Key Takeaways
- Small business owners may have both business and personal debts.
- Options include restructuring, SBA refinancing, or counseling.
- Separate personal and business finances where possible.
Small business owners often carry two kinds of debt that blur together: business loans and lines of credit, and personal credit cards used to keep the business running. When cash flow tightens, that mix can become dangerous — especially if you’ve personally guaranteed business debt. Here’s how to sort it out and choose the right relief options.
This article is for general educational purposes and isn’t personalized financial advice.
Step 1: Sort Your Debts by Who Is Liable
| Debt type | Who is responsible |
|---|---|
| Personal credit cards (even if used for business) | You personally |
| Business cards and loans with a personal guarantee | The business and you personally |
| Business debt without a personal guarantee | Usually the business only (depends on structure) |
| SBA loans | Usually personally guaranteed by owners of 20% or more |
Read your loan agreements. Personal guarantees mean that if the business can’t pay, the lender can pursue your personal assets.
Step 2: Stabilize Business Cash Flow
- Review expenses and cut nonessential costs
- Chase overdue invoices and tighten payment terms
- Talk to suppliers about extended terms
- Contact lenders early about modified payments
Personal debt relief won’t stick if the business keeps generating new personal debt.
Step 3: Relief Options for Personal Debt
Debt management plan
A nonprofit debt management plan can lower interest rates on personal credit cards. It usually doesn’t cover business accounts.
Personal debt consolidation loan
Possible if your personal credit and documented income are strong. Self-employed borrowers typically need two years of tax returns. See debt relief options for self-employed workers.
Snowball or avalanche
Works well with irregular income: pay minimums monthly and make larger extra payments in strong months. See snowball vs. avalanche.
Step 4: Options for Business Debt
- Renegotiate terms with lenders, especially if you’ve paid reliably before
- Refinance expensive short-term business financing (like merchant cash advances) into longer-term loans, if available
- SBA resources: free counseling through SCORE mentors and Small Business Development Centers
- Business debt settlement or restructuring, with an attorney’s guidance
- Business bankruptcy (such as Chapter 11 Subchapter V for qualifying small businesses), which requires legal advice
Be Careful With These Moves
- Don’t move business debt onto personal credit cards without a plan.
- Don’t use a home equity loan to prop up a struggling business without careful analysis.
- Don’t commingle business and personal funds; it complicates taxes and liability.
- Watch out for high-cost financing pitched as quick fixes.
Get the Right Advice
A nonprofit credit counselor can help with personal debt; an accountant and a business attorney can help with business debts and personal guarantees. The SBA’s network offers free small business counseling.
Frequently Asked Questions
Can business debt go into a DMP? Usually not. DMPs are designed for personal unsecured debt.
Will business debt affect my personal credit? Personally guaranteed debts may be reported on your personal credit if they go into default.
Should I close my business to get out of debt? Not necessarily. Get professional advice on restructuring options first.
Can I settle personally guaranteed debt? Sometimes. Lenders may negotiate, but get any agreement in writing and consider legal advice.
Example: Refinancing Business Debt
A business owner has $40,000 in high-interest merchant cash advances.
They refinance with a term loan at a lower APR, reducing payment pressure and total cost.
Figures are hypothetical and rounded, for illustration only. Actual rates, fees, and outcomes depend on the lender or provider and your credit profile.
Frequently Asked Questions
Are business debts my personal responsibility?
If you personally guaranteed them, yes.
Can a business enter a DMP?
Most DMPs are for personal unsecured debt.
Is business bankruptcy an option?
Chapter 11 or Chapter 7 may apply; consult a professional.
Next step: ready to compare your options? Read Best Debt Relief Options for $100,000+ in Unsecured Debt.
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