Some companies impacted by tariffs are exploring using refund claims as collateral for loans, marking a novel financing strategy arising from the complexities of obtaining refunds from the now-overturned Trump-era tariffs. This move suggests that importers may leverage their claims to address short-term funding needs, even before they actually receive refunds on tariffs, which the U.S. Supreme Court deemed illegal in February. These tariffs, implemented in April of last year, compelled businesses to overhaul global supply chains and negotiate with customers regarding cost allocation; companies are now seeking approximately $166 billion in refunds from the government.
Rather than selling their claims at a considerable discount, some businesses are considering using them as loan collateral, according to legal and brokerage advisors in the field. Raniero D’Aversa, a partner at Orrick, noted the significant capital available for deployment, stating that borrowers retain ownership of their claims while paying interest. Commercial banks, hedge funds, and private credit funds are reportedly showing interest in lending against these claims as collateral. Asset Enhancement Solutions, which arranges debt financing, said lenders they work with require a minimum loan size of $10 million backed by at least $20 million in tariff claims.
However, importers may still be responsible for the loan if the government fails to issue refunds. These loans are often structured as term loans with payment-in-kind interest, where interest accumulates and is repaid from the refund. Prices for potential government refunds have increased following the Supreme Court’s decision but remain below full value. While some companies, like Outpost Capital Partners, prefer to directly purchase potential proceeds from importers, others are exploring contingency insurance to protect against risks like seller insolvency or lack of cooperation, according to Ryan, a tax consultancy.
Trade experts anticipate that refunds could take at least two years to resolve, citing the previous administration’s stance on refunds and potential delays. The U.S. customs agency has stated it is working on a refund process, but some payments may face delays. Neil Seiden from Asset Enhancement Solutions said each company’s decision depends on its business situation and expected refund timeline. Lenders conduct thorough evaluations to ensure borrowers can repay the loan, covering interest costs if the refund is insufficient.
