MCA and SBA Loan Default: How Personal Exposure Differs by Agreement

The harsher personal exposure is the one the documents support, not the one with the more intimidating letterhead.

An SBA loan and an MCA reach the owner through different channels. One runs through program servicing and federal collection; the other runs through private contract and state court enforcement. The owner who confuses the two prepares for the wrong proceeding.

Two Programs, Two Collection Channels

The SBA description of its 7(a) program explains that the program supplies a guarantee to participating lenders. That guarantee protects the lender. It does not release the borrower, and it does not release a person who signed a personal undertaking.

A COVID EIDL is a different program with its own rules and servicing structure, and other SBA products carry their own terms. From the demand letter rather than the closing, the owner learns about the guaranty. The loan documents and the current notice decide the exposure, not a deadline remembered from another program.

The MCA comparison starts with the instrument. Identify the funder, the purchased or repayment amount, the guarantee, and any security agreement. A product name proves nothing about which person is liable or what property can be pursued.

The Company Owes, Determine Who Else Does

Read the obligor and guarantor provisions for both accounts. The owner should know whether each demand runs against the business, an individual, or both, and what each creditor says triggers personal liability. The guaranty, if we are being precise, creates the exposure the owner assumed the program had absorbed.

One demand letter reviewed in this practice listed four balances for two obligors without saying which person owed which. Keep a separate row for each person and each obligation in the debt schedule, because a proposed release can be measured only against the claim it is meant to resolve.

A loan amount by itself proves nothing about individual liability. Program thresholds may explain historical documentation rules, but they do not replace the signed note and guarantee or rule out another basis for personal exposure. What the owner signed, or failed to read, before funding decides more than any program brochure.

Collateral needs its own schedule. Identify the assets described in each security agreement, the competing interests, and any proposed disposition. The fact that an asset is essential to operations does not place it outside the documents, while a broad claim by a collector does not prove the asset is covered. Before sale proceeds retire one account, counsel should address the rights of the other creditor. The contest is lopsided by design, and preparation is the only correction available.

Federal Collection Reaches Only Its Own Debtors

The Treasury explanation of administrative wage garnishment describes a federal process for collecting delinquent nontax debt owed to an agency, available without a court order under governing requirements and hearing procedures. Those procedures were designed in order to collect debts owed to the government, and a private MCA funder cannot borrow them for its own balance because the debtor happens to own a business.

A federal debt against an entity does not authorize withholding against the wages of the owner. The basis on which the individual is treated as a debtor must be established before the threatened remedy means anything, and the notice deserves review at once, since timing rules decide whether withholding can begin before a hearing, and whether that timeline holds for a given notice is a question the notice itself must answer.

There is a particular quiet in an office after the Treasury notice arrives and before counsel has read it.

An MCA default (which some commentators describe as a private matter with no public remedy) can still produce a judgment enforceable through state process. The restraining notice provisions of New York civil practice law illustrate one judgment enforcement mechanism, with requirements around the judgment, service, property interests, and applicable protections. A threatening demand does not prove those steps occurred. Counsel can protect and preserve the objections the file supports. The program guarantees the lender. It does not release you.

What Compromise Requires in Each Channel

The SBA page on offer in compromise requirements, updated in August 2026, states that an offer is considered only after collateral liquidation under agency guidelines and that COVID EIDLs cannot be forgiven. That language should stop the owner from treating a generic settlement advertisement as proof of an available EIDL discount.

For another SBA program, servicing and compromise terms must be examined through the responsible lender or agency channel. A proposed payment is not an approval.

Charge off is an accounting entry, not a release.

An MCA settlement is likewise a negotiated possibility rather than an entitlement. The creditor authority, the balance, and the requested terms need confirmation, and a payment reduction and a complete release are different outcomes. Most MCA funders know which signature matters on the guarantee page. They priced the advance against it.

Paper That Proves the Exposure

Keep notes, guarantees, security documents, notices, and payment histories. Record which organization services each account, because a discussion with a former servicer resolves nothing about a later notice.

No owner reads the guaranty until the demand letter quotes it back. Send new legal and agency notices to the appropriate adviser and obtain confirmation of what has been completed. A settlement intake, a call to an agency, and a legal appearance perform different functions, and assuming one covers the others is how deadlines pass. In most matters seen in this practice, though the count is informal, the missing paper is the amendment nobody kept.

The Position After Resolution

Delancey Street can assess the MCA settlement problem while the SBA obligation receives program specific review. It is a settlement company rather than a law firm or the agency that decides SBA relief; independent counsel handles legal questions.

Ask the provider to ensure that the MCA proposal reflects funds available after essential expenses and other obligations. Counsel should ensure that personal guarantees, collateral, and pending process are addressed where applicable. A complete picture names the obligors, traces the servicing history, and states the remedy each creditor can pursue against each person. Resist the urge to answer a federal notice with a phone call instead of a documented response prepared with counsel.