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Many American small businesses are grappling with higher operating costs as a result of President Donald Trump’s tariff agenda, which he revamped last week with a new round of duties going into effect on July 24. Some are making risky financing bets as a result.
The Federal Reserve’s annual Small Business Credit Survey released in March finds the share of firms applying for loans, lines of credit or cash advances — 38% in 2025 — has been largely unchanged over the last few years. But the share of those firms applying for merchant cash advances rose to 12% in 2025 from 9% in 2024. Merchant cash advances, or MCAs, are financing agreements where lenders front cash to businesses in exchange for a portion of future sales. They can help businesses that need capital on a tight timeline, but there’s typically a steep cost.
The uptick in MCA applications coincides with the launch of Trump’s second-term tariffs, which went into effect in April 2025. Aharon Margolin, who was working in the alternative financing industry at the time, says he saw an influx of businesses in various industries requesting financing — especially through merchant cash advances.
“It was pretty widespread,” says Margolin, who in February started Tariff Recovery Group, a Los Angeles-based firm helping businesses access tariff refunds. “Obviously the importers who were paying those tariffs felt that pain directly,” he says. “The tariff payments became much larger, and that obviously affects cash flow and the bottom line.”
Even businesses that don’t import goods faced rising costs, says Margolin, nodding to a cafe’s owners with whom he worked. “Their sentiment to me was ‘everything’s gotten so much more expensive, all my goods, and therefore cash flow is really tight, and we’re taking additional capital,’” he says.
It’s understandable why some business owners turn to easy forms of credit. When small businesses run into a cash crunch, whether due to tariffs or rising operating costs or otherwise, sometimes they can’t wait for a bank loan to clear. Small business loans or lines of credit are available, but they often require the businesses to demonstrate strong sales history and good credit. And they take time to process — particularly unhelpful if a business’ inventory is stuck in customs awaiting tariff payments.
Meanwhile, financing options like merchant cash advances can offer small businesses with tens of thousands of dollars in as little as 24 hours, often without a credit check or collateralization of other assets. Instead, the borrower commits a portion of future sales to the lender until the money is repaid.
They may be easy to get, but that doesn’t make them advisable.
“Oftentimes, these loans create debt traps that force the borrower into multiple rounds of refinancing and stacking, and they get more and more complicated,” says Ami Kassar, founder and CEO of Multifunding, a business loan advisory firm based in Ambler, Pennsylvania.
Complicated and costly terms
The first downside of merchant cash advances is the cost. MCAs are not subject to federal regulation or state usury laws which limit how much interest can be charged on loans. Lenders are prohibited from using deceptive lending practices, but the onus is ultimately on business owners to understand the agreements they are entering when they get an MCA. Interest rates can effectively run between 50% to 100%.
Merchant cash advances use factor rates, which function like interest rates in that the borrower pays back the initial advance plus whatever the factor rate comes out to. The factor rate can be based on metrics like monthly sales and the lender’s risk assessment. Further, the factor rate, which typically ranges between 1.1 and 1.5, is multiplied by the amount you borrow to determine how much you pay back in total. As a result, borrowers can wind up paying back double their initial advance with the factor rate and additional fees considered. Payments are often taken out daily or weekly, which is why they can quickly cut into a business’ profits.
Tariffs may be contributing to the rise in merchant cash advance applications. Over 40% of firms said increased costs associated with tariffs were a “financial challenge,” the Fed’s survey found. Any time a business owner feels “boxed in,” they may seek alternative funding like merchant cash advances that can get them the cash they need quickly, but at a steep cost, Kassar says.
“They can have money, and then they’re often stuck in a spiral, and they don’t understand the effect of APR on the money, and it’s really hard for them to get out of it,” adds Kassar.
Joshua Esnard, founder and CEO of hair care accessories company, The Cut Buddy, told NPR he took out three merchant cash advances totaling $950,000 to cover tariff costs and wound up owing $1.2 million after fees.
In addition to merchant cash advances offering quick financing, many companies are quite persistent in advertising the loans to potential borrowers. Kassar says a lot of the time business owners looking for financing are met by salespeople who are “trying to shove something down their throat” like a merchant cash advance, rather than getting a true understanding of the business’ needs. Lenders “know exactly when to offer it to somebody,” he says. “It’s very manipulative.”
The exception to the rule
Still, there are instances where a merchant cash advance could work for a business. For example, a business owner who needs to come up with a large sum of money quickly or risk losing their business could benefit from a merchant cash advance, Kassar says. But it’s an extremely expensive risk to take and would be a “personal decision” for that owner to determine whether that would be better than closing up shop.
Alternatively, if a business needs to make a large purchase and knows the revenue is coming in that will cover the loan and additional fees, “then maybe it’s worth it,” he says.
“There are certainly some situations from time to time where it’s an appropriate product. You have to see if there’s anything else available,” Kassar says. “Sometimes they just have to slow down expenses and slow down payables.”
With the Supreme Court in February striking down the tariffs Trump originally implemented through the International Emergency Economic Powers Act, some businesses are starting to see refunds.
Margolin can’t confirm his Tariff Recovery Group clients have used refund money to pay off MCA debt specifically, but he says business owners have been incredibly relieved when the funds come through.
“Businesses are hurting, and we know when the money comes back, it’s lifesaving,” he says.
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