As tariff volatility shakes middle-market borrowers, Gordon Brothers’ Kyle Shonak discusses the importance of early intervention, real asset intelligence, and how lenders can partner more effectively with clients.
In today’s rapidly shifting economic landscape, middle-market borrowers are being hit from all sides — tariff pressures, geopolitical uncertainty, stretched supply chains, and tightening liquidity. These dynamics are complicating asset valuation and borrower performance just as lenders seek to safeguard their portfolios.
In this conversation, Rita Garwood, Editor-in-Chief of ABF Journal, sits down with Kyle Shonak, Chief Transaction Officer, North America at Gordon Brothers, to unpack how specialty finance firms can stay ahead of disruption. Drawing on his experience across thousands of asset appraisals, Shonak shares practical insights into protecting collateral, building borrower partnerships, and avoiding the costly mistake of waiting too long to act.
Rita Garwood: Tariffs have been reinstated and are creating uncertainty in the debt markets — particularly for middle-market borrowers. What are you seeing right now?
Kyle Shonak: It’s a volatile environment. Tariffs on steel, aluminum, and concrete are raising input costs dramatically — especially for companies operating in trade-heavy regions like California, Texas, or the Northeast. We’re seeing stress in commercial and industrial sectors. The challenge is whether businesses absorb these costs or pass them through to customers. These pressures impact supplier contracts, inventory costs, and receivables — all of which can ripple into liquidity issues and borrowing base challenges.
Tariffs have also become a real pressure point for wholesale and retail sectors, which tend to rely heavily on imports. Retail and wholesale are heavily exposed. especially from tariffs on steel and aluminum.
Garwood: Why are middle-market companies especially vulnerable compared to large corporates?
Shonak: Middle-market firms usually operate leaner — with fewer people, smaller balance sheets, and less negotiating power. Unlike major players like Walmart, they can’t absorb cost increases as easily. Many don’t have internal resources or technology to fully assess and respond to supply chain disruptions, so they turn to outside advisors. That’s where firms like Gordon Brothers come in — not just for asset appraisals, but to give real-time visibility and context.
Garwood: What warning signs should lenders be watching for?
Shonak: Watch working capital first—especially receivables and inventory turns. Are collections slowing? Are margins compressing due to rising input costs? Is machinery being maintained, or are companies deferring investment? We’ve seen examples where machinery and equipment (M&E ) value plummets because maintenance was neglected to save cash.
Garwood: How can lenders assess liquidity more proactively?
Shonak: Frequency and quality of conversations matter. Go beyond appraisals—run scenarios, stress-test tariff impacts, and examine whether borrowers have real game plans. We’re seeing lenders embed tariff sensitivity into underwriting models and track performance more closely, which is smart. Early engagement makes all the difference.
Garwood: Can you give an example of a strategic shift you’ve seen in response to tariff pressure?
Shonak: One key move is renegotiating supplier contracts. Companies are also shifting manufacturing to non-tariff countries or using documentation loopholes to limit exposure. Retailers, for instance, built up inventory before tariff hikes, but now with de minimis thresholds removed, they’re reevaluating their sourcing models. Each situation is unique—what works for one borrower may not for another.
Garwood: Are you seeing any other cost-saving or operational pivots?
Shonak: Yes, everything from using digital tools to improve supply chain visibility, to sale-leasebacks of machinery to unlock liquidity. We’ve used our balance sheet at Gordon Brothers to support vendor financing, keeping supply chains moving and maintaining service levels. The key is creativity and understanding the asset values behind the business.
Garwood: How can lenders avoid pushing borrowers into overly defensive decisions?
Shonak: Avoid knee-jerk reactions. Liquidity is important, but pulling back too fast can destroy value. Lenders should focus on the long game—stay close to the borrower, understand the assets, and get ahead of challenges early. A partnership mindset is essential.
Garwood: Do you see the current tariff volatility as a short-term issue or a structural shift?
Shonak: You have to plan for the long-term. Some lenders are now modeling tariff impacts into underwriting and doing portfolio-wide stress tests. The smart move is to assume volatility is here to stay—and adjust your risk frameworks accordingly.
Garwood: What’s one tactical step lenders can take this quarter?
Shonak: Start with your assets. Understand what you’re lending on, how values are trending, and whether there’s hidden value that can be unlocked. Even just a “heat map” of asset performance trends can help you spot risks before they snowball. And don’t underestimate the value of face-to-face conversations. Borrowers will tell you what’s keeping them up at night—if you’re listening.
Garwood: Any final thoughts?
Shonak: Don’t wait. Things don’t get better with time. Engage early, bring in experts, and create a plan while the company still has options. That’s how you protect credit and build trust with your borrowers.