A trade war’s impact on small businesses

With all the headlines surrounding the very public negotiations regarding trade tariffs and trade barriers between the United States and its trading partners around the world, we wanted to give our small businesses owners some of our takeaways.

 

The good

If there is anything good about a trade war it’s the fact that most small businesses aren’t directly affected, at least not initially. Since most small businesses sale directly to U.S.-based consumers or to other domestic businesses, most of America’s small businesses won’t be the first casualties. That carnage will be endured by large, international businesses that are U.S. based like Harley Davidson and Brown Forman which have already seen their stock prices dropped as a result of tariffs imposed on their exports. As long as the trade war doesn’t escalate much beyond the initial salvos, most of the damaged will be contained to the America’s big corporations who have big balance sheets and can manage around their predicaments.

 

The bad

If the elevated trade barriers and tariffs remain in place for the medium term – perhaps six to twelve months or longer – and there is no end in sight to the trade tensions, the capital markets will start to freeze up. Lending will be directly impacted, and no one gets turned down faster for a loan in uncertain times than the small business owner. Without capital to grow, business large and small — especially the small ones – will struggle to grow. Small businesses without the best of credit and collateral while start to see their loan applications denied. No one runs for the hills faster than a banker looking into the abyss of uncertainty.

 

The ugly

A trade war can cause a recession or exacerbate an existing one. Look no further than the Smoot – Hawley tariffs implemented in the summer of 1930. Those protectionist policies, like many protectionist policies, resulted in a worsening economy due to the many unintended consequences that no politician or clairvoyant can predict. So if a material trade war becomes a full-fledged battle royale that lasts a year or longer, look for the contagion of flat or declining revenues impacting large multi-nationals to spread to the small business owner. So not only will small entrepreneurs see their revenues and cash flow begin to decline, the capital markets will not be accessible so cash shortfalls will start to impact commerce.

 

Our advice

No one goes bankrupt raising more money than she needs for her business. While the economy is still doing well with the dark clouds over the horizon, there is no better time than now to look at your business carefully and ascertain if you have the capital necessary to weather any potential storms on the horizon. Banks are still lending and interest rates, albeit rising, are still low by historically standards. If you need capital for your business, talk to your accountant and financial advisor and come up with a game plan on the appropriate mix of debt and/or equity capital you need to continue to accomplish your business objectives. And go to work immediately to get that capital now.

We believe that SBA loans are still very attractive in this market as many of the loan covenants are less restrictive than traditional loans. Our team at SBA Lenders can provide you with a free SBA Lender Match Report listing a handful of good fit banks that lend to businesses just like yours. Our SBA Lender Match Reports save entrepreneurs like you precious time and money as we do the filtering for you, which results in you finding the right bank right now.

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