The business closed but the debt did not. Sort what is truly yours, use SBA and lender hardship options, repay family kindly, and fund it with your skills.
This in-depth guide covers everything you need to know about pay off business debt and family loans faster. Based on verified income data and real-world case studies from our database of 138 side hustle tactics.
To pay off business debt after a business struggles or closes, first work out which debts are personally yours: all of them if you were a sole proprietor, plus any loan or card you personally guaranteed. Call those lenders before you miss a payment, then put side income on the highest-rate debt while paying any family loan a small, fixed amount every month. In a hypothetical case of a $20,000 guaranteed loan at 12% and $8,000 owed to a parent at 0%, $400 a month of side income clears both in about 3 years 2 months instead of 6 years 6 months, and keeps about $3,290 of interest in your pocket.
Maybe you have already handed the keys back to the landlord. The boxes of stock are stacked in the garage, the business bank account still sends you statements, and the loan payment keeps arriving for a company that no longer trades. At Sunday lunch your mum says "no rush" about the money she lent you, and somehow that is the hardest part.
Grief after a business ends is real, and so is the shame. Most people who go through it stop opening letters for a while. That is when debts get more expensive: late fees, collection referrals and, for some loans, money taken straight from your tax refund. The sooner you sort the debts into "mine" and "not mine", the more choices you keep.
Here is the order: whose debt is whose, the official options, the family loan, the maths, and side income built from what the business taught you.
Whose debt is it now: yours, the company's, or both
Start with how the business was set up, because that decides what follows you home.
Sole proprietor. If you traded under your own name and never formed a company, there is no separate business in law. The SBA says a sole proprietorship does not produce a separate business entity, so "you can be held personally liable for the debts and obligations of the business." The US Courts say the same about bankruptcy: a case involving a sole proprietorship includes both the business and personal assets. Every supplier invoice, business card and loan is your debt.
LLC or corporation. The SBA's comparison table lists owners of an LLC or corporation as not personally liable for business debts. That protection ends wherever you signed a personal guarantee.
Personal guarantees. A lender can ask the owner to sign one, and for SBA 7(a) loans it is standard: the SBA's lender application asks the lender to confirm that all owners with an interest of 20% or more will guarantee the loan. Check your business card and cash advance applications for the same wording. Once you have guaranteed a debt, the lender can come to you personally when the company cannot pay.
Get every agreement out tonight and note three things for each: the borrower, whether you signed a guarantee, and the rate. Which ones are truly yours? Those are the debts this plan pays from your side income.
How business debt gets expensive, and what lenders can do
Business borrowing has fewer consumer protections than people expect.
Business credit cards. The CFPB's review of the CARD Act states that the law applies only to consumer credit cards and not to small business credit cards. The Federal Reserve's report to Congress adds that the substantive card protections in the Truth in Lending Act do not apply to business credit card accounts, because Congress took the view that businesses could evaluate credit for themselves. What business cards do keep is a ban on unsolicited cards and a limit on your liability for unauthorized use. Read your card agreement for how the issuer can change your rate.
Merchant cash advances. An MCA advances money against future sales and collects through automatic withdrawals from your business account. The FTC has taken action against several providers. In 2021, Yellowstone Capital agreed to pay $9.8 million to settle charges that it kept withdrawing money for days after balances were repaid and hid requirements for collateral and personal guarantees. In 2023, a court permanently banned the owner of RCG Advances from the industry after the FTC alleged deceptive terms, unauthorized withdrawals, and confessions of judgment used to seize personal and business assets. If an MCA is draining your account, get its contract in front of a lawyer or an SBDC adviser before you sign anything new.
SBA-backed loans. These carry federal collection powers. The SBA's own loan forms list what it may do if you do not pay: report the debt to credit bureaus, hire a collection agency, offset your income tax refund or other federal payments, refer the debt to the Department of Justice, and foreclose on collateral. Unless the SBA is repaid in full for its loss, you cannot get further SBA financial help.
If you have an SBA loan
The lender works through the collateral first. After that, the SBA's Commercial Loan Service Center explains, borrowers and guarantors who cannot pay the shortfall may be able to settle for less than the full amount through an offer in compromise, using SBA Form 1150 and a financial statement. If nothing is settled, the remaining balance is charged off and the loan is referred to the US Treasury, where collection "may include administrative wage garnishment."
The Treasury Offset Program then matches people who owe delinquent federal debts with money the government is paying them, such as a tax refund, and withholds it. In fiscal year 2024 it recovered more than $3.8 billion.
If you have a COVID-19 Economic Injury Disaster Loan, check the SBA's payment assistance first. Eligible borrowers can cut payments by 50% for six months, once every five years, if the loan is less than 90 days past due, current, and the business is still open and operating. Interest keeps accruing, which makes the final balloon payment bigger. The same page warns that a loan can be referred to the Treasury Offset Program at 120 days delinquent, and that once a loan moves to Treasury cross-servicing, the SBA can no longer help you with it.
Closing with an EIDL outstanding? The SBA asks you to message it through the loan portal first.
Talk to your lenders before you start hustling
The FTC's advice on getting out of debt is to call the creditors you owe "before a debt collector gets involved," and it notes they might even agree to accept less than you owe. For a business debt, here is what to ask for:
- A temporary reduced or interest-only payment while you start a new job or side income.
- A longer term to bring the monthly payment down to something you can keep.
- A settlement if you can raise a lump sum, for example by selling equipment. Get any agreement in writing before you pay.
Before you call, prepare one page: what you owe, what the business owns, your income and essential spending, and the payment you can honestly keep up.
One tax point if a lender forgives part of a debt. The IRS says that in general, if a debt is canceled for less than the amount owed, the canceled amount is taxable, with exclusions for bankruptcy and insolvency. Ask a tax preparer before the year-end so a settlement does not turn into a surprise bill.
Free help, and where bankruptcy fits
SCORE and Small Business Development Centers. Both are SBA resource partners. SCORE mentors give advice on financing and planning at no cost by email, phone and video. SBDCs give counselling and help with financial management.
Bankruptcy. It exists, and the US Courts explain the main routes. Chapter 7 is liquidation, where a trustee sells nonexempt assets. Chapter 13 is a three-to-five-year repayment plan open to any individual with regular income, including the self-employed. Subchapter V of Chapter 11 is a faster reorganization for small businesses with combined debts of $3,424,000 or less. Every individual filer must take approved credit counselling within 180 days before filing, and the courts recommend competent legal counsel. The FTC calls bankruptcy generally a last option because of its long-term effect on your credit. If it is on your mind, talk to a bankruptcy lawyer before you decide anything.
Money you borrowed from family or friends
This is the debt that keeps you awake, even at 0%, because it sits between you and someone you love.
Write the terms down, even now. One page is enough: the amount still owed, the monthly payment, the day of the month it goes out, whether there is any interest, and what happens if you lose your job or they suddenly need the money back. You both sign it and keep a copy.
Set a realistic schedule. A fixed small amount that never misses beats a big promise that slips. $100 on the 1st of every month, by standing order, tells your parent the debt is real to you.
The tax rules, briefly. IRS Publication 550 explains that an interest-free or low-interest loan can be a below-market loan, and the lender may be treated as receiving interest at the applicable federal rate, which the IRS publishes monthly. Those rules do not apply on any day the total outstanding between you is $10,000 or less, for a gift loan between individuals not used to buy income-producing assets. Above that, for gift loans up to $100,000, the imputed interest is capped at the borrower's net investment income (treated as zero if $1,000 or less). Over $10,000, show the lender's tax preparer your written agreement. If your parent decides to forgive part of it, the IRS lists amounts canceled as gifts among the exceptions to taxable canceled debt.
The emotional side. Tell them the plan before they have to ask. Say the number out loud: "I owe you $8,000. I will send $100 on the 1st, and more once the bank loan is gone." Then keep the date, and if you miss one, call them that week. If the business failure still feels raw, it is fine to say so. They backed you because they believed in you.
Which debt to pay first
- Anything that can take your home, your car or your wages. Secured debts and federal debts heading for Treasury referral come first. So does business tax: see the tax debt guide.
- A small emergency fund. $500 to $1,000 in cash stops the next car repair landing on a card.
- High-rate debts in rate order. Business cards and MCAs first, then the guaranteed loan. Use the credit card payoff guide if cards are the big one.
- The family loan. A fixed small payment every month from day one, then everything once the expensive debt is gone.
Before you pay extra on a business loan, check its note for a prepayment fee, and ask the lender how extra payments are applied. You want them to reduce principal, not prepay future instalments.
The maths, with a hypothetical $20,000 loan and $8,000 family loan
This is a hypothetical example. Take $20,000 left on a personally guaranteed business loan at 12% (a round illustrative rate; small business loan rates vary widely, so use yours), with five years to run. The payment is about $445 a month. You also owe a parent $8,000 at 0%.
The plan: every month, $100 of side income goes to your parent and the rest goes to principal on the loan. When the loan is gone, the old loan payment and all the side income go to your parent until that debt is clear too.
| Side income a month | Bank loan cleared | Parent repaid | Loan interest | Interest saved |
|---|
| $0 | 5 years | about 6 years 6 months | about $6,690 | none |
| $400 ($100 to parent, $300 to loan) | about 2 years 8 months | about 3 years 2 months | about $3,410 | about $3,290 |
| $700 ($100 to parent, $600 to loan) | about 1 year 10 months | about 2 years 3 months | about $2,310 | about $4,380 |
With no side income, your parent waits five years to see a dollar. With $400 a month, they get $100 every month from the start and are repaid more than three years sooner.
How the numbers work: interest each month is the balance times 12% divided by 12, so $200 in the first month on $20,000. Only about $245 of the regular payment reduces the balance. An extra $300 goes to principal in full, more than doubling how fast the balance falls, and every month after that is charged interest on a smaller number. Your parent charges nothing, so the 12% debt gets the extra dollars first.
What does the $100 a month to your parent cost? Run the same $400 plan with nothing going to family until the loan is gone, and you clear everything one month sooner and pay about $470 less interest. That is a small price for keeping a promise every month instead of asking someone you love to wait years.
Want to try your own debts? The site's debt payoff calculator takes several balances, rates and minimums, adds your side income and shows the payoff date and interest saved.
Picture the month the bank loan reaches zero. The letters with the old business name stop, and you get to tell your mum the date she will be repaid in full.
Side income that reuses what the business taught you
Running a business, even one that closed, taught you things other people pay for: bookkeeping, selling, getting found on Google. You also know other business owners. How many hours a week could you give this for two years without burning out? Plan with that number.
First money this month: sell what is left
Leftover stock and equipment are often the fastest cash you have. If an item is collateral for a loan, or belongs to a company rather than to you, talk to the lender or an adviser first, because the money may have to go to that debt. Then price it after fees: the site's platform fees calculator shows what eBay, Etsy and others take.
Paid user testing costs nothing to start and pays within one to two weeks. The site's guide puts it at $50 to $800 a month, with the top end needing several platforms and 10 to 15 hours a week. Treat $50 to $150 as the honest target next to a job. That can fund the $100 to your parent.
$200 to $400 a month: sell one skill from the business
Upwork and Fiverr let you sell what you did every day in the business, such as product listings, spreadsheets, customer emails or supplier research. The guide puts the range at $300 to $8,000 a month, $0 to $300 to start, with one to three months to profit. Fiverr takes a flat 20%, and Upwork charges $0.15 per Connect to apply. One steady client at $300 to $400 a month covers the $400 row in the table.
Freelance writing suits you if you can explain your old industry well. The guide's range is $1,000 to $10,000 a month after one to three months. Plan on $300 to $500 a month in the first half year, and pitch the trade blogs and suppliers you already know: a former café owner writing for coffee equipment brands is a specialist from day one.
$500 to $700 and up: sell to the businesses you know
AI-assisted bookkeeping fits if you kept your own books. The guide's model is monthly retainers of $500 and up, with time to profit of four to eight weeks, and its top-line range of $3,000 to $20,000 a month assumes a full client list. One small client is a realistic first target, and that alone covers the $700 row. The owners you used to trade next to are your first prospects.
SEO services work if you learned to get your own business found. The guide puts the range at $500 to $15,000 a month, two to six months to profit, and suggests starting with a paid audit rather than a free proposal. Local businesses are the best fit, because, as the guide notes, an answer engine can describe a plumber but cannot send one.
Webflow and Framer site building is the higher-paid option if you built your own site. The guide quotes marketplace freelancers at around $50 to $90 an hour and puts the range at $1,000 to $10,000 a month, with two to five months to profit. One small project every month or two is enough for the $700 row.
A failed business can leave you exhausted, so pick one route, not three. If you would like it planned day by day, RichTactic Pro has a 30-day plan for every side hustle on the site, message templates for your first clients and a private group of people at the same stage. It is one payment with a 30-day money-back guarantee.
A weekly plan around a new job
Week 1: sort and call.
- Day 1: list every debt with borrower, guarantee yes or no, rate and payment.
- Day 2: call any lender you are behind with, or about to be, and get any new terms in writing.
- Day 3: write the family loan agreement and book a free SCORE or SBDC session.
- Weekend: list leftover stock you are free to sell, and start one side hustle.
Weeks 2 to 4: first money.
- Work the same two or three slots each week, for example two evenings and Saturday morning.
- Every side payment lands in a separate account, with tax set aside first.
Every month: payment days.
- The 1st: the fixed amount to your family, by standing order.
- The day after your loan payment: everything above a small buffer goes to principal on the highest-rate debt. Check the next statement.
- Once a quarter, rerun the debt payoff calculator and tell your parent the new end date.
Set it up so it runs without willpower
- A separate account for side income, so it never mixes with your salary.
- Tax first. US side income is self-employment income with no tax withheld. The side hustle tax calculator shows how much to set aside, and the side hustle tax guide covers quarterly payments.
- A closed-down business, properly closed. File final returns and close unused accounts so old fees stop. An SBDC adviser can help with the list.
If your business was in the UK
Sole trader or limited company. GOV.UK puts it plainly: as a sole trader you are personally responsible for all of the debts of the business, which is "unlimited liability". Limited company owners are responsible only up to the value of their investment. Business Debtline adds that sole traders must pay business debts even after stopping trading.
Personal guarantees. Directors are usually not liable for company debts, but Business Debtline lists the exceptions: a personal guarantee, an overdrawn director's loan account if the company goes into formal insolvency, and wrongful or fraudulent trading. A guarantee can be secured on your home, which puts the property at risk.
Bounce Back Loans. The scheme closed to applications in 2021, but many borrowers are still repaying. The British Business Bank says the lender got a 100% government guarantee and the borrower always remained fully liable. Pay As You Grow lets you extend the term from six to 10 years at the same fixed 2.5%, pay interest only for six months up to three times, and take one repayment holiday of up to six months. You can also repay early with no charges. Government data to 30 June 2026 shows 32.08% of loans fully repaid, 34.05% on schedule and 37.23% of borrowers having used at least one Pay As You Grow option. If you try to strike off a company with a Bounce Back Loan outstanding, Business Debtline notes that an automatic objection will be raised, so talk to the lender first.
HMRC Time to Pay. If you owe business tax, you may be able to set up a payment plan. HMRC usually asks for around half of what you have left each month after essential bills, and there is no time limit on how long a plan lasts. For company tax debt, HMRC expects you to release assets such as stock and vehicles first, and may ask directors to put in personal funds. If you do not get in touch, HMRC can collect through your wages, take money from your bank account (in England, Wales and Northern Ireland), or close the company if the tax is a business tax.
Free advice. Business Debtline gives free advice to sole traders, partners and limited company directors on 0800 197 6026. The British Business Bank also points to StepChange and, in Northern Ireland, Advice NI's Business Debt Service.
Mistakes to avoid
- Hustling while ignoring hardship options you qualify for. An EIDL payment reduction, a lender's interest-only period or an HMRC payment plan can do more this month than any side hustle.
- Paying a "debt relief" company upfront. The FTC says to watch for companies that charge a lot before doing anything, guarantee to settle all your debts, or tell you to stop talking to your creditors. Debt settlement often means stopping payments, which damages your credit.
- Taking an MCA or a new loan to cover old debt. New automatic withdrawals can empty the account this plan depends on.
- Treating the family loan as the one that can wait. It can wait the longest, but it should never hear silence.
- Buying a course that costs more than a month's payment. Every route above starts at $0 to $600.
Your first step today
Do these in order, then stop for the night.
- Pull out every agreement and mark each debt "mine" or "company only", based on your business structure and any guarantee you signed.
- Call the lender on the most urgent personal debt and ask about a reduced or interest-only payment.
- Write the one-page family loan agreement and pick the monthly amount and date.
- Put your debts into the debt payoff calculator with $400 of side income, and choose one route from this page.
If you are juggling other kinds of debt too, the full series on paying off debt with a side hustle shows how to order them.
What will you say to your parent when you send the first $100 on the 1st?
This is general information, not financial, legal or tax advice. Rules and rates change and your situation may differ, so confirm anything you rely on with your lender, the official source linked above, or a free adviser such as SCORE, an SBDC or Business Debtline.