Tariff changes create real cash-flow challenges for businesses that rely on imported goods, raw materials, components, or finished products. When import costs rise, businesses often need more cash to purchase and carry inventory well before they can sell it and collect from customers.
For many companies, the biggest challenge isn’t just the added cost it’s the timing of that cost. A business may need to pay suppliers, cover import-related expenses, maintain inventory, and meet payroll well before customers pay their outstanding invoices. That creates a working-capital gap, even when the company is generating healthy sales.
Asset-based lending (ABL) is one financing option built specifically for this kind of gap for businesses with qualifying assets such as accounts receivable, inventory, and, depending on the facility, equipment.
Why Tariffs Put Pressure on Cash Flow
Tariffs can affect working capital at several points in a company’s operating cycle. When the cost of imported materials or products rises, a business typically needs to commit more cash to maintain the same inventory levels. If customers are still paying on 30-, 60-, or 90-day terms, the company ends up financing a larger working-capital gap while it waits for those receivables to convert into cash.
The typical impact includes:
- Higher landed costs for imported products and materials
- More cash required to purchase or replenish inventory
- Larger amounts of working capital tied up in inventory
- Margin pressure when higher costs can’t immediately be passed to customers
- Wider gaps between supplier payments and customer collections
- Greater need for short-term liquidity during purchasing cycles
Tariff rules and rates vary based on the product, country of origin, applicable trade measures, classification, and exemptions and they continue to change. Businesses should evaluate their specific import obligations with qualified customs, tax, or accounting professionals rather than relying on a single tariff rate.
From a financing standpoint, though, the core issue stays consistent: more cash is often needed before the business receives cash from its customers.
How Asset-Based Lending Helps
Asset-based lending can use eligible business assets, such as accounts receivable, inventory, equipment, and other qualifying collateral, to support financing. The amount a business can borrow is generally determined through a borrowing base: the lender evaluates eligible collateral and applies advance rates, eligibility requirements, and concentration limits to set available financing.
This approach is particularly useful for businesses that have valuable operating assets but need additional working capital to keep their normal business cycle moving. A company might have substantial inventory and receivables on the books, yet still face a cash shortage simply because that value is tied up rather than liquid. An asset-based facility can unlock part of that value and provide liquidity for eligible business needs.
Inventory as a Source of Working Capital
Inventory represents a significant investment for manufacturers, distributors, wholesalers, and importers. When the cost of purchasing or importing inventory rises, a company needs more cash upfront before the products are sold.
Consider a distributor that previously needed $200,000 to purchase and bring a shipment into inventory. If total landed costs increase, that same purchasing cycle can require significantly more cash than before pressure that compounds if the company must keep ordering while waiting on customers to pay for earlier shipments.
Depending on the facility structure, eligible inventory can support borrowing availability. It’s worth noting, though, that higher inventory costs don’t automatically translate to higher borrowing capacity lenders evaluate collateral eligibility, value, liquidity, and marketability before determining how much financing that inventory can support.
Receivables as a Second Lever
Inventory is only one part of the cash-conversion cycle. Once a business sells its products or services, it may wait 30, 60, or even 90 days for customers to pay. During that window, the company still has to purchase inventory, pay employees, and fulfill new orders.
Eligible accounts receivable can provide another source of working capital. Rather than waiting for every invoice to be collected before funding the next purchasing cycle, a business can work with receivables financing companies that provide funding against qualifying receivables, subject to the lender’s eligibility requirements and advance rates. This is especially valuable when a company is dealing with both higher import costs and extended customer payment cycles at the same time.
How a Borrowing Base Moves With the Business
One advantage of a borrowing-base structure is that financing availability is tied to eligible business assets, not a fixed loan amount. As eligible receivables grow, available financing can grow with them; availability shifts as receivables are collected or inventory levels change. That creates a closer relationship between financing and the company’s actual operating cycle than a static loan.
That said, borrowing availability doesn’t rise automatically every time assets increase eligibility requirements, advance rates, customer concentrations, and collateral quality all factor into the calculation. It’s worth reviewing the actual borrowing-base formula and facility terms with a lender rather than assuming every asset will support financing.
A Practical Example
Consider a distributor that imports components from overseas suppliers. The company has:
- $200,000 of inventory that needs to be purchased and imported
- $500,000 in eligible accounts receivable
- Customers that generally pay within 30 to 60 days
- Ongoing orders that require regular inventory purchases
If import-related costs rise, the distributor needs more cash to maintain its normal purchasing cycle while $500,000 of customer invoices remain outstanding. Depending on the facility’s structure, the company could use eligible receivables and inventory to support working-capital financing that bridges that gap.
The financing doesn’t eliminate the higher import costs. What it addresses is the timing mismatch between money going out of the business and money coming back in. As inventory sells, new receivables are generated, and existing invoices get collected, borrowing availability adjusts according to the facility’s borrowing-base formula creating a financing cycle that tracks the business’s actual operations.
Which Businesses May Benefit Most
ABL tends to be worth considering for businesses with substantial qualifying assets that need working capital to support purchasing, production, or sales:
- Manufacturers importing raw materials, components, or finished products that need additional working capital when production costs or inventory requirements increase
- Distributors purchasing inventory ahead of sales, especially when supplier costs rise while customers still pay on extended terms
- Importers and wholesalers that depend heavily on imported inventory and see larger cash requirements as landed costs increase
- Retailers carrying significant imported merchandise that need liquidity to maintain inventory while waiting on sales revenue
- Businesses with significant receivables that have healthy sales but still face cash-flow pressure because customers haven’t paid yet
Suitability ultimately depends on collateral quality, financial condition, borrowing needs, customer payment history, and lender requirements.
5 Steps to Manage Tariff-Related Cash Flow Pressure
- Review your total landed costs. Look beyond the purchase price of imported goods evaluate duties, freight, insurance, brokerage, and transportation costs. Because trade requirements change, work with qualified professionals to determine the applicable treatment for your specific products and shipments.
- Measure how much cash is tied up in inventory. Determine how much working capital is currently invested in inventory and whether rising import costs are increasing that amount. A company can sell the same volume of products but need significantly more cash to maintain the same inventory levels spotting that gap early helps you plan ahead of it.
- Review your receivables and other assets. If your company has substantial accounts receivable, inventory, equipment, or other qualifying assets, determine whether they could support an asset-based financing facility. A lender will generally review eligibility, collateral value, advance rates, customer concentrations, and liquidity before setting borrowing availability.
- Review customer payment terms. Compare how long customers take to pay against how quickly your business must pay suppliers. If suppliers require payment before customer invoices are collected, the working-capital gap widens. Improving collections and monitoring aging receivables can reduce unnecessary pressure on cash flow.
- Explore financing before the cash gap becomes critical. Don’t wait until a shortage prevents you from purchasing inventory, meeting payroll, or fulfilling orders. Establishing an asset-based facility involves collateral evaluation, documentation, and underwriting starting the conversation early gives you more time to evaluate your options.
If tariffs are also straining your collections process and customer payment behavior, our guide on navigating tariff wars and strengthening AR management covers additional strategies for protecting cash flow on that side of the business.
Asset-Based Lending vs. Traditional Financing
Asset-based lending isn’t automatically better than a traditional business loan the right structure depends on the company’s financial position, assets, cash flow, credit profile, and objectives. ABL tends to be most relevant for companies with substantial eligible assets that need additional working capital to support an active operating cycle: significant inventory, established customer relationships, consistent receivables, and steady sales activity.
Traditional loans place more weight on cash flow, profitability, and credit history. Asset-based lending places more weight on the collateral itself. The goal isn’t simply to take on more debt — it’s to find a financing structure that aligns with how the business actually generates, uses, and collects cash.
Why Timing Matters
Tariff-related expenses can create pressure even when a business is profitable. A company can have strong sales and valuable assets while still facing a temporary liquidity shortage, because cash gets tied up throughout the operating cycle:
Supplier payment → Import costs → Inventory → Customer sale → Invoice → Customer payment
If inventory costs rise while customer payment terms stay the same, the working capital required to maintain that cycle rises too. Asset-based financing helps businesses access liquidity against eligible assets throughout this process not to eliminate the underlying cost increase, but to manage the timing of cash requirements against incoming payments.
The Bottom Line
Changing tariff policies create real uncertainty for businesses that depend on imported products, materials, and components. The financial challenge isn’t limited to the additional cost of importing; higher costs also increase the amount of working capital tied up in inventory before products are sold and invoices are collected.
Asset-based lending helps eligible businesses manage this working-capital pressure by providing financing against qualifying accounts receivable, inventory, equipment, and other assets. It doesn’t eliminate tariffs or guarantee additional borrowing capacity, and it isn’t a substitute for sound cash-flow management but it can give businesses with qualifying assets another way to keep purchasing, operating, and fulfilling orders while the cost environment shifts around them.
Ready to explore whether asset-based lending fits your business? Talk to State Financial about your working-capital needs and whether financing against your eligible accounts receivable, inventory, or other business assets makes sense for your situation.
Frequently Asked Questions
Can asset-based lending help with tariff-related costs?
Yes. An asset-based lending facility can provide working capital that an eligible business can use for legitimate operating needs, including costs associated with purchasing and managing inventory. The amount available depends on eligible collateral, advance rates, and facility structure.
Do higher tariffs automatically increase ABL borrowing capacity?
No. While higher import costs can increase the amount of money invested in inventory, lenders evaluate the eligibility, value, liquidity, and marketability of collateral before determining how much financing it can support.
Can accounts receivable help manage tariff-related cash-flow pressure?
Yes. Businesses with eligible accounts receivable can often access working capital against qualifying invoices, subject to the lender’s requirements and advance rates helping close the timing gap between paying suppliers and collecting customer payments.
How is asset-based lending different from a traditional business loan?
Asset-based lending places significant emphasis on eligible collateral receivables, inventory, and equipment. Traditional business loans typically place more emphasis on cash flow, profitability, and credit history. The right fit depends on the business, its assets, and its financing needs.
How quickly can a business access asset-based financing?
Timelines vary by lender, facility size, collateral, and documentation requirements. Businesses anticipating a working-capital need should start the conversation early, since establishing a facility takes time to evaluate collateral and complete documentation.
Is asset-based lending only for large companies?
No. ABL can work for businesses of different sizes when they have sufficient eligible collateral and meet lender requirements. Manufacturers, distributors, importers, wholesalers, and service providers with qualifying receivables, inventory, or equipment can all consider asset-based financing as part of their working-capital strategy.
