A line of credit feels safer than an advance because it came from a real lender at a stated rate with documents that look like documents. In default it can move faster, because the lender often already holds your operating account.
SBA paper is slower but less forgiving. The government guarantee means your lender is following a process rather than exercising judgment, and the process rewards complete paperwork over persuasion.
Both require the opposite instincts from MCA work. Aggression that produces results against a funder damages credibility with a workout officer. Sequencing matters enormously when you carry both.
The setoff problem
If your line of credit and your deposits sit at the same institution, most agreements permit the bank to apply your balances against the debt directly. No judgment required. Owners discover it when payroll fails. If a line is showing stress and your operating account is at the same bank, that’s the first conversation to have with an advisor, not the fifth.
Cross-default
Your equipment loan, term loan, and commercial card at the same institution may all contain provisions triggered by a default on the line, even though those accounts are perfectly current. One stumble can mature everything at once.
How bank workouts differ
Regulated lenders care about their own accounting and their examiners, which means the calendar can work in your favor in ways it never does with a funder. They have real workout departments that prefer restructuring to litigation. They will want financials, and a credible package with a defensible projection is worth more here than any negotiating posture. Discounts are typically smaller than on MCA paper, but terms are far more flexible.
SBA: offer in compromise
A formal settlement proposal evaluated against what the government believes it could otherwise recover. It requires complete personal and business financials, evidence that collateral has been properly liquidated, a defensible valuation, and a funding source. Incomplete packages get returned and every return costs months. A rejected offer isn’t neutral, it hardens the lender.
The Treasury stage to avoid
If nothing resolves, an SBA debt can be referred to the Treasury Offset Program, where federal payments including tax refunds get intercepted and substantial collection fees attach. Once referred, settlement authority moves away from people you can have a conversation with. Engage early. Options narrow at every stage.
Five signals that end the conversation
- ✗Deposits held at the same institution as a stressed credit line
- ✗Real property pledged as collateral on an SBA loan
- ✗Filing a weak or incomplete offer in compromise
- ✗Treating a workout officer like an MCA collector
- ✗Letting a fast-moving funder destroy the business you’re preserving for a slow federal process