A report setting out the case for taking the line down Leith Walk to Newhaven has been completed and is set to be examined by councillors over the coming weeks.
If approved, the council could start inviting bids for the £165.2 million project from the end of next month. A final decision would not take place until next autumn and if all goes ahead it is thought work would take three years.
But traders said the work would only bring renewed disruption following the imminent ten-month closure of Leith Street from 28 August.
Shamsu Yusaf, owner of Folly Antiques on Leith Walk, said he feared he could lose business if the tram extension went ahead.
He said: “There’s no reason why we need a tram down Leith Walk. It’s ridiculous, it’s not a good way of taxpayers’ money being spent.
“Half the time I look at the tram there’s hardly anyone in it. It’s a waste of money. It does worry me because if nobody can get to the shop how am I going to live?”
While the details of the business case are yet to be published, it is understood there will be information about a business compensation scheme for traders during construction.
But Mr Yusaf said such a scheme would need to take into account each individual business for it to work.
Tracy Griffen, a personal trainer and business owner whose fitness studio faces on to Leith Walk, said her biggest fear was how long the work would take, adding: “I don’t think it’s going to be as straightforward as shut Leith Walk and put down a tram track.”
Transport convener Lesley Macinnes said the trams were going “from strength to strength” and extending the line would bring benefits such as economic growth, cleaner air and improved accessibility.
A report setting out the business case will go before the council’s transport and environment committee for approval in principle on 4 September.