You can get financing while in Chapter 11 Bankruptcy. The court may allow your company to obtain secured financing under Section 364(c) of the U.S. Bankruptcy Code. This is commonly known as “Debtor in Possession” (DIP) financing.
We work with your bankruptcy attorneys to help them arrange and structure a DIP funding facility for your company so you can get the funds needed to run daily operations and restructure the business. Please click here If you already know what DIP Financing is and would like to learn what we can do for you.
What is Debtor-in-Possession (DIP) financing?
A debtor-in-possession is a corporation that files for Chapter 11 bankruptcy protection. DIP financing is a form of financing that allows companies that are going through bankruptcy proceedings to obtain working capital. Companies that have filed for bankruptcy often need money to keep operating while they restructure their liabilities. DIP financing may allow them to get reliable funding quickly (in just hours or days if properly structured). It also gives the company the necessary time to thoughtfully restructure its finances before it starts paying back creditors.
What is a Debtor-in-Possession Financing Facility? (DIPFF)
A DIP financing facility can be an interim financing source that provides eligible debtors with access to funds for business operations and other purposes. These financing facilities are offered by DIP lenders.
What are DIP lenders?
DIP financing lenders are financial institutions that provide funding to businesses in bankruptcy. They could be banks, commercial finance companies, or any other type of lending institution. They often have a streamlined set of DIP documents which makes the closing process very simple.
Types of DIP financing
The three most common types of DIP financing are term loans, revolving credit lines, and invoice factoring.
Term loans are a kind of DIP loans that are designed for businesses that need to borrow money for an extended time, usually at least one year. This allows the borrower to pay off their debt in installments, rather than all at once.
Revolving credit facilities
A revolving credit facility allows the debtor-in-possession to borrow money from the lender at any time up to a pre-defined credit limit. These lines of credit allow you to use the money multiple times. Revolving credit facilities are generally available for longer periods than term loans.
An invoice factoring or accounts receivable factoring is a service where a company that provides goods or services exclusively to other businesses sells its outstanding accounts receivables to a funder called a factoring company at a discount. This is a flexible, reliable, and accessible type of funding only available to businesses that sell to other businesses on terms.
Obtaining DIP Financing
Prior to the filing or immediately after a company files for bankruptcy under Chapter 11, it must apply to the Bankruptcy Court for permission to borrow funds from lenders. Often this request is submitted via an emergency motion or during first-day motions. The ability of a business to obtain working capital is of paramount importance to the Bankruptcy court. Without it, there is a limited chance for the business to survive. These loans are called “debtor-in-possession” (DIP) loans because the borrower is acting like a debtor in bankruptcy.
Debtor in Possession (DIP) financing provides companies with the flexibility to continue running while restructuring debt. Companies that receive this service are allowed to make payments (albite likely a restructured amount based on the priority of the creditor) to existing creditors while they restructure debt. DIP financing is usually secured by all of the company’s assets, including inventory, accounts receivable, machinery and equipment, furniture, fixtures, etc., giving the DIP funder super-priority over other existing creditors.
A DIP lender gets an administrative priority claim on a debtor’s assets. The DIP lender receives payment before other creditors who do not get paid until later. If the company pays back the DIP loan, it can keep operating.
How does debtor-in-possession financing work?
The DIP financing process works as follows:
- Your bankruptcy attorney presents a DIP financing plan including a DIP budget to the bankruptcy court
- The court approves the plan and an authorized budget.
- The DIP lender provides funding as long as the principal and interest (or advances and fees) are paid back.
- The funding process continues until the attorney presents an exit plan and the debtor successfully implements the restructuring process.
- Funding can also be provided post-bankruptcy to support your company’s recovery and growth
DIP Financing With Gateway Commercial Finance
What type of funding service do we provide?
We offer debtor-in-possession financing through a service called invoice factoring.
Invoice factoring business financing vehicle in which outstanding invoices for goods or services are sold to a factoring company, like ours, at a discount to get almost immediate cash advances. Factoring is available to businesses in most industries that sell to other businesses on terms.
Invoice factoring offers several benefits. First, it is a relatively simple process to obtain invoice factoring. Second, the funds can be used for any purpose that qualifies as an eligible business expense under section 179 of the Internal Revenue Code (IRC) such as salaries and operation costs. Funds can also be used to cover your bankruptcy counsel legal fees. Third, factoring provides reliable and predictable cash flow that the company can use for a court-approved cash collateral order.
Please check this complete article if you wish to learn more about invoice factoring.
How can we help your company and your attorney during the bankruptcy process?
Our internal team and corporate bankruptcy law counsel have extensive experience in all aspects of the DIP financing process and can support your company and your attorneys at all stages of the bankruptcy filing process.
We can partner with you and your legal counselor and begin working together before the filing of bankruptcy. This will ensure that funding will be available once the court approves the filing.
Our corporate lawyers are ready to work with your bankruptcy attorney to prepare and file the motion and proposed order including a DIP financing plan.
Also, if you have creditworthy customers and your current lenders do not have UCC liens already filed on your receivables we may be able to provide your company funding before the bankruptcy filing.
After the court approves your DIP financing plan and a DIP budget we can immediately proceed with the underwriting process. As soon as your account is set up we’ll begin purchasing your invoices and providing reliable funding in a matter of hours. We’ll likely be able to offer your company factoring services throughout the entire duration of the bankruptcy.
We can help you with the development of an exit financing plan and offer additional financing as needed to support your post-bankruptcy operations.
We understand how important it is to get your business back to normal operations after a Chapter 11 reorganization. Our goal is to assist you in getting your business back on track as fast as possible.