What are my options for restructuring existing business loan debt?

Informal workout — before default

The most accessible restructuring path is a direct negotiation with the current lender before a loan goes into default. Lenders generally prefer a workout to a default and write-off — restructuring keeps the loan performing and avoids the loss reserve requirements that a charge-off triggers. A workout may involve: extending the loan term (reducing monthly payments), temporarily converting to interest-only payments, reducing the interest rate, or deferring payments for 3–6 months. Initiating this conversation proactively — before missing a payment — produces better outcomes than waiting for collections.

SBA Offer in Compromise

For SBA-guaranteed loans in default, the SBA's Offer in Compromise (OIC) program allows borrowers and lenders to settle the outstanding balance for less than the full amount owed. The OIC process is governed by SBA SOP 50 57, which sets the eligibility criteria, documentation requirements, and the SBA's settlement calculation methodology. An accepted OIC releases the borrower and any personal guarantors from further liability on the settled amount — but requires disclosure of full financial circumstances and is reported to credit bureaus.

Troubled Debt Restructuring — accounting context

For borrowers dealing with larger institutional lenders, understanding FASB ASU 2022-02 is useful — it eliminated the Troubled Debt Restructuring (TDR) accounting category for creditors (effective 2023), replacing it with a credit loss evaluation framework. In practical terms for borrowers: institutional lenders are no longer required to classify a restructured loan as a TDR on their books, which reduced the accounting stigma that historically made lenders reluctant to restructure. This change made workout agreements somewhat more accessible at larger banks.

FDIC guidance on workout vs default

The federal banking regulators' 2023 Interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts confirms that examiners will not criticize a lender for a prudent loan modification made after a full review of the borrower's financial condition — even if the modified loan carries an adverse classification — as long as the borrower can repay under reasonable terms. This creates a regulatory incentive for banks to pursue a workout over default when the underlying business is viable, though this specific guidance is written for commercial real estate-secured loans; ask your lender whether an equivalent internal workout policy applies to your loan type.

What restructuring does not do

Restructuring modifies the payment terms on existing debt — it does not erase the obligation, does not guarantee access to new financing, and is typically reported to credit bureaus in a way that signals distress. A completed OIC settlement is reported as a settled-for-less-than-full-balance. A workout modification may trigger a negative credit notation. Borrowers who complete a restructuring and maintain the modified terms consistently can rebuild creditworthiness over time — but should not expect financing applications to be unaffected for 2–3 years.