Not all business debt is created equal. Different debt types have different interest rates, repayment terms, collection methods, and relief options. Understanding what you owe—and to whom—is critical to choosing the right debt relief strategy.
SBA Loan Debt
Government-backed loans with personal guarantees. Default triggers aggressive SBA collection including Treasury Offset Program.
- Interest Rate: 8-13%
- Typical Amount: $50K-$5M
- Personal Guarantee: Required (20%+ owners)
- Dischargeable: Yes (personal Chapter 7)
Relief Options: Offer in Compromise, hardship accommodation, bankruptcy
Learn More →Merchant Cash Advance
Predatory "fast cash" with daily ACH withdrawals. Not technically loans—they're purchases of future receivables with massive fees.
- Effective APR: 40-200%
- Typical Amount: $10K-$250K
- Personal Guarantee: Always required
- Payment: Daily ACH withdrawals
Relief Options: Refinance immediately, settlement, bankruptcy, change bank account (nuclear option)
Learn More →Business Credit Cards
High-interest revolving debt. Most business cards have personal guarantees despite business name on card.
- Interest Rate: 15-25%
- Typical Amount: $5K-$100K
- Personal Guarantee: Usually (you signed application)
- Minimum Payment: 2-4% of balance
Relief Options: Hardship programs (0% interest), balance transfer, consolidation, settlement
Learn More →Equipment Financing
Secured loans where equipment is collateral. If you default, they repossess equipment and sue for deficiency balance.
- Interest Rate: 8-25%
- Typical Amount: $10K-$500K
- Secured By: Equipment purchased
- Personal Guarantee: Usually required
Relief Options: Voluntary surrender, refinance, deficiency negotiation, cramdown (Chapter 11)
Learn More →Business Tax Debt
IRS and state tax debt. Payroll taxes create personal liability for owners/officers. Most aggressive collection in existence.
- Interest Rate: IRS: 7-8% + penalties
- Typical Amount: $10K-$500K+
- Personal Liability: Yes for payroll taxes
- Collection Power: Seize assets without lawsuit
Relief Options: Installment agreement, Offer in Compromise, Currently Not Collectible, penalty abatement
Learn More →Commercial Real Estate
Loans secured by business property. Balloon payments, refinance challenges, and underwater properties create crisis points.
- Interest Rate: 6-10%
- Typical Amount: $200K-$10M+
- Secured By: Commercial property
- Personal Guarantee: Usually required
Relief Options: Refinance, loan modification, deed in lieu, short sale, cramdown (Chapter 11)
Learn More →Comparing Debt Types
| Debt Type | Interest Rate | Personal Guarantee? | Secured? | Dischargeable in Bankruptcy? |
|---|---|---|---|---|
| SBA Loans | 8-13% | Yes (required) | Usually | Yes |
| Merchant Cash Advance | 40-200% APR | Yes (always) | No (UCC lien on receivables) | Yes |
| Business Credit Cards | 15-25% | Usually | No | Yes |
| Equipment Financing | 8-25% | Usually | Yes (equipment) | Yes (guarantee discharged, may lose equipment) |
| Payroll Tax Debt | 7-8% + penalties | Yes (personal liability) | No (but liens allowed) | NO - Never |
| Income Tax Debt (3+ yrs old) | 7-8% + penalties | N/A | No (but liens allowed) | Yes (if meets criteria) |
| Commercial Real Estate | 6-10% | Usually | Yes (property) | Yes (guarantee discharged, may lose property) |
Which Debts to Pay First
When you can't pay everyone, prioritize strategically:
Priority 1: Payroll Taxes (IRS/State)
Why: Personal criminal liability. Never dischargeable. IRS has unlimited collection power.
Consequences of non-payment: Jail time (Trust Fund Recovery Penalty), seizure of personal assets, business closure
Priority 2: Secured Debt You Need
Examples: Commercial property mortgage (if you need the building), essential equipment financing
Why: Lose the collateral if you don't pay. Can't operate without it.
Priority 3: Essential Vendors
Examples: Suppliers you can't replace, critical service providers
Why: Business can't function without them
Priority 4: Unsecured Debt with Personal Guarantee
Examples: SBA loans, business credit cards, MCAs
Why: They can sue you personally, garnish wages, lien your home
Priority 5: Unsecured Debt Without Personal Guarantee
Examples: Vendor invoices, corporate credit (if no personal guarantee)
Why: Can only pursue business entity, not you personally. If business closes, they get nothing.
Understanding Your Debt Load
Debt-to-Revenue Ratio
Formula: Total Business Debt ÷ Annual Revenue
- Under 30%: Healthy and manageable
- 30-60%: Moderate—watch cash flow carefully
- 60-100%: High—refinancing or restructuring recommended
- Over 100%: Crisis—debt exceeds annual revenue, likely unsustainable
Debt Service Coverage Ratio (DSCR)
Formula: Net Operating Income ÷ Total Annual Debt Payments
- Above 1.25: Healthy—income is 25% higher than debt payments
- 1.0-1.25: Tight—barely covering debt
- Below 1.0: Insolvent—can't afford debt payments from operations
Example:
- Net Operating Income: $120,000/year
- Annual Debt Payments: $100,000/year
- DSCR: 1.2 (barely acceptable)
Not Sure What Type of Debt You Have?
Take our free assessment to identify your debts and explore relief options
Start Free AssessmentCommon Debt Combinations
Scenario 1: The Startup Stack
- SBA loan: $150K (startup capital)
- Business credit cards: $40K (inventory, expenses)
- Equipment financing: $30K (computers, machinery)
- Total: $220K
- All personally guaranteed
Risk: If business fails, owner is personally liable for all $220K
Scenario 2: The MCA Spiral
- Original business loan: $50K
- MCA #1: $30K (to cover slow period)
- MCA #2: $25K (to cover MCA #1 payments)
- MCA #3: $35K (to cover MCA #1 and #2)
- Total owed: $180K+
- Monthly payments: $15K-25K (daily withdrawals)
Risk: Cash flow death spiral. Business becomes ATM for MCA companies.
Scenario 3: The Tax Trap
- SBA loan: $200K
- Payroll taxes owed: $75K (didn't remit employee withholdings)
- Income taxes owed: $40K (3 years behind)
- Total: $315K
Risk: Payroll taxes create personal criminal liability. IRS collection is ruthless.
Next Steps
Now that you understand your debt types, it's time to explore solutions: