Study Finds Cash Flow Crisis Deepening for Small Businesses Amid Tariffs and Consumer Pullback

When financial pressure hits America’s consumers, it pushes them into “paycheck-to-paycheck“ mode. When it hits the mid-market, it’s called “business uncertainty.” When it hits small- to medium-sized businesses (SMBs), it’s called liquidity trouble.

With the whispers starting to get louder about SMB health, that liquidity trouble is starting to show itself in a potentially dramatic fashion, as evidenced in a new PYMNTS Intelligence report that will be published in mid-April.

With the findings from 560 SMB responses collected in the U.S. just weeks ago, the report is a critical snapshot of SMBs as they reckon with the tariffs, cautious consumers and a generally uncertain regulatory atmosphere that has disrupted business all over the world since the Trump administration took office on Jan. 20.

The findings reveal that about half of SMBs rely on immediate sales or existing cash for survival, with business credit cards — which are not a working capital solution — being the most common form of financing for those with access. SMBs with access to some method of financing demonstrate greater confidence in navigating economic challenges. Interestingly, many SMBs not using financing claim that it’s unnecessary, but also lack access. Overall, the report highlights the crucial role of financing in SMB stability and growth while also identifying disparities in access and utilization.

The complete details come in the full report. However, an early look at the data shows a deeply precarious financial landscape for many SMBs, with roughly half relying solely on the cash in their bank accounts to stay afloat. This leaves a significant portion of the SMB sector acutely vulnerable, particularly hotels, restaurants and entertainment businesses, which are the most likely to be dependent on these limited cash stockpiles. The segments represented in the report were construction/utilities (18.4% of the sample), retail (16.5%), professional services (11.3%), personal services (9.8%) and hospitality (9.4%).

The survey data also shows a concerning lack of financial resilience, with only 44% of SMBs report having access to financing and working capital solutions.

This lack of financial flexibility directly correlates with their fears about navigating economic headwinds. Those without access to financing are significantly less confident in their ability to adapt to a changing economic environment and are 75% more likely to have no plan to offset any costs arising from the implementation of tariffs. This stark reality contributes to a heightened sense of uncertainty, as SMBs lacking financing express less confidence than those that do in their survival over the next two years.

Further underscoring their fragile position, SMBs already feeling financially strained are more inclined to use financing out of necessity rather than for strategic growth. Among those who have used financing in the last year, SMBs that are “slightly or not at all likely” to survive show a higher tendency to use it primarily out of necessity (43.2%) compared to more stable businesses. This suggests a significant portion of the SMB ecosystem is operating in survival mode and is ill-equipped to weather potential tariff storms and economic downturns.

Significant Implications

The finding that SMBs maintain minimal cash reserves in the current economic climate carries significant implications for financial stability and growth. This vulnerability exposes these businesses to heightened risk in the face of unexpected economic shocks, such as rising interest rates, supply chain disruptions or sudden drops in consumer spending.

Without adequate liquidity, these businesses may struggle to meet short-term obligations, potentially leading to defaults, closures and a ripple effect across the broader economy. This lack of financial buffer also limits their ability to seize growth opportunities, invest in innovation or navigate periods of market volatility.

Liquidity and cash flow concerns are nothing new to the SMB segment and have been identified in previous installments in the PYMNTS SMB Growth series. But the newest report shows a dramatic change in mindset. For example, in the January 2025 PYMNTS report “A Good Year: Why SMBs Grew More Confident In 2024,” the data showed that — across a survey of 573 SMB owners — fewer firms said their revenues were declining as 2024 progressed. At the end of the year, only 15% of companies faced those pressures. That’s quite a bit better than the 23% of firms that said the same at the beginning of 2024.

More specific to cash flow issues, the recent report “From Cash Flow Pain to Working Capital Gain: Automated AR/AP Solutions for SMBs” found that the rise of digital automation offers a path to stability and expansion.

When the report was published last September, 70% of SMBs were holding less than four months’ worth of cash reserves. With more than 90% of their revenue consumed by operational costs, small business owners are often left juggling a fragile cash flow that threatens their stability and survival. The report found more harsh realities that are coming home to roost now. Among them: 45% of U.S. small business owners forego their own paychecks due to cash flow shortages, while 22% struggle to cover basic bills, putting nearly one in five at risk of closure.

“Small to mid-sized businesses (SMBs) face working capital issues that pose challenges to their operational stability and potential growth,” the September report, a collaboration with American Express, stated. “Many SMBs still rely on manual, analog-era cash management tools and processes, concerned that digital alternatives are both costly and overly complex. However, the implementation of digital, automated cash management solutions offers Main Street an opportunity to thrive rather than merely survive in the digital-first economy. Forging partnerships with financial technology providers can be a simplified, cost-effective way for SMBs to reach that goal.”