How Can Debtor-in-Possession Financing Help Turn a Company Around Following Bankruptcy?

debtor in possession financing, DIP Financing

For many distressed companies, there is hope for new financing. If your company is going through a chapter 11 bankruptcy; has filed for bankruptcy protection, you may be able to take advantage of DIP financing. Debtor-In-Possession Financing helps companies owners to reverse course and return to profitability.

What is Debtor-in-Possession Financing?

DIP Financing is available to companies where lenders believe the company has a credible chance to turn around from bankruptcy. The term “Debtor-in-Possession” refers to the fact that the current management and board of directors remain “in possession” of the company following its bankruptcy filing. Many small business owners are not aware that they can obtain financing to turn their company around after declaring for bankruptcy.

Lenders see DIP financing as an attractive lending opportunity as the special treatment of DIP loans under U.S. bankruptcy law. Under the law, DIP creditors must be repaid before other creditors. Many lenders will commit to a DIP loan while they would not make a loan commitment to the same company in the absence of a bankruptcy filing.

How is DIP Financing Using Accounts Receivable Factoring works?

Companies can also use factoring as a financing tool in DIP financing – a possibility that many small business owners do not realize. Accounts receivable financing can be one of the most flexible ways to obtain financing during the bankruptcy process. Factoring can be a win-win for both the borrowing company and the factoring firm. The borrower obtains needed financing that is not based on its credit status, and the factoring firm achieves priority status under the Bankruptcy Code.

>> Find out more about DIP Financing and how it helps you.

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