What $1M in Business Debt Settles For: 6 Ranges by Creditor Type

Nobody Owes $1M of One Thing

The question business owners ask is “what will a million settle for,” and the honest answer starts by breaking the million into pieces, because the creditor type decides the range far more than the size of the number does. Almost every file at this level is a stack: three or four advances, a hundred thousand or more in unpaid vendor invoices, a couple of business cards that were personally guaranteed in year two, two equipment contracts, an SBA 7(a) that the bank has already charged off, and a payroll tax balance nobody wants to talk about. Each of those creditors is optimizing for something different, and each of them will move for a different reason.

So the ranges below are not a menu. They are what a creditor of that type tends to accept when the file is worked properly, and every one of them shifts with your defenses, your timing, whether collateral secures the claim, and whether you personally guaranteed it. Nothing here is a promise, and any firm that quotes you a blended percentage before reading your paperwork is quoting a script. What follows is the arithmetic we would run on a $1M stack, in the order the pieces usually get addressed.

1. Merchant Cash Advances: 30% to 60%

Advances settle at the steepest discounts in the stack, and the reason is structural rather than generous. A funder holding a defaulted advance is holding an unsecured claim dressed as a purchase of receivables, and if it wants to collect, it has to sue, which in the files we work means five figures of outside counsel and months of calendar, against a business whose bank statements show it cannot pay. Meanwhile the funder faces the risk that a court looks past the label. Advances the attorneys in our network negotiate commonly resolve at 30% to 60% of the outstanding balance, with the low end where the paperwork gives counsel something to work with.

Two things move a file toward the bottom of that band. The first is the reconciliation clause: most agreements promise to adjust the daily debit to actual receipts, and if your revenue fell and the funder kept pulling the same amount anyway, that is a breach and it also undermines the claim that this was a purchase rather than a loan. The second is the effective rate, because a fixed payback on a short term with a personal guaranty starts to look like credit, and credit has usury exposure.

The catch is what the funder already did. If a confession of judgment was signed where it is still enforceable and a judgment is on file, you are no longer negotiating with a lender, you are negotiating with a judgment creditor who can restrain your operating account, and the range moves up accordingly. Our page on settling a $1M MCA position walks through what that changes.

2. Trade and Vendor Debt: 25% to 50%

Unpaid invoices are usually the cheapest debt in the stack to resolve, because the vendor has no security interest, no daily debit, and a collections cost that often exceeds the invoice. What the vendor does have is something no other creditor has, which is your future orders, and that changes the shape of the conversation. Vendors settle in the 25% to 50% range routinely in our experience, and some will take less in exchange for a going-forward arrangement on prepay or cash terms.

Recent deliveries are different from old ones, and this is where owners get surprised. Under U.C.C. §2-702(2), a seller who discovers that the buyer received goods on credit while insolvent may reclaim those goods on demand made within ten days after receipt, and the ten day limit does not apply where a written misrepresentation of solvency was made to that seller within the previous three months. Section 2-702(1) also lets a seller refuse further delivery except for cash. So the vendor who shipped last week has a remedy the vendor who shipped last spring does not.

The exception that swallows the range is lien rights. A materials supplier or subcontractor on a construction project with valid mechanic’s or materialman’s lien rights is not an unsecured creditor in substance, and neither is a vendor holding a purchase money security interest in equipment it sold you. Sequence matters too, because a settlement that saves $40,000 and puts your only supplier on credit hold has not helped.

3. Credit Cards and Unsecured Lines: 40% to 65%

Business cards and unsecured lines settle higher than advances for a simple reason: the issuer is a bank with a large portfolio, a defined charge-off process, and no urgency. Under the interagency Uniform Retail Credit Classification and Account Management Policy, open-end credit is generally charged off at 180 days past due and closed-end loans at 120 days. Before that point the bank’s workout desk offers rate concessions and hardship programs, not principal reduction. After charge-off, or after the account is placed with an agency or sold, principal discounts appear, and on the files we have handled the band runs roughly 40% to 65%.

Two features of bank debt change your exposure. Nearly every small business card carries a personal guaranty, which means a judgment lands on you rather than on the entity and gets enforced against personal assets under your state’s exemption rules. And if the issuer also holds your operating account, it may have a contractual right of setoff, which is why paying nothing while banking at the same institution invites a sweep that arrives without warning on a payroll Thursday.

The timing question is genuinely uncomfortable, because the discount improves as the delinquency deepens while the litigation risk rises at the same time. That tradeoff belongs with counsel who can look at the guaranty, your state’s exemptions, and how that particular issuer behaves after charge-off, rather than being resolved by waiting and hoping.

4. Equipment Finance: The Deficiency Is the Debt

Equipment finance does not settle as a percentage of the balance, because the lender takes the collateral first. It repossesses, sells, applies the net proceeds, and then pursues you for what is left. Under U.C.C. §9-615(d), the secured party accounts to the debtor for any surplus and the obligor is liable for any deficiency, so the only number on the table is the deficiency plus the costs of repossession and sale. On $120,000 owed against gear that brings $52,000 at auction, you are negotiating a roughly $68,000 claim, not a $120,000 one, and you no longer have the equipment.

This is also the category with the strongest technical defense in the entire stack. Every aspect of a disposition must be commercially reasonable, notice has to go out properly, and where the sale was to the secured party or an insider, §9-615(f) recalculates the deficiency using what a compliant arm’s length sale would have brought. Better still, U.C.C. §9-626(a)(4) presumes the proceeds equal the whole obligation unless the secured party proves otherwise, which means a botched auction can reduce the deficiency toward zero.

Check whether your contract is a lease at all. Under U.C.C. §1-203(b), a transaction in lease form creates a security interest when the obligation is non-terminable and the term runs the remaining economic life of the goods, or you can buy or renew for nominal consideration. A dollar buyout at the end is a security interest, which puts you inside Article 9 with all of its protections. A true lease is governed by Article 2A instead, and the lessor’s damages claim is calculated differently.

5. Secured Bank and SBA Debt

Inside collateral value, secured bank debt does not discount. A bank with a blanket lien on receivables, inventory, and equipment plus a mortgage on the building has no reason to accept less than what it can realize, and it will realize it. What is actually negotiable is the piece above collateral value and the personal guaranty behind it, which is why the settlement conversation on secured debt is really a conversation about the deficiency and about your non-exempt personal assets.

SBA 7(a) debt runs on its own track. The lender liquidates, SBA may purchase the guaranty, and the remaining balance becomes a federal claim compromised through an offer in compromise on SBA Form 1150 with Form 770. SBA generally requires that the business has ceased operating and that business personal property has been liquidated, and that the offer bear a reasonable relationship to what could be recovered through enforced collection in a reasonable time. The federal standard behind that sits at 31 C.F.R. §902.2: inability to pay, inability to collect in full within a reasonable time, collection costs exceeding the recovery, or significant doubt about the government’s ability to prove its case.

Two consequences follow. First, an offer in compromise is not a way to restructure a loan and keep operating, because the premise is that the business is gone. Second, if no compromise happens, the debt is referred to Treasury, which brings offset of federal payments and administrative wage garnishment of up to 15% of disposable pay under 31 C.F.R. §285.11(i)(2). That 15% figure is what your offer is measured against, which makes this the one piece of the stack where the number is arithmetic rather than argument.

6. Tax Debt: A Formula, Not a Negotiation

Tax debt is the piece of a $1M stack that does not respond to negotiating skill, because the IRS computes an offer amount rather than bargaining over one. An offer in compromise is evaluated on ability to pay, income, expenses, and asset equity, and the IRS states plainly that it generally accepts an offer when the amount represents the most it can expect to collect within a reasonable period. A business files Form 656 with Form 433-B (OIC) and a $205 application fee, and an operating business has to be current on filings and federal tax deposits to be considered at all.

The withheld portion is the part to budget at full value. Employment taxes withheld from employees are trust fund money, and 26 U.S.C. §6672 allows assessment of a penalty equal to the entire amount not paid over against any responsible person individually. In bankruptcy, 11 U.S.C. §507(a)(8)(C) gives that category priority status regardless of age. State sales tax is frequently worse, because it is also trust fund money, it is also assessed personally, and some states have no compromise program at all.

Time is the only real lever here. Under 26 U.S.C. §6502(a) the IRS has ten years from assessment to collect by levy or suit, and that clock gets suspended while an offer is pending, so filing a weak offer can cost you more time than it saves. Interest and penalties keep accruing while you wait, though penalties may be abated where there is reasonable cause. Treat the trust fund figure as fixed and spend your negotiating energy on the creditors who actually move.

The Arithmetic on a $1M Stack

Take a realistic million: $420,000 across three advances, $180,000 in trade and vendor invoices, $150,000 on two personally guaranteed cards and an unsecured line, $120,000 on two equipment contracts, a $95,000 SBA 7(a) balance left after the bank liquidated its collateral, and $35,000 in payroll and sales tax. Apply the ranges. The advances come in at $126,000 to $252,000. Trade lands at $45,000 to $90,000. Cards and the line run $60,000 to $97,500. The equipment claim is the roughly $68,000 deficiency after the gear brings $52,000, settling at $27,000 to $48,000 while the equipment is gone.

The SBA piece is arithmetic against recoverable value, and for a guarantor with modest non-exempt equity and garnishable income it might pencil out around $38,000, which is a worked hypothetical and not a rate. The tax piece runs $30,000 to $35,000 because the trust fund portion is paid. Total the columns and, on the mixed stacks we have closed, a $1M book clears somewhere around $326,000 to $560,000, or 33 to 56 cents on the dollar, paid over six to twenty-four months. Notice what the low end costs you: surrendered equipment, a closed business on the SBA side, and taxes paid nearly in full.

What Moves Your Number Inside the Range

Five things account for most of the variance. Documented hardship is first, and documented means bank statements, a receivables aging, and a cash flow that a skeptical creditor can verify, not a story about a bad quarter. Structure is second: a wire today is worth more to a creditor than the same total over eighteen months, and the discount for paying now commonly runs ten to twenty points better than a term deal, which is exactly why creditors ask how you are funding it. Litigation posture is third, because a creditor facing an appearance by counsel is pricing months of fees against a business that cannot pay.

Fourth is disclosure and compliance failure, which is the most underused item on this list. Commercial financing disclosure statutes now cover a growing set of states, and in New York a provider who failed to give the required Article 8 disclosures faces civil penalties of up to $2,000 per violation and $10,000 per willful violation under N.Y. Financial Services Law §812. Fifth is how deep you are, and it cuts both ways: discounts widen as a claim ages toward charge-off and narrow sharply once a judgment exists, because a judgment creditor can restrain accounts and does not need to compromise. Our page on how MCA settlements are negotiated covers the sequencing.

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.