Rising Costs Impact Small Business Finances and Insurance Options
Increasing Costs Challenge Small Businesses' Financial Operations
December 18, 2025 // Insurance Industry Overview
Small business owners across the United States are facing financial constraints due to rising costs associated with tariffs, health insurance, and energy. These increasing expenses are impacting their ability to maintain competitive employee benefits, placing additional pressure on financial operations.
Shirley Modlin, proprietor of 3D Design and Manufacturing in Virginia, finds that escalating operational costs make it difficult to provide wage increases and healthcare benefits for her workforce of ten. Her business, producing metal components for various sectors like automotive and pharmaceuticals, is grappling with the unpredictability of U.S. tariff rates, which complicates cost forecasting and impacts risk management strategies.
The average effective tariff rate on U.S. imports currently stands at 16.8%, the highest level since the 1930s, according to the Yale Budget Lab. An analysis by the Center for American Progress reveals that small importers faced monthly cost increases averaging $25,000 last year, attributed to tariffs implemented by the previous administration.
From a regulatory standpoint, the upcoming Supreme Court decision on the legality of these tariffs may result in further shifts. Even if nullified, alternative measures might be adopted. As businesses await clarity on regulatory compliance requirements, they continue assessing strategies for managing costs effectively.
A significant concern for Modlin and other small business owners is the impending expiration of enhanced tax credits for health insurance provided under the Affordable Care Act. This could lead to increased premiums for over 20 million Americans. The Center for American Progress estimates this could burden about 4.4 million small business owners and self-employed individuals with an additional $1,500 annually if subsidies lapse.
Modlin, who offers employees a stipend to assist with health insurance costs, is faced with the difficult decision of whether to increase this financial aid or provide pay raises. The competitive labor market, paired with rising insurance premiums, underscores the challenge of retaining skilled workers in the industry.
In Ohio, Earthquaker Devices, under CEO Julie Robbins, faces similar pressures. The company saw costs rise by around 30% this year due to significant tariff hikes on imported components. This increase compels the company to consider pricing adjustments, potentially affecting consumer demand—an aspect closely monitored by industry analysts.
According to recent data from the National Federation of Independent Business, as pricing pressures intensify, a notable proportion of small businesses have begun passing these cost increases onto their customers. In summary, small businesses must navigate a complex landscape of tariffs, healthcare costs, and consumer pricing, making strategic financial management essential. The insurance industry, intertwined with these factors, must adapt to support businesses in mitigating risks and managing costs effectively.