Lions, Tigers, and Tariffs, OH MY!

OK, maybe no lions and tigers, but tariffs, the uncertainty is here. With the recent tariff announcement, it is important to understand how these increases may affect borrowers. Additionally, what impact will any reciprocal tariffs have on the borrowers? This blog will focus on the US imposed tariffs.

Tariffs on Imports: Questions to ask.

• From what country(s) is the borrower purchasing their goods?

  • Obtain a list of purchases by country. Cross reference this list with the tariff percentages by country. Could there be a material impact on your borrower?

  • Are there material amounts of inventory in transit? Understand what amount of that inventory is subject to the new tariffs.

  • What are the borrower's inventory turns? Will there be material inventory orders within the next few months? For example, a seasonal business may now just be ordering the bulk of their goods for their season.

  • Is the borrower able to purchase the same goods from a vendor in a country with lower tariffs? Is this relationship already established?

• How will the borrower record these increased costs?

  • Will these tariff costs be rolled into the borrower's unit cost of items? If so, what will the increase in inventory collateral value be on the borrowing base?

  • How is inventory costed? If these tariffs are recorded within the unit cost of inventory, will it be at actual cost (weighted average cost), or will a standard rate be applied to on-hand units?

  • If advance rates are based off of NOLV's, are these rates still accurate given the increased tariff costs in reported inventory?

• Will the increased costs be able to be passed on to their customers?

  • How will margins be affected by the increased tariff costs?

  • Will prices be increased to customers, or will some sort of surcharge be added to invoices to pass through the additional costs?

  • Are there customer contracts or POs with fixed pricing? If so, what are the terms and lengths of these contracts? Do these contracts allow for increased pricing to account for increased tariff costs?

It is important to understand how these tariffs will impact the borrowers. Lenders could end up advancing on higher inventory values (increased inventory availability), while the Company sees a decrease in overall margins. This could result in increased usage of the line, shrinking availability, and potentially NOLV rates that are not reflective of the current environment.