“It’s Awful”: How Tariffs, Fuel Costs, and Rate Hikes Are Squeezing Small Businesses From Every Direction
While Wall Street has spent recent weeks celebrating record index closes and a historic AI infrastructure spending boom, a different story has been playing out on Main Street. A widely shared report this week captured small business owners describing their current environment in blunt terms — one business owner’s assessment was simply: “It’s awful.” The reason isn’t any single factor, but three landing at once: tariff-driven cost increases, elevated fuel prices, and now rising interest rates, all compressing margins simultaneously.
Why This Squeeze Is Different From a Single Cost Shock
Businesses are generally built to absorb one cost pressure at a time — a fuel spike here, a rate increase there — by adjusting pricing, renegotiating with suppliers, or temporarily tightening margins elsewhere. What’s different about the current moment is the simultaneity: tariff costs are raising the price of imported goods and components, fuel costs remain elevated, and financing costs are rising at the same time, following the Fed’s first rate hike since 2023 earlier this month, detailed in Fed Raises Rates for the First Time Under Chair Kevin Warsh. Layered together, these three pressures leave far less room for a business to absorb any one of them through its usual levers, since all three are drawing on the same limited operating margin at once.
How Each Pressure Is Actually Showing Up
Tariffs continue to raise landed costs for businesses that import goods, components, or raw materials, with those increased costs typically passed at least partially through the supply chain before reaching a small business’s own cost of goods. Unlike a domestic price increase a business might negotiate around, tariff costs are largely outside any individual business’s ability to influence directly.
Fuel costs, while easing somewhat from earlier peaks amid the broader oil price decline tied to progress in Iran diplomacy — a trend we covered in Asian Markets Extend Rally as Iran Diplomacy Progresses — remain elevated relative to recent years, continuing to weigh on any business with meaningful transportation, delivery, or logistics costs.
Rising rates are the newest pressure in this combination, and arguably the one moving fastest right now given this week’s surge in Treasury yields to their highest levels in nearly two decades, covered in Treasury Yields Hit a 19-Year High. Any business carrying variable-rate financing — a bank line of credit, a business credit card balance, a HELOC used for the business — is seeing that cost climb in real time, on top of the tariff and fuel pressures already in place.
Why This Combination Is Particularly Hard on Smaller Businesses
Larger businesses generally have more levers available to manage a multi-directional squeeze like this one — greater purchasing power to negotiate around tariff costs, fleet efficiencies that dilute fuel cost increases, and often better access to fixed-rate financing negotiated before rates began climbing. Smaller businesses typically face all three pressures with fewer of those offsetting advantages, which is part of why the sentiment captured in recent reporting has been so stark. This dynamic echoes a related story this week, where even a company with the scale of McDonald’s has warned that persistent inflation and flat traffic are structural rather than temporary — see our coverage in McDonald’s Is Having Its Worst Stretch Since 2014 for what that signals about consumer-facing demand more broadly.
How Businesses Are Actually Responding
Reporting on this squeeze has highlighted a range of business responses, generally falling into a few categories: absorbing costs temporarily while hoping for relief on one or more fronts, passing costs through to customers where pricing power allows, restructuring supplier relationships to reduce tariff exposure where possible, and in some cases delaying planned investments or hiring until the pressure eases. None of these are universally available to every business — pricing power in particular varies enormously by industry and competitive position.
What to Do If Your Business Is Feeling This Squeeze Right Now
- Separate the controllable from the uncontrollable. Tariff costs are largely outside your direct control, but financing structure is a decision you can actively make — moving toward fixed-rate obligations where possible removes at least one of the three pressures from continuing to compound.
- Model your actual cash flow gap precisely, rather than reacting to the general sense that things are tight. Our guide on what to do when your business can’t make payroll this week covers exactly this kind of quantified approach when multiple pressures converge on a single tight period.
- Consider whether variable-rate financing you’re currently carrying is adding an avoidable layer to this squeeze. If a rate-sensitive product is compounding the tariff and fuel pressure you can’t control, refinancing into a fixed structure may meaningfully reduce your total exposure even if it doesn’t address the other two pressures directly.
Illustrative Composite Scenario (not an actual client, for explanatory purposes only): An independent hardware store importing a portion of its inventory faces higher landed costs from tariffs, elevated delivery fuel surcharges from its suppliers, and a variable-rate line of credit that’s grown more expensive following recent rate increases. Rather than absorbing all three pressures simultaneously against the same thin margin, the owner refinances the variable-rate obligation into a fixed factor-rate advance, removing the compounding effect of rising rates from the equation while continuing to manage the tariff and fuel pressures directly.
How Smart Business Funding Approaches This Multi-Directional Squeeze
Whether your business is managing tariff costs, fuel prices, rising rates, or all three at once, Smart Business Funding’s Direct Fund Program uses a fixed factor rate and fixed daily or weekly repayment schedule set at signing — removing at least the financing-cost variable from an already difficult combination. See the full process on the how it works page, review funding by business type on the industries page, or apply now.
Frequently Asked Questions
Why are small businesses facing pressure from three directions at once right now? Tariff-driven cost increases, elevated fuel prices, and rising interest rates following the Fed’s recent rate hike are all compressing margins simultaneously, leaving less room for businesses to absorb any single pressure through their usual levers.
Which of these three pressures can a business actually control? Financing structure is the most directly controllable — moving from variable-rate to fixed-rate obligations removes that specific pressure, while tariff and fuel costs are largely outside any individual business’s direct influence.
Why are smaller businesses hit harder by this than larger companies? Larger businesses generally have more purchasing power, fleet efficiencies, and existing fixed-rate financing to offset these pressures — advantages smaller businesses typically lack.
Does refinancing variable-rate debt actually help with tariff and fuel pressure? It doesn’t address those two pressures directly, but it removes the rising-rate component from the combination, which can meaningfully reduce total financial pressure even if tariffs and fuel costs remain unchanged.
What should a business do if all three pressures are creating an immediate cash flow gap? Quantify the specific gap precisely rather than reacting to general tightness, and evaluate fixed-rate, fast-moving financing options that can close a defined shortfall without adding further rate exposure.
Facing pressure from rising costs on multiple fronts? Apply now or call 1-866-Re-Smart. You can also reach the team at contact us.
