Lenders price tariff risk

Middle-market lenders are starting to charge for tariff uncertainty, pushing up borrowing costs for smaller companies that cannot easily hedge trade-policy swings. (abfjournal.com) That shift is landing after a year when private credit had been getting cheaper for borrowers. Houlihan Lokey said average all-in unitranche yields fell to 9.33% in December 2025, down 109 basis points over the year, as spreads tightened and issuance hit a record $327 billion. (cdn.hl.com) Now lenders are modeling a different risk: tariffs that can raise input costs, hit margins and then change again after court rulings or new policy moves. The Budget Lab at Yale estimated the effective tariff rate reached 10.6% in January 2026, while a February 20, 2026 Supreme Court decision vacating International Emergency Economic Powers Act tariffs left importers facing possible refunds of about $165 billion in duties. (budgetlab.yale.edu) For a middle-market borrower, that uncertainty shows up in loan pricing, leverage limits and covenant tests. Private Debt Investor reported lenders were already stepping back from vulnerable sectors and expected pricing and terms to harden over time for the most exposed borrowers. (privatedebtinvestor.com) The backdrop has also turned less forgiving on inflation and rates. The Bureau of Labor Statistics said the Consumer Price Index rose 0.9% in March and 3.3% from a year earlier, while the Federal Reserve kept its target rate at 3.50% to 3.75% on March 18, 2026. (bls.gov) (federalreserve.gov) Stress is showing up elsewhere in the credit system. Epiq AACER said commercial Chapter 11 filings rose to 2,422 in the first quarter of 2026, up 37% from 1,764 a year earlier, and ABF Journal said non-traded business development companies were also fielding redemption requests that tested liquidity buffers. (epiqglobal.com) (abfjournal.com) Ratings firm KBRA said tariff shifts and market volatility could make business planning harder, slow capital investment and complicate underwriting for private credit lenders. KBRA also said private credit still has structural advantages, including matched funding and an estimated $433 billion of dry powder. (kbra.com) That leaves lenders trying to protect against a policy shock without shutting off deal flow. PitchBook said investors entered 2026 expecting steadier-to-wider spreads and more scrutiny of borrower earnings, a sign that tariff risk is being folded into credit terms rather than treated as a temporary headline. (pitchbook.com)