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.
Whether you are contemplating filing Chapter 11 or have already filed, access to post-filing working capital is critical to a successful reorganization launch. Within days of an initial call, our counsel can draft the necessary bankruptcy motions, factoring riders, and coordinate with your counsel to ensure motions address critical issues (payroll, critical suppliers, and other creditors) that are easily understandable and generally palatable to the court.
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 want to learn what we can do for you.
We can arrange pre-petition or post-petition Debtor in Possession (DIP) funding and have experience and co-counsel in the following jurisdictions:
- Florida
- New York
- New Jersey
- Pennsylvania
- Ohio
- Michigan
- Illinois
- Texas
- Georgia
- California
- North Carolina
- Oklahoma
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 restructuring their liabilities. DIP financing may allow them to quickly get reliable funding (in hours or days if adequately structured). It also gives the company time to restructure its finances before it starts paying back creditors thoughtfully.
What is a Debtor-in-Possession Financing Facility? (DIPFF)
A DIP financing facility can be an interim financing source providing eligible debtors access to funds for business operations and other purposes. DIP lenders offer these financing facilities.
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 other lending institutions. 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
Term loans are a kind of DIP loan that is 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 will enable you to use the funds multiple times. Revolving credit facilities are generally available for more extended periods than term loans.
Invoice factoring
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 companies on terms.
Obtaining DIP Financing
Before 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 acts 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 (although likely a restructured amount based on the creditor’s priority) 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 if 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
We offer debtor-in-possession financing through a service called invoice factoring.
Invoice factoring is a 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, such as salaries and operation costs, can be used for any purpose that qualifies as an eligible business expense under section 179 of the Internal Revenue Code (IRC). 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 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.
Pre-Petition
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, suppose you have creditworthy customers and your current lenders do not have UCC liens already filed on your receivables. In that case, we may be able to provide your company funding before the bankruptcy filing.
Post-Petition Financing
We can immediately proceed with the underwriting process after the court approves your DIP financing plan and a DIP budget. As soon as your account is set up, we’ll begin purchasing your invoices and provide 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.
Exit Financing
We can help you develop an exit financing plan and offer additional financing to support your post-bankruptcy operations.
Contact Us Today for more information. Call 1-855-424-2955 or send us a message. Our managing director will be back to you soon.
We understand the importance of getting 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.
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