Tariffs Are an Outsized Burden for Small Business, and That Could Be an Opportunity for Regional Lenders
The Trump Administration’s trade policies will have profound impacts on small and medium-sized enterprises (SMEs), with notable consequences for the US economy since they account for about half of the US employment.
The Census Bureau estimates that a staggering 97% of U.S. importers are SMEs or 237,000 out of the 243,000 thousand importers. The same data shows SMEs account for one-third of total imports by value – $868 billion out of the total $3.08 trillion US goods imports in 2023.
To make things worse, SMEs have outsized China exposures in aggregate. As the figure below shows, while SMEs account for about one-third of total known import values, they account for 40% of the known imports from China. Furthermore, SMEs often lack the working capital or the ability to access to credit lines that larger businesses can tap into –a tool helpful to smooth through some of the tariff impacts (via front running with larger inventories, smoothing through price increases, avoiding firing employees or paying deposits to foreign producers to maintain relationships).
Alongside the economic challenges for SMEs, the trade policy changes will also create opportunities – notably, regional lenders and small banks have a unique opportunity to capitalize on these disruptions to deepen their partnerships with SMEs, solidifying or even gaining market share.
The Census Bureau estimates that a staggering 97% of U.S. importers are SMEs or 237,000 out of the 243,000 thousand importers. The same data shows SMEs account for one-third of total imports by value – $868 billion out of the total $3.08 trillion US goods imports in 2023.
To make things worse, SMEs have outsized China exposures in aggregate. As the figure below shows, while SMEs account for about one-third of total known import values, they account for 40% of the known imports from China. Furthermore, SMEs often lack the working capital or the ability to access to credit lines that larger businesses can tap into –a tool helpful to smooth through some of the tariff impacts (via front running with larger inventories, smoothing through price increases, avoiding firing employees or paying deposits to foreign producers to maintain relationships).
Alongside the economic challenges for SMEs, the trade policy changes will also create opportunities – notably, regional lenders and small banks have a unique opportunity to capitalize on these disruptions to deepen their partnerships with SMEs, solidifying or even gaining market share.
Source: Census Bureau: A Profile of U.S. Importing and Exporting Companies, 2022-2023
Not only will small businesses incur significantly higher import costs due to tariffs, but SMEs will also face significant indirect costs, ranging from tempered demand as businesses and consumers stare down an uncertain economic outlook, to competitive hits if the U.S. faces retaliatory measures from other economies. There are also challenges managing inventory and working capital as shifting tariff policies result in snarled supply chains.
Just this week, the National Federation of Independent Businesses, the nation’s small business lobby, released small business survey data for May. The survey showed small businesses are uncertain about the future and their optimism about future business conditions is significantly lower after a pop following President Trump’s election. The survey also showed early signs that supply chain snarls resulting from changing tariff policies are starting to impact SMEs – a net 1% of owners viewed current inventory stocks as “too low” in May, up 7 points from April and the highest reading since August 2022. This was the largest monthly increase in the survey’s history.
Just this week, the National Federation of Independent Businesses, the nation’s small business lobby, released small business survey data for May. The survey showed small businesses are uncertain about the future and their optimism about future business conditions is significantly lower after a pop following President Trump’s election. The survey also showed early signs that supply chain snarls resulting from changing tariff policies are starting to impact SMEs – a net 1% of owners viewed current inventory stocks as “too low” in May, up 7 points from April and the highest reading since August 2022. This was the largest monthly increase in the survey’s history.
NFIB Small Business Optimism Survey
Data through May
Source: NFIB
All of this means small and medium businesses are going to need to access capital and credit more than ever – an opportunity for their regional banking partners.
As of 2023, more than two-thirds of SMEs reported choosing a small or regional financial institution as their banking partner. Here is why they are going to rely on those relationships now more than ever:
As of 2023, more than two-thirds of SMEs reported choosing a small or regional financial institution as their banking partner. Here is why they are going to rely on those relationships now more than ever:
The data below illustrates both the need for credit and the challenge SMEs will face when looking to obtain those loans.
The first chart below is based on data through May from the US Small Business Administration and shows there’s been a robust pickup in demand for 7a loans in recent months. These loans provide small businesses with low-interest credits that can be used for a range of purposes – including working capital requirements. Data from the Fed’s Senior Loan Office early April survey showed a different picture, with banks reporting weaker demand for credit from small firms – but in the case of the Senior Loan Officer survey, the major reason cited for weaker demand was decreased customer investment plans and decreased plans for M&A. In other words, while SMEs may be pulling back on borrowing for expansion purposes, they likely still need access to capital for the purposes of navigating the tariffs.
Notably, respondent banks for the loan officer survey received the lending survey on March 31, 2025, and responses were due by April 11, 2025. It is unclear how significantly the early April “Liberation Day” announcement impacted the survey.
The right chart below illustrates why SMEs may struggle to obtain the capital they need to navigate the tariffs. As of the first quarter, loan officers already reported tightening lending standards. Among banks that reported having tightened standards and terms for loans, major net shares cited a less favorable or more uncertain economic outlook, increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards, the worsening of industry-specific problems, and a reduced tolerance for risk.
Sources: SBA Capital Office; Federal Reserve Senior Loan Officer Survey
There will of course be challenges for regional banks coming from the tariffs. We may see the economy slow and SME’s credit quality deteriorate. The credit quality of SME borrowers may also be harder to evaluate given high uncertainty. Banks may need increase expenditures to develop tariff-integrated SME credit models that integrate real-time trade exposure, input price sensitivity and supply chain risk or to partner more closely with borrowers on simulation-based financial planning tools.
Still, in an industry that’s been characterized by consolidation and “bigger is better” in recent years, the trade war might eventually mean it’s the right time for “little” banks to shine.
