11 Business Debt Types Ranked by How Negotiable They Are

Negotiability Is a Function of What Your Creditor Gets Instead

Owners rank their debt by how much it is. Creditors rank it by what they recover if you refuse to pay, and that second ranking is the one that decides whether a balance moves. A linen supplier with an unpaid invoice and no lien can get a judgment and take a place in line behind everybody who filed first. The IRS can reach your personal bank account without ever filing suit. The two obligations can be identical in dollars and the conversations have nothing in common.

What follows sorts eleven kinds of business debt from most negotiable to least. Each entry names who actually holds the paper by the time you are calling about it, what that holder can do to you, the discount range that is realistic rather than aspirational, and the reason it sits where it does. The order is a description of leverage rather than a rule of law, and your own ordering will shift depending on which creditor holds a lien, which one holds your signature personally, and how much cash you can put on a table at one time.

Two things stated plainly up front. Withheld payroll tax sits near the bottom because the amount charged to the person the IRS names as responsible does not move, and no amount of skilled advocacy changes that arithmetic. And a personal guarantee is last on the list because it does not make a balance harder to discount so much as it deletes the reason a creditor would discount it at all. For the small set of obligations that resist restructuring on any normal terms, we treat those separately in debts you cannot restructure.

1. Unsecured Vendor and Trade Debt

Who holds it: your suppliers, subcontractors, freight brokers, staffing agencies, and the platforms you buy advertising from. There is often no financing agreement at all, only a credit application, an invoice, and whatever terms were printed on the reverse side. No lien, no collateral, and usually no personal guarantee, though credit applications sometimes carry one in small type directly above the signature line, so pull the application before you assume the entity is the only obligor here.

What they can actually do: sue in state court and get a judgment, report to the business credit bureaus, hand the account to a contingency collector, file a mechanic’s lien if the work touched real property, and stop shipping. That last one is the real weapon, and it explains why trade payables get paid ahead of better-secured obligations by owners who need material on the dock Monday. Nothing about the position lets a vendor reach your bank account before it has a judgment in hand.

Realistic discount, on our own numbers rather than anyone’s published survey: aged trade debt resolves somewhere in the 25% to 50% range, and balances the vendor already reserved against can go lower. It leads this list because the alternative costs the creditor real money and a lot of calendar, because the person with authority to write it down is a controller rather than a committee, and because a live commercial relationship has value to both sides. Structure matters as much as the number, and a vendor will often take less when part of the deal is future orders on prepay terms.

2. Business Credit Cards and Unsecured Lines

Who holds it: the issuing bank while the account is open, then after charge-off either an agency collecting on contingency or a debt buyer that purchased the portfolio outright. Business cards are unsecured, and almost all of them carry a personal guarantee from the owner even where the account was opened under an EIN and every statement arrives addressed to the company. That detail lives in the cardholder agreement and the original application rather than on the statements you have been looking at.

What they can do: close the line without notice, accelerate the balance, report to business bureaus and in some products to your personal file, and sue on the guarantee. What they cannot do is touch anything before a judgment. The economics shift toward you at charge-off, because a buyer that paid a small fraction of face value works from a settlement authority matrix rather than from the balance, and each subsequent assignment lowers the basis again.

Realistic discount: issuers rarely go deep before charge-off and will steer you into a hardship program instead. After charge-off, 30% to 50% is a normal landing zone in our experience, and a second or third holder can go further. This sits just under trade debt because the paper is unsecured and keeps changing hands, but the near-universal guarantee means the entity walking away does not end the matter the way it can with a pure corporate obligation.

3. Merchant Cash Advances

Who holds it: the funder, frequently plus syndication participants who bought a slice of your deal at origination, plus a collection firm working on contingency once the file sours. The document calls itself a purchase of future receivables rather than a loan, which changes the vocabulary everyone uses without changing the fact that money leaves your account every business day whether or not you sold anything.

What they can do, and it is more than most creditors: keep debiting until somebody stops them, enforce a financing statement usually filed within days of funding, notify your customers to pay them directly, sue both the company and the guarantor, and on older files enter a confession of judgment without filing suit at all. Working the other way: their collateral is receivables that may never come into existence, litigation is expensive, and the recharacterization case law has been moving against them for five years.

Realistic discount, again from what we settle rather than from data anyone publishes: attorney-negotiated settlements land in the 30% to 60% range, and further where the agreement carries genuine recharacterization exposure under the three factors from LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 A.D.3d 664 (2d Dep’t 2020). It ranks third rather than lower because the funder’s legal position is weaker than its collection behavior suggests. Which paragraphs drive that analysis is the subject of the twelve clauses that decide your leverage, and outcomes by balance are collected in MCA settlements.

4. Equipment Finance and Equipment Leases

Who holds it: the manufacturer’s captive finance arm, an independent lessor, a bank leasing subsidiary, or a fund that bought the paper in bulk. The first question on any equipment document is whether it is a true lease or a security interest wearing a lease label, and U.C.C. §1-203 answers that on the facts rather than the title. A security interest exists where your payment obligation cannot be terminated and the term runs the remaining economic life of the goods, or you can buy them at the end for nominal consideration.

What they can do: take the equipment. U.C.C. §9-610 permits disposition of the collateral after default provided the method, manner, time, place, and terms are all commercially reasonable, and U.C.C. §9-615(d) leaves you liable for whatever deficiency remains once proceeds are applied. That two-step is the entire negotiation. While the machine holds value, the secured piece barely moves. After a disposition, the shortfall is unsecured and quite negotiable, and a sale conducted at a dealer’s wholesale bid instead of a real market process is your best argument for cutting it.

Realistic discount: close to nothing on a performing contract, meaningful on a post-repossession deficiency. It ranks fourth because the outcome tracks an asset with a market price rather than your persuasiveness, and because you may need that equipment to keep generating revenue, which the lessor understands as well as you do. If the paper is a disguised security interest rather than a true lease, a reorganization can treat the claim as secured only up to the collateral’s value instead of forcing you to take the whole contract or none of it.

5. Commercial Leases and Landlord Guarantees

Who holds it: the landlord, and you personally if you signed a full guarantee or a good-guy guarantee. Good-guy guarantees are narrower than owners remember, typically capping personal exposure at rent accruing until you vacate and surrender the premises with proper notice and in the condition the lease specifies. That makes the surrender mechanics as important as the dollar figure, because a defective surrender can keep the guarantee running for months after you handed over the keys.

What they can do: apply the security deposit, draw on a letter of credit, sue for rent as it comes due or for accelerated rent where the lease allows it, and pursue the guarantor on a separate track. Whether the landlord negotiates has very little to do with your finances and almost everything to do with the re-letting market. A landlord with a waiting list wants the space back and will trade a release for a fast clean exit. A landlord staring at a year of vacancy fights for the guarantee instead.

Realistic discount: highly variable, driven by market conditions and by how quickly you can hand back the premises. A bankruptcy filing imposes hard limits worth knowing: 11 U.S.C. §502(b)(6) caps a landlord’s termination damages at the rent reserved for the greater of one year or 15% of the remaining term, not exceeding three years, plus unpaid rent, and 11 U.S.C. §365(d)(4) allows 120 days to assume or reject a nonresidential lease, extendable by 90 days. Neither limit touches your guarantee, which is why the guarantee is usually the real negotiation.

6. Judgment Debt

Who holds it: the original creditor, an assignee who bought the judgment at a discount, or a collection firm enforcing it for a share. The liability question is finished and cannot be reopened absent a successful motion. What is left is collection, and the toolkit is substantial: information subpoenas served on you, your bank, and your customers, restraining notices, and levies executed by a sheriff or, in New York City, by a city marshal working on a percentage.

Using New York as the example, since so much advance paper is entered there: a restraining notice under N.Y. C.P.L.R. §5222(b) is satisfied once a garnishee bank holds double what the judgment says, so a $200,000 judgment can immobilize $400,000 and end a Tuesday payroll run without anybody appearing before a judge. Interest continues to accrue at 9% a year under N.Y. C.P.L.R. §5004 on a business judgment, which means the balance you are negotiating twelve months from now is larger than the one on the screen today.

Realistic discount: wide, and it deteriorates with every week of investigation. A creditor who has served subpoenas and found nothing collectible will take a substantial reduction for certain money. A creditor who has already located your operating account and your receivables gives up very little. Do not respond to any of this by moving assets, because transfers made with a judgment outstanding invite avoidance claims that outlast the underlying debt, and that decision belongs with a lawyer who can see your whole balance sheet.

7. Secured Bank Debt and SBA 7(a) Loans

Who holds it: a bank, a credit union, or a nonbank lender holding a perfected blanket lien, and on a 7(a) loan a federal guarantee standing behind that lender. Commercial mortgages belong in this band as well, because the recovery analysis is identical: the lender looks at the collateral first and at you second. SBA requires an unlimited personal guarantee from every owner of 20% or more, so on those files the guarantee is not a negotiating point, it is a condition of the program.

What they can do: apply funds in your deposit accounts against the matured obligation under the setoff language in the account agreement, sometimes on the same day the credit gets downgraded internally, then foreclose the blanket lien, then sue the guarantors for what is left. On a 7(a), once the lender liquidates collateral and charges off, the guarantee is honored and the file can move to SBA and eventually to Treasury, which changes both who you are talking to and which rules apply.

Realistic discount: essentially none while the loan performs, and a genuine one on a deficiency after the collateral is gone. SBA holds statutory authority to compromise obligations under 15 U.S.C. §634(b)(2) and runs a formal offer in compromise process, but it generally expects collateral to be liquidated first and measures the offer against documented ability to pay rather than against your urgency. The process is administrative rather than commercial, which is exactly why this ranks below everything above it.

8. Federal Non-Tax Debt

Who holds it: whichever federal agency lent the money or overpaid you, and then the Treasury Department. Under 31 U.S.C. §3711(g)(1), once a nontax debt owed to the United States has been delinquent for 180 days, the agency is required to transfer it to the Secretary of the Treasury for collection. That transfer date is the single most consequential fact in the life of the obligation, because both your counterparty and your available options change the day it happens.

What they can do without going anywhere near a courtroom: intercept federal payments and tax refunds through the Treasury Offset Program, garnish as much as 15% of disposable pay administratively under 31 U.S.C. §3720D(b)(1), and add interest under 31 U.S.C. §3717(a) plus a penalty charge of as much as 6% a year on any portion more than 90 days past due under §3717(e). Collection here requires no judge and no judgment, which is the feature that separates government debt from everything higher on this list.

Realistic discount: compromise exists, but it runs on the Federal Claims Collection Standards and on the agency’s own delegated authority, and it is decided on documented inability to pay rather than on a negotiation. The practical rule is about timing more than about persuasion: resolving a federal non-tax debt is materially easier at the agency, inside the 180 days, than after referral. It ranks eighth because there is no relationship to preserve, no commercial motive to settle, and no lawsuit whose pace you can influence.

9. Sales and Use Taxes

Who holds it: your state department of revenue or taxation. This is money you collected from customers on the state’s behalf, which is why states treat it as a category apart from unpaid income tax and why liability follows individuals out of a dissolved entity. New York states the reach openly: N.Y. Tax Law §1131(1) defines persons required to collect tax to include any officer, director, or employee of a corporation, any employee or manager of an LLC, and any member of a partnership or LLC, and §1133(a) makes those persons personally liable.

What they can do: assess, docket a tax warrant that behaves like a judgment lien, levy bank accounts, revoke the certificate of authority so you can no longer lawfully make taxable sales, and open a responsible-person case against you as an individual. Most states run an equivalent structure under different section numbers, so the analysis travels across state lines even though the citation does not. The certificate revocation is the part owners underestimate, because it closes the business faster than any levy.

Realistic discount: penalties and interest are sometimes abated for reasonable cause, and a number of states operate offer in compromise programs with narrow qualification criteria. The underlying tax rarely moves. What is genuinely negotiable is the installment terms, the scope of the audit period, and whether you are a responsible person at all, and that last one is a factual fight about signature authority and who decided which bills got paid rather than an appeal to hardship. Hence ninth.

10. Withheld Payroll Taxes and the §6672 Penalty

Who holds it: the IRS, and the reason this occupies the bottom of a negotiability ranking is structural rather than attitudinal. The withheld income tax and the employee half of FICA are not corporate funds you fell behind on remitting; they are amounts the statute treats as held for the government from the moment they came out of a paycheck. Using them to cover a daily advance debit does not change what they are. It creates a record of a choice, and that record is what the IRS reads later.

What can happen to you individually: 26 U.S.C. §6672 lets the IRS assess a penalty against a responsible person equal to the full amount of trust fund tax that went unpaid. The agency describes a responsible person as anyone with the duty to perform and the power to direct the collecting, accounting for, and paying of those taxes, and its own guidance treats paying other business expenses while unable to pay the withholding as evidence of the willfulness element. Once assessed, the collection tools point at your house and your personal accounts rather than the company’s.

Realistic discount on the withheld portion for the responsible person: none worth planning around. The employer’s matching share of FICA, along with penalties and interest, are corporate liabilities that can be addressed in a workout or a bankruptcy case, and separating those two buckets precisely is the only part of this exercise that produces movement. Because the mechanics deserve more room than a ranking entry allows, the sequencing, the designation of voluntary payments, and the appeals window are covered in debts you cannot restructure.

11. Any Balance Carrying Your Personal Guarantee

This is a modifier rather than a category, and it belongs at the end because of what it does to everything above it. A guarantee does not make a creditor less willing to discount the corporate balance in principle. It changes what happens when you decline the demand, because instead of pursuing an entity that may hold nothing worth taking, the creditor gets a judgment against a person with a house, savings that may not be exempt, and a paycheck that can be reached.

What they can do: sue you individually on the guarantee, often on an accelerated track where the instrument is absolute and unconditional and waives your defenses, then enforce against non-exempt personal assets. What counts as exempt varies enormously from state to state, ranging from Florida’s broad homestead protection to states that shelter almost nothing, and that variation is the largest single input into what your signature is worth to the person holding it. Read whether the guarantee promises payment or performance, whether it is capped, who else signed, and whether it survives a sale.

Realistic effect on discount: a guarantee generally costs you the deepest part of whatever range applied to the underlying debt. An unguaranteed corporate obligation owed by a company with nothing collectible settles cheaply, because the creditor’s honest alternative is zero. The same balance with a solvent guarantor settles at roughly what the creditor believes it can extract from that guarantor, which is a completely different calculation and usually a much worse one for you.

Who Should You Call? Our Top-Rated Business Debt Firms

One firm on this list works the entire lifecycle of a business debt file, from stopping the daily debits through attorney-led negotiation, UCC lien removal, and a signed release. The other two cover broader debt categories that often sit alongside the advances. Choose accordingly.