half of all U.S. SMBs — the backbone of the American economy — currently rely on their day-to-day sales just to keep the lights on, according to a forthcoming report from PYMNTS. Nearly one in five are pessimistic about their odds of survival over the next two years. Almost 7% think they might not make it.

These findings, among many featured in the “Money Problems: How SMBs Leverage Financing to Navigate Economic Uncertainty” report that publishes on April 9, impact not just businesses. Some smaller companies may have to lay off workers or raise their prices. That could turn off shoppers and trigger shifts in consumer spending patterns, with shoppers worried about a further spike in inflation opting to dial back their spending on wants.

Small businesses account for 99.9% of all American enterprises, according to Small Business Administration data. Nearly 35 million SMBs drive close to half (43.5%) of U.S. GDP. Whether it’s a New England-based retailer of toys imported from China, a family-owned construction company in the Midwest that buys lumber from Canada or a mom-and-pop Mexican restaurant in California that buys Mexican avocadoes, the stakes are high.

Precious Commodity

What’s clear is that just when it may be needed most, financing is a scarce commodity. Fewer than half, or 44%, of all U.S. SMBs have access to any form of financing, whether cash, a business credit card, bank loan or alternative source of credit. The workhorse of the U.S. economy lives hand-to-mouth.

With no ability to tap into funds when things get a tight, pessimism is emerging. Some 6.9% of all SMBs surveyed in the report in early-to-mid February said they were unlikely to survive the next two years. This figure nearly doubles to 13% among SMBs without access to financing.

The report is based on a survey conducted from Feb. 5 to Feb. 12, when the White House had announced tariffs against Canada, China and Mexico but before many countries announced retaliatory levies and a global trade war unfolded. The United States introduced global tariffs on April 2, including on cars and car parts shipped to the U.S. — even American brands.

Credit Cards to the Rescue — for Some

So where are small business that do have access to financing turning?

The forthcoming report shines a spotlight on business credit cards as the undisputed champion in helping companies pay vendors and suppliers, meet payroll and conduct other business operations. Barely three in 10, or 28%, of SMBs have business cards. Nearly two in three, or 64%, of businesses with access to any form of financing use their corporate plastic to withdraw cash for operations.

Though potentially carrying high interest rates, the cards offer a quick and relatively easy way to access funds.

At the same time, four in 10 businesses with access to financing also rely on their owners’ personal credit cards. Doing that blurs the lines between personal and business finances and potentially puts both at risk if things turn south.

For businesses that can’t secure traditional financing — perhaps because they’re deemed too unstable or lack collateral — money-raising options get risky. Higher-interest unsecured loans or maxing out personal credit cards become the go-to, the forthcoming report finds.

The report highlights a clear link between a business’s access to financing and its owner’s conviction in the business climate. Businesses equipped with financing and readily available cash are 23% more likely to express strong confidence in their ability to navigate tariffs compared to their counterparts without such resources.

Conversely, three in four SMBs that lack access to financing or cash have zero plan to offset potential cost increases stemming from tariffs. But while giant companies like Walmart, America’s largest retailer, can seek discounts from foreign suppliers or outsource supplies in other countries, smaller retailers don’t have that purchasing or price-negotiating muscle. That’s why over one in four of SMBs expect to raise prices in response to tariffs, a recent PYMNTS Intelligence report found.

A Puzzle

Here’s where a headscratcher emerges. The forthcoming report reveals that many SMBs lacking access to any financing claim they simply don’t need it.

In an uncertain economic environment, this seems counterintuitive.

Nonetheless, a surprising three out of four SMBs without any financing stated that they didn’t require it. Perhaps it’s a mental heuristic deployed by business owners to justify why they can’t access it. Or maybe some business owners genuinely think they can weather any storm on their own. But with nearly 20% of smaller businesses feeling pessimistic about their chances of survival over the next two years, this perceived lack of need might be an illusion.

Ultimately, the data paints a picture where a significant portion of the SMB landscape is financially vulnerable.

Broad Takeaways:

A significant portion of U.S. SMBs are financially vulnerable, with half relying solely on day-to-day revenue and fewer than half having access to any form of financing.

Some 7% of all U.S. SMBs think they might not survive the next two years. For businesses without access to financing, the figure spikes to 13%.

Many SMBs without access to financing surprisingly claim they don’t need it, a potentially risky perception in an uncertain economic climate.

Business credit cards are the most popular financing option for SMBs with access to it, valued for their convenience and immediate availability of cash.

Businesses with lower revenues are more likely to resort to riskier financing options like personal credit cards and unsecured loans.