Business Debt Advice: A Practical Guide for Owners Under Payment Pressure

The best business debt advice is the same in almost every case: get an exact picture of what you owe and what comes in, then talk to your creditors before you miss a payment. After that, choose between restructuring, refinancing, consolidation or a formal route like bankruptcy based on your numbers. This guide walks through each step. It also covers the warning signs that matter most if you have a merchant cash advance (MCA) with daily or weekly debits.

Key Takeaways

• Start with facts: list every debt with its balance, rate, payment and due date, then compare the total with the cash you actually have.
• Contact creditors early. Lenders generally have more options before a payment is missed than after.
• MCA contracts deserve a close read: daily debits, personal guarantees and confessions of judgment have all drawn FTC enforcement.
• Restructuring changes an existing agreement. Refinancing replaces it with a new loan. They are different tools for different problems.
• Bankruptcy is a legal decision, so talk to a bankruptcy attorney before filing and before ignoring a lawsuit.

Table of Contents

• Step one: get a clear picture of your cash flow
• Step two: talk to creditors before you fall behind
• Understanding your options
• Merchant cash advances: what to check in the contract
• What defaults can lead to
• When bankruptcy enters the conversation
• How to spot risky debt-relief offers
• Our perspective
• If MCA payments are the heart of the problem
• FAQ
• Sources

Step one: get a clear picture of your cash flow

Before you call anyone, you need numbers. Nav’s guide to getting a small business out of debt suggests starting with income, expenses and cash flow: review recent bank and credit card statements, build a budget, and look for ways to raise income or cut costs. That sounds basic, but most owners under pressure are working from a feeling, not a figure.

If your books are behind, the SBA notes that businesses may hire a CPA or bookkeeper, or use an online accounting service. A few hours of cleanup now can save you from negotiating on guesses.

Build a debt inventory

One page is enough. Xero’s U.S. guide to debt management says to gather loan agreements, card statements and invoices, then record each balance, interest rate, minimum payment, due date and total obligation. Add one more column for how the payment is collected: monthly ACH, daily debit, weekly debit or card swipe split. That column is where MCA pain usually shows up.

A simple layout:

Run the pressure test

Compare what you owe in the next 30 to 90 days against the cash you expect to have. Xero also says to look at liquidity and solvency, and describes a ratio of monthly debt payments above 30% of monthly revenue as a sign of significant pressure that needs immediate attention.

Here is a worked example with made-up numbers. A shop brings in $60,000 a month and pays $9,000 across a term loan, a card and a cash advance. That is 15%, manageable. Add a second advance with $11,000 a month in debits and the total is $20,000, or about 33%. The business has not changed, but the payment load now sits past that warning line. Seeing it on paper is what tells you it is time to act.

Step two: talk to creditors before you fall behind

Both Nav and NerdWallet make the same point: communicate early. Nav recommends contacting creditors as soon as possible, ideally before you are behind. NerdWallet’s guide on restructuring a business loan lists the usual asks: short-term forbearance, deferment, interest-only payments, or a formal restructuring.

When you call, bring:

1. Your debt inventory and a short cash flow summary.
2. A specific request, such as three months of interest-only payments, not just “I need help.”
3. A realistic date when cash flow should recover and why.

Get any agreement in writing. A verbal promise from a collections rep is not a modified contract.

Understanding your options

The words are used loosely, so here is how they differ.

NerdWallet explains that restructuring changes the existing agreement while refinancing uses a new loan to pay off the old one. It also notes that restructuring can come with added covenants or collateral, and that it is often treated as a late-stage step before default or bankruptcy. That is a good reason to start the conversation sooner rather than later.

If you want a deeper walk-through, our guides on business debt restructuring and how the restructuring process works and how to prepare go step by step.

SBA-backed refinancing

If your business is healthy enough to qualify, an SBA loan can be a way out of expensive debt. The SBA says 7(a) loans can be used to refinance current business debt and for working capital, with a maximum loan amount of $5 million. Applicants must operate for profit in the U.S., meet SBA size standards, be creditworthy and show a reasonable ability to repay. Most 7(a) term loans are repaid in monthly principal and interest payments from business cash flow, and variable-rate loans may see payment amounts change when rates move.

The catch is the credit and repayment test. A business that is already missing payments may not pass it, which is why the timing of your first move matters.

If the debt is itself an SBA 7(a) or 504 loan you cannot repay, the SBA has an offer in compromise process that requires completing specific tabs and supplying supporting documents, and a loan specialist may ask for more.

Merchant cash advances: what to check in the contract

An MCA is not a conventional loan, and its payment structure can squeeze cash flow quickly because money leaves your account every day or week, whether or not it was a good sales day. The FTC’s enforcement actions show what to look for.

• Automatic daily payments and overdrafts. The FTC alleged that one provider made daily automatic withdrawals and kept pulling money after the advance was repaid, sometimes causing overdraft fees. It also alleged the provider promised no collateral or personal guarantee even though contracts could make owners personally liable and pledge business assets.
• Personal guarantees and upfront fees. In January 2022 the FTC said providers allegedly demanded personal guarantees and upfront fees after promising not to, delivered less funding than promised, debited more than represented and used confessions of judgment.
• Confessions of judgment. In a June 2022 case, the FTC said such clauses could allow uncontested judgments and seizure of personal and business assets.

When you reread your agreement, mark these items: the purchased amount versus the funds you actually received, the payment amount and frequency, any reconciliation clause, whether there is a personal guarantee, which assets are pledged, and whether a confession of judgment appears. Our page on reviewing MCA contracts and preparing for restructuring explains how to organize those documents.

What defaults can lead to

Nav notes that defaults may lead to collections or lawsuits and, in a few cases, seizure of business assets or funds in business bank accounts. Personal guarantees matter here: if you signed one, a business debt can become your personal problem. Check each contract for one before you decide which debt to pay first, since guaranteed debts carry the highest personal exposure.

When bankruptcy enters the conversation

Bankruptcy is a legal question, not a budgeting one, and it belongs with a bankruptcy attorney licensed in your state. What shapes the available routes:

• Whether the business should survive. Chapter 7 is liquidation: a trustee sells eligible assets and the business typically closes. Chapter 11 is reorganization, where the business keeps operating under a repayment plan, as LendingTree’s side-by-side comparison explains.
• The size of your debts. Federal law has a streamlined small business reorganization track, subchapter V of Chapter 11, which is limited to debtors under a statutory debt limit. The limit has changed over time, as this court guide to the Small Business Reorganization Act describes, so confirm the current figure with an attorney.
• Personal guarantees. A business filing does not automatically resolve debts you guaranteed personally.

If you have been sued or served with a judgment, do not wait to see an attorney. Deadlines to respond are short. Our guide on how to avoid business bankruptcy covers the options that come before a filing.

How to spot risky debt-relief offers

Distressed owners get targeted, so it pays to know the red flags. The FTC’s guidance for financing providers says they should not misrepresent funding amounts, costs, payment amounts, collateral or personal guarantee requirements, and it warns against unauthorized payments, harsh remedies such as confessions of judgment, and false threats. Flip that around and you have a checklist for anyone offering to help you:

• They guarantee a specific outcome before seeing your contracts.
• They push you to sign the same day.
• Fees are vague, or they ask for large payment up front without a written agreement.
• They tell you to stop talking to your creditors or to ignore a lawsuit.
• They will not explain in writing who is performing the work and what it costs.

The FTC has also taken action against a company that was permanently banned from the MCA and debt-collection industries and ordered to pay more than $2.7 million after alleged deception and threats. Ask for everything in writing and read it before you sign.

Our perspective

Most owners who reach out to us are not careless. They took financing to cover payroll, inventory or a slow season, and the payment schedule outgrew their revenue. By the time they call, the stress of daily debits has often pushed out the time they need to think.

Our view is that you should look at options while you still have some. That means a quick review of what you owe, an honest look at your contracts, and a conversation with providers who actually restructure, consolidate or settle this kind of debt. We do not lend money and we are not your financial advisor. We match your situation with independent providers, so you can compare tailored options rather than being handed one answer for every business.

Asking costs nothing. The inquiry is free and there is no obligation, and you decide what, if anything, to do next.

Danny

If MCA payments are the heart of the problem

If a cash advance is what is straining your cash flow, you can start with a short, no-obligation inquiry at MCA Payment Options. We use it to connect you with independent providers that offer restructuring, consolidation or settlement, matched to your business’s circumstances.

If you want to read first, see our pages on MCA restructuring and MCA debt relief options. For broader background, small business debt relief when monthly payments add up is a good next read.

FAQ

What is the first thing to do when business debt becomes hard to manage?

Build a one-page inventory of every debt with its balance, rate, payment, due date and how it is collected. Then compare your total obligations with the cash you expect. Contact creditors with a specific request before you miss a payment.

Is restructuring the same as refinancing?

No. Restructuring changes the terms of your existing agreement, while refinancing uses a new loan to pay off the old one. Restructuring can add covenants or collateral, and refinancing requires you to qualify for new financing.

Should I sign a personal guarantee on business financing?

A personal guarantee can make you personally liable if the business cannot pay, so read it carefully and ask an attorney before signing. The FTC has described cases where providers allegedly promised no guarantee and then demanded one. Make sure what you were told matches the contract.

When should I talk to a bankruptcy attorney?

See one if you are being sued, if a judgment has been entered, if creditors are pursuing bank accounts or assets, or if you cannot see any path to meeting your obligations. The right chapter depends on your debts, assets and whether you want to keep operating.

Sources

• Getting Your Small Business Out of Debt, Nav
• Manage your business, Small Business Administration
• Small business debt management: strategies and tips, Xero
• Should You Restructure Your Business Loan? NerdWallet
• 7(a) loans, Small Business Administration
• Offer in Compromise tabs, Small Business Administration
• FTC: Merchant cash advance provider overcharged small businesses
• FTC: Merchant cash advance providers banned from industry
• FTC: Ban for Richmond Capital and owner
• FTC: Protecting small businesses seeking financing
• Chapter 7 vs. Chapter 11 bankruptcy, LendingTree
• Guide to the Small Business Reorganization Act of 2019, U.S. Bankruptcy Court

Recommended

• Business Debt Restructuring: Before Payments Take Over
• Small Business Debt Relief: When Payments Get Hard to Manage
• Commercial Debt Relief: When Payments Feel Unmanageable
• Small Business Debt Relief: When Monthly Payments Add Up