The Options Exist. Most Owners Never Reach Them.
A small business in financial distress has more available paths than most owners realize at the moment they most need to know about them. The problem is not scarcity of options. The problem is that the options require deliberate action, and distress produces paralysis.
Nine paths exist. Some preserve the business entirely. Some do not. All of them are preferable to the alternative of doing nothing while creditors act.
Option 1: Direct Creditor Negotiation
Before involving intermediaries or courts, a direct conversation with each creditor about modified terms is often more productive than owners expect. Commercial lenders and suppliers have strong incentives to avoid default. A defaulted loan produces a fraction of face value in collection. A modified payment arrangement produces something closer to full repayment over an extended period.
The window for direct negotiation closes when the creditor refers the debt to a collection attorney. After that referral, the attorney’s fee structure creates incentives to litigate rather than settle. Contact creditors before they contact you.
Option 2: Debt Settlement
Settlement involves negotiating a lump-sum payment below the full outstanding balance in exchange for discharge of the remaining obligation. Creditors accept settlements when they believe the alternative is a smaller recovery through bankruptcy or extended collection.
The settlement discount varies by creditor type. Unsecured trade creditors typically accept larger discounts than secured lenders. MCA funders have settled for amounts substantially below the purchased amount, particularly in cases where the agreement’s characterization as a loan creates legal exposure for the funder. Settlements require documentation and release agreements. A settlement paid without a properly drafted release may not fully discharge the debt.
Option 3: Debt Consolidation
Consolidation replaces multiple obligations with a single loan at terms that are, ideally, more favorable in aggregate. It simplifies administration and can reduce the total monthly payment burden.
The practical constraint is access to credit. A business already in distress may not qualify for a consolidation loan at terms that represent genuine improvement. Consolidating from multiple high-rate obligations into a single moderate-rate obligation is beneficial. Consolidating from multiple moderate-rate obligations into a single high-rate emergency loan to buy time may be neutral at best.
Option 4: Forbearance Agreements
A forbearance agreement is a formal commitment from a creditor to refrain from exercising remedies for a defined period, typically in exchange for some form of consideration: continued partial payments, an updated security agreement, or access to financial information. The forbearance period is intended to create space for the business to stabilize, arrange refinancing, or negotiate a longer-term workout.
Forbearance agreements are binding instruments. One should not enter one without legal review. Some forbearance agreements include provisions that, upon expiration, accelerate the debt or waive defenses the borrower might otherwise have raised.
Option 5: Out-of-Court Workout
A workout is a comprehensive restructuring of multiple obligations negotiated outside the bankruptcy system. It may involve extended payment terms, principal reductions, interest rate modifications, and new covenants. Workouts require the consent of all affected creditors, which is why they work better when the creditor group is small and the relationships are established.
For businesses carrying MCA debt alongside conventional debt, workouts present structural complications. MCA funders are not conventional lenders, and their contractual remedies are often more aggressive. An attorney who has negotiated with MCA funders specifically, rather than only conventional creditors, is a meaningfully different resource in this context.
Option 6: Assignment for Benefit of Creditors
An assignment for benefit of creditors, known as an ABC, transfers the business’s assets to a neutral assignee who liquidates them and distributes proceeds to creditors according to priority. It is a state-law alternative to federal bankruptcy, and it accomplishes a similar outcome without the procedural burden and expense of a federal filing.
An ABC is a terminal option for the business as a going concern, though the principals may subsequently acquire assets from the assignee and restart. It is most appropriate when liquidation is inevitable and the primary goal is an orderly wind-down that distributes available value equitably.
Option 7: Chapter 11 Bankruptcy
Chapter 11 allows the business to reorganize under court supervision, continue operating, and propose a plan that pays creditors over time while discharging obligations that cannot be serviced. The automatic stay that attaches upon filing immediately halts collection actions, including MCA ACH debits and any pending confession of judgment proceedings.
Chapter 11 is expensive. Attorney fees, trustee fees, and administrative costs consume a portion of the estate. Small Business Subchapter V, added to the Bankruptcy Code in 2019 and made more accessible through subsequent legislation, streamlines the process for businesses below a debt threshold and reduces professional costs substantially compared to traditional Chapter 11.
Option 8: Chapter 7 Business Bankruptcy
Chapter 7 liquidates the business’s assets, discharges qualifying debts, and ends operations. For a sole proprietor, Chapter 7 may discharge both business and personal debts simultaneously. For a corporation or LLC, Chapter 7 discharges the entity’s obligations but does not discharge personal guarantees, which survive the corporate bankruptcy and remain enforceable against the individual guarantor.
The personal guarantee analysis is critical in any bankruptcy conversation. An owner who signs a corporate Chapter 7 while holding personal guarantees across multiple business debts may find that the bankruptcy resolves the corporate obligations while leaving personal exposure unchanged or even accelerated by the corporate wind-down.
Option 9: Legal Challenge to the Debt Itself
Before any restructuring or payment option is pursued, it is worth examining whether the underlying obligation is enforceable as stated. MCA agreements have been challenged and partially or wholly voided on usury grounds, unconscionability grounds, and fraud-in-the-inducement grounds. In People v. Richmond Capital Group LLC, the court found the agreements functioned as usurious loans. The Yellowstone Capital enforcement action in early 2025 resulted in cancellation of hundreds of millions in outstanding merchant obligations that had been asserted under agreements later found to be infirm.
A debt that cannot be legally enforced is not a debt in any practical sense. It is a demand letter from a party whose leverage is the owner’s uncertainty about whether to fight.
Evaluating enforceability requires legal analysis that most owners cannot conduct without counsel. The conversation is worth having before committing to a payment plan that treats an unenforceable obligation as a valid one.
Where that conversation begins is a first call with an attorney who handles business debt and understands both the conventional options and the litigation environment around MCA obligations. Consultation is where the right path becomes visible.
