You can get invoice factoring while in Chapter 11 Bankruptcy. The bankruptcy courtmay 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’re contemplating filing Chapter 11 or have already filed a bankruptcy case, access to post-petitionworking capital is critical to a successful reorganization. Within days of an initial call, our counsel can draft the necessary bankruptcy motions and factoring riders. We can also coordinate with your counsel to ensure the motions address critical issues (payroll, critical suppliers, and other creditors) that are easily understandable and generally palatable to the court.
We work closely with your bankruptcy attorney to help structure a DIP factoring facility that satisfies other creditors and court approval requirements, which immediately stabilizes cash flow. Often, first-day motions include DIP, and subject to court approval, funding can take place the same day. A sound DIP financing agreement can create an operational runway and offer confidence to stakeholders.
We can arrange pre-petitionor post-petitiondebtor-in-possession(DIP) factoring and have experience and co-counsel nationwide.
What Is Debtor-in-Possession (DIP) Financing?
A debtor-in-possessionis a business that files for Chapter 11 bankruptcy protectionand also allows companies undergoing the bankruptcy processto obtain working capital while in bankruptcy.
Companies that have filed for bankruptcy often need liquidityto keep operating while they reorganize their liabilities. DIP financingmay allow them to quickly access funding, sometimes within hours if the plan is well-structured. This short-term funding can preserve going concern value and buy time to develop a thoughtful restructuringstrategy that benefits all secured creditors and stakeholders.
What Is a Debtor-in-Possession Financing Facility? (DIPFF)
A DIP financingfacility provides interim financing through lendersor providerswho specialize in supporting companies experiencing financial distress. These facilities often include detailed covenants, budget oversight, and protections for both the DIP lenderand existing creditors.
What Are DIP Lenders?
DIP financinglendersare financial institutions, such as banks, invoice factoring companies, or other alternative lenders, that have a niche in providing funding to companies in Chapter 11. These lenderstypically require specific highly liquid collateral, court approval, and compliance with specific reporting milestones. Many have a streamlined process and standard DIP documents to accelerate funding during a time-sensitive bankruptcy filing.
Types of DIP Financing
The three most common types of DIP financingare term loans, revolving credit lines, and invoice factoring.
Term Loans
Term loans are a kind of DIP loandesigned for businesses that need to borrow money for an extended time, usually at least one year. This allows the borrowerto pay off their debt in installments, easing immediate liquidityconstraints.
Revolving Credit Facilities
A revolving credit facilityallows the debtor-in-possessionto borrow up to a set credit limit as needed. These credit facilitiesoffer flexibility and can fund operational costs, payroll, and inventory purchases. They typically require compliance with financial covenantsand regular valuationupdates. These types of facilities are often provided by pre-petitioncreditors that are already familiar with the borrowerand financial situation.
Invoice Factoring
Invoice factoring or accounts receivablefactoring is a service where a company sells outstanding invoices to a factoring company to improve cash flow. This type of DIP financingis common for companies with a strong B2B customer base and limited access to traditional financing options. Invoice factoring is one of the most accessible forms of financing available to a business in bankruptcy with strong receivables.
Obtaining DIP Financing
Debtor-in-possession financingprovides stability and confidence to meet day-to-day cash demands such as payroll, critical suppliers, rent, utilities, pay professional fees, and manage operations, while navigating the bankruptcy process. Funds are typically secured by all available assets, which may include accounts receivable, inventory, real estate, equipment, and intellectual property.
DIP lendersreceive an administrative priority claim and repayment priority over most other creditors. With strong compliance and execution, DIP financingcan stabilize a borrower’s operations and support the development of a successful plan of reorganization.
How Does DIP Financing Work in Court?
Navigating DIP financingwithin the court system involves more than just submitting a plan. It also requires a clear understanding of legal standards, creditor protections, and procedural timing.
Court Approvaland Bankruptcy CodeRequirements
DIP financingrequires approval from the bankruptcy courtunder section 364 of the U.S. Bankruptcy Code. The debtor must demonstrate that alternative unsecured financing is unavailable and that the DIP lender’s terms, including superprioritystatus and security interests, are fair and necessary.
First‑Day Motions and Interim Orders
Debtors typically look for emergency or interim relief during first-day motions to authorize the DIP facility. The court often requires a DIP budget that forecasts expenses, addresses administrative expenses, and identifies adequate protection for existing lenders.
Protecting Pre-PetitionLienholders
When new lendersrequest priming liens over pre-petitioncollateral, courts review whether unsecured alternatives exist and whether secured creditors are adequately protected. A valuationof collateral and equity cushion are central to these discussions. In the best interests of the debtor, replacement liens will often be granted by the court to pre-petitioncreditors.
Advanced DIP Financing Options
Beyond basic funding, DIP financingcan strengthen the entire restructuringprocess. The following strategies illustrate how DIP loanscan drive operational improvement, improve negotiations with stakeholders, and position a business for a smoother transition out of bankruptcy.
Leveraging DIP Financingfor Restructuring
DIP financingcan provide benefits beyond liquidityby also strategically funding restructuringgoals. Borrowersmay use a DIP loanto enhance systems, restructureoperations, or invest in efficiency projects, which can improve value during the Chapter 11 case.
Using DIP FinancingTo Strengthen Creditor Negotiations
Well-documented DIP agreements that include reporting, covenants, and visibility help build trust with the creditors’ committeeand unsecured creditors. These agreements can facilitate smoother negotiation and plan confirmation.
Integrating DIP FinancingInto Exit Financingand Roll‑Up Agreements
Some DIP lendersoffer exit financingor roll-upstructures, where pre-petitiondebt is refinanced under the DIP loan. These deals streamline the transition out of Chapter 11 and support longer-term viability.
DIP Factoring With Gateway Commercial Finance
We offer debtor-in-possession invoice factoring.
Invoice factoring is a timely and flexible DIP funding strategy that allows companies to sell their outstanding invoices and access cash almost immediately. It’s especially useful when traditional DIP lendersare unavailable or unwilling to lend against non-traditional collateral or when the process to obtain more structured DIP financingis too cumbersome.
This process offers several benefits:
- It provides liquidityquickly, often within days of a first introduction.
- Businesses can use it to cover eligible expenses, including those approved under the order.
- It can supplement a broader DIP financingstrategy that includes term debt, a credit facility, or a roll-up.
How Can We Help Your Company and Your Attorney During the Bankruptcy Process?
Our internal team and corporate bankruptcy attorneys have extensive experience in all aspects of the DIP financing processand can support your company and your attorney at all stages of the bankruptcy filingprocess.
Pre-Petition
We can work with your attorney to structure an agreeable DIP financingpackage and help secure funding as soon as first-day motions are concluded. Our team is experienced in navigating the bankruptcy codeand drafting motions that align with court expectations.
Post-PetitionFinancing
Generally, we’ll have your account set up, and we’re simply waiting to release funds subject to court approval. Once your DIP financingplan receives court approval, we can release funds.
Exit Financing
As your business emerges from Chapter 11 protection, we can support exit financingstrategies and continue providing cash flowsolutions to help you regain stability and momentum.
Contact us today for more information. Call 1-855-374-0754 or send us a message. Our managing director will be back to you soon.
DIP financingprovides vital liquidityand plays a central role in restructuring, improving creditor relationships, and guiding your business through the Chapter 11 bankruptcy process. With structured covenants, stakeholderalignment, and strategic planning, Gateway Commercial Financehelps borrowersnavigate financial distressand emerge with confidence.
Marc Marin is a seasoned expert in business financing, author, speaker, and educator with over 20 years of experience helping companies access working capital through factoring and funding solutions. He is known for making complex financial topics clear and actionable for business owners and finance professionals.
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