Borrowing to Survive: Small Businesses Taking Out Loans Just to Pay Tariffs

Weekly Payments on Money He Shouldn't Need to Borrow

Viresh Varma, 64-year-old CEO of AV Universal Corp., a small footwear company selling through Macy's, Nordstrom, and DSW, can't sleep anymore. He needed to take out a $250,000 loan to pay his tariff bill on a container of shoes he imported from India for the holiday shopping season, according to a CNBC article.

The terms were not great: weekly payments and a 32% interest rate. But without it, he'd have nothing to sell during the holidays, which account for 40% of AV's annual revenue.

Varma didn't have the cash on hand to pay the duties, which he said used to be around $7,500 for a similar-sized container before President Donald Trump's new tariffs. The math is staggering: a duty bill that jumped from $7,500 to an amount requiring a $250,000 loan, that's more than a 3,000% increase in what he needs to front just to get his products into the country.

"We've reduced some salaries. We had planned to hire some people we're not going to hire anymore," Varma told CNBC. The loan payments are eating into everything. If sales don't materialize after raising prices, layoffs are next.

Mortgaging the House for Christmas Lights

Jared Hendricks built Village Lighting over 20 years, making Christmas decorations and selling through Walmart and Target, per the CNBC article. Every year, he uses a strategic line of credit to manage his seasonal business: just before Christmas, Hendricks uses a $2 million line of credit he took out against his home to buy inventory for the following year's holiday season. He then uses that eventual revenue to pay back the debt.

It's a tight but manageable cash flow cycle, or it was.

This year, he had to use that line of credit to pay his tariff bill instead.

Think about that. The money earmarked for buying next year's inventory, the credit line secured by his personal home, now goes to the government just to clear customs on products he's already ordered.

"Hopefully I can turn around and mark things up enough for people to buy them from me so I can pay back my tariff debt," Hendricks said. "It's to the point now where it could kill us, it could take us down, and I could lose everything".

Then he added something that should alarm every entrepreneur: "Being a small business owner isn't worth it when your country turns on you".

The Scale of the Problem

These aren't isolated cases. CNBC interviewed nearly a dozen small business owners to understand the financial impact, and the numbers are brutal:

$856,000: The average annual cost to small business importers, according to the U.S. Chamber of Commerce. Small businesses represent 97% of all U.S. importers.

$90,000: The average tariff cost per small business from April to July 2025 alone, that's just four months.

62%: Percentage of small businesses that report tariffs have impacted sourcing and operations.

When you're a small operation running on thin margins, these aren't expenses you can absorb. They become debt obligations.

Why Debt Becomes the Only Option for Businesses

Tyler Higgins, managing director and supply chain specialist at global consulting firm AArete, explains: "Larger businesses just have more resources and more ability to disperse costs".

Big companies stockpile inventory ahead of tariff deadlines, spreading costs across thousands of units. They have established credit lines, negotiating power with suppliers, and the ability to absorb short-term losses while smaller competitors fold.

Small businesses have none of these advantages. They can't stockpile because they lack warehouse space and capital. They can't negotiate better terms because they lack volume. And they can't tap credit markets easily because banks demand multi-year business plans for credit approval, but trade policies change weekly.

So they end up taking whatever financing they can get, even at 32% interest. Even if it means mortgaging their home. Because the alternative is shutting down.

The Credit Catch-22

Here's the impossible position small importers face:

1. Tariffs spike unexpectedly, creating immediate cash needs

2. They don't have cash reserves to pay duties upfront

3. Banks see volatile costs as evidence of poor management, not policy chaos

4. Traditional credit becomes harder to access

5. They're forced into high-interest loans or personal guarantees

6. Debt service cuts into already-thin margins

7. They raise prices to cover costs

8. Sales drop as customers balk at higher prices

9. Revenue falls while debt payments remain fixed

10. The business spirals

With 37% of small businesses having access to business credit, most lack options when emergencies hit. Tariffs have created an emergency that's been ongoing for months.

The Policy Whiplash

Eight major tariff adjustments in the past 12 months have created a policy whiplash that large corporations can navigate but small businesses cannot. When Trump eliminated the de minimis exemption for goods under $800, four million packages daily lost duty-free status. That's 92% of all cargo facing tariffs, and small businesses couldn't plan for it.

S&P Global called the suspension of this rule "the real inflection point" for how hard tariffs would bite. They were right.

What This Really Costs

Trump's tariffs will reduce U.S. GDP by 0.8 percent before foreign retaliation, reduce market income by 1.5 percent in 2026, and amount to an average tax increase per U.S. household of $1,300 in 2025 and $1,600 in 2026, according to the Tax Foundation.

But those are macro numbers. The micro story is Viresh Varma making weekly payments at 32% interest to pay a tax bill. It's Jared Hendricks staring at his house, wondering if he'll lose it to tariff debt.

The Bottom Line

When small businesses have to borrow money, at any interest rate, just to pay government duties on products they've already purchased, we've crossed a line. This isn't about growth capital or expansion financing. This is survival debt.

Small businesses routinely represent more than 40% of the nation's GDP and employ nearly half of the American workforce, according to the U.S. Chamber of Commerce. When these businesses are forced into debt spirals by unpredictable policy changes, the entire economy feels it.

The question small business owners are asking isn't about trade policy theory or manufacturing reshoring timelines. It's much simpler: How do I pay this bill? And increasingly, the answer is: Go into debt and hope you survive.