Tariffs Pushed This Founder to Borrow $950,000 — Now He Owes $1.2 Million

Joshua Esnard needed cash fast. Tariffs on the imported components his company, The Cut Buddy, relies on had blown a hole in his budget, and the traditional route to bridge financing — a bank loan — would have taken too long. So Esnard turned to merchant cash advances instead. He took out three of them, totaling $950,000. After fees, he now owes $1.2 million.

Esnard is not alone. Across the country, small business owners squeezed by rising tariff costs are turning to merchant cash advances (MCAs) to stay afloat — and many are discovering, too late, just how expensive that decision can be.

What's Happening

Since the current round of tariffs took effect in April 2025, the share of small firms applying for merchant cash advances has climbed from 9% in 2024 to 12% in 2025, according to data cited by CNBC and corroborated by Federal Reserve small business survey findings. The Federal Reserve's own research found tariffs have been "particularly costly" for small businesses, many of which lack the cash reserves or credit access that larger companies use to absorb sudden cost increases.

The numbers behind that squeeze are significant. A May 2026 report from the Joint Economic Committee found that small businesses with fewer than 50 employees paid roughly $175,000 more in tariff-related expenses between March 2025 and February 2026 than they did the year before. For a business running on thin margins, that kind of unplanned expense can be the difference between staying open and closing the doors.

The fallout is already visible in bankruptcy filings. Small business bankruptcies jumped 67% year-over-year in the first quarter of 2026, rising to 833 filings from 499 in the same period the year before.

Why Owners Are Reaching for MCAs

Merchant cash advances have become the financing of last resort for a simple reason: speed. Where an SBA-backed loan can take weeks to underwrite and fund, an MCA provider can often wire money within a day or two, sometimes after little more than a review of recent bank statements. For an owner facing a tariff bill due now, that speed is the entire appeal.

But an MCA is not a loan in the legal sense — and that distinction matters enormously. Instead of lending money at an interest rate, an MCA provider advances cash in exchange for a cut of future sales, collected through daily or weekly automatic withdrawals from the business's bank account. Because they're structured as a purchase of future receivables rather than a loan, MCAs fall outside federal lending regulations and most state usury laws that cap how much interest a lender can charge.

That regulatory gap is exactly why the cost of MCAs has climbed so high. Effective annual interest rates on merchant cash advances now average around 94%, with many deals running anywhere from 50% to over 100% once fees are factored in. Compare that to a typical SBA loan, which generally carries a rate in the single digits to low teens.

The Real Cost of an MCA

The math on Esnard's deal illustrates the problem. He borrowed $950,000 across three advances and now owes $1.2 million — roughly a 26% markup on the principal alone, and that's before accounting for how quickly those advances typically have to be repaid. Most MCAs are structured to be paid back within three to eighteen months through daily withdrawals, which means the effective APR ends up far higher than the flat fee suggests.

Because repayment comes directly out of daily revenue, a slow sales week doesn't give a business owner breathing room — the withdrawals continue regardless, which can strain cash flow for rent, payroll, and inventory all at once.

How the Debt Trap Works

Advocates who track MCA lending describe a pattern they call "stacking": a business takes out one advance to cover a shortfall, finds itself short on cash again a few weeks later because of the daily withdrawals, and takes out a second advance to cover the gap left by the first. Some owners end up juggling three, four, or more advances simultaneously, each with its own daily debit, until the combined withdrawals exceed what the business brings in.

Because MCA agreements are often written in dense legal language that emphasizes the "factor rate" rather than an annual percentage rate, many owners don't fully grasp the real cost until they're already committed. Unlike a bank loan disclosure, there's no federal requirement to present the cost in APR terms, which makes it hard to comparison-shop.

Watch for confession of judgment clauses

Many MCA contracts include a "confession of judgment" clause, which lets the provider obtain a court judgment against the business automatically if a payment is missed — without the business owner getting a hearing or a chance to dispute it first. These clauses have drawn enough concern that a handful of states have moved to restrict them: New Jersey banned confessions of judgment in commercial financing agreements outright, Texas passed a law voiding contracts that function like them, and New York restricts filing them against businesses that aren't based in the state. Still, roughly 35 to 40 states have no MCA-specific legislation at all, so protections vary enormously depending on where a business is located. Reading the fine print for this specific clause — and asking a lawyer to explain it — is one of the simplest ways to avoid a worst-case outcome if cash flow gets tight after signing.

What This Means for Your Business

If tariffs are squeezing your margins and you're considering fast financing to cover the gap, a few questions can help you avoid becoming the next cautionary tale:

• Is this a loan or a receivables purchase? If the offer is structured as a "sale" of future receivables rather than a loan, it likely isn't subject to usury caps or standard lending disclosure rules.
• What's the true annual cost? Ask the provider to translate the factor rate into an estimated APR. If they won't or can't, treat that as a red flag.
• How will daily withdrawals affect cash flow? Run the numbers against your actual daily revenue, not your average, including your slowest weeks.
• Do you have a backup plan if a second shortfall hits? If the answer involves another advance, you may already be on the path to stacking.

Keeping a current profit and loss statement makes it much easier to see exactly how a new daily withdrawal will hit your operating cash before you sign anything — and it's the first document most lenders, MCA providers included, will ask to see.

Safer Alternatives Worth Exploring First

Before turning to an MCA, small business owners facing tariff-related cash crunches have a few other options worth checking first:

• SBA disaster and working capital loans. The SBA loan process takes longer than an MCA, but the rates are dramatically lower and the terms are far more transparent.
• A business line of credit. If you already have one in place through your business bank account, it's almost always cheaper than an MCA for bridging short-term gaps.
• Negotiating with suppliers. Extended payment terms or a temporary discount from a supplier can sometimes cover the same gap an MCA would, without any new debt at all.
• Local and community development lenders. Community development financial institutions (CDFIs) often move faster than traditional banks and lend at far lower rates than MCA providers.

Tariff policy is likely to remain volatile for the foreseeable future, and small business owners in import-dependent industries should expect more cost surprises ahead. Members of Congress, including several senators who have raised concerns about the SBA's handling of small business debt, are watching the MCA industry more closely as complaints mount. Until there's more regulatory clarity, the safest move for any owner facing a sudden tariff bill is to slow down, run the real numbers on any "advance," and rule out every cheaper option first.

Photo by Alexander Grey on Unsplash