You can get financing while in Chapter 11 Bankruptcy. The bankruptcy 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’re contemplating filing Chapter 11 or have already filed a bankruptcy case, access to post-petition working 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-petition or post-petition debtor-in-possession (DIP) factoring and have experience and co-counsel nationwide.
What Is Debtor-in-Possession (DIP) Financing?
A debtor-in-possession is a business that files for Chapter 11 bankruptcy protection and also allows companies undergoing the bankruptcy process to obtain working capital while in bankruptcy.
Companies that have filed for bankruptcy often need liquidity to keep operating while they reorganize their liabilities. DIP financing may 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 restructuring strategy that benefits all secured creditors and stakeholders.
What Is a Debtor-in-Possession Financing Facility? (DIPFF)
A DIP financing facility provides interim financing through lenders or providers who specialize in supporting companies experiencing financial distress. These facilities often include detailed covenants, budget oversight, and protections for both the DIP lender and existing creditors.
What Are DIP Lenders?
DIP financing lenders are 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 lenders typically 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 financing are term loans, revolving credit lines, and invoice factoring.
Term Loans
Term loans are a kind of DIP loan 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, easing immediate liquidity constraints.
Revolving Credit Facilities
A revolving credit facility allows the debtor-in-possession to borrow up to a set credit limit as needed. These credit facilities offer flexibility and can fund operational costs, payroll, and inventory purchases. They typically require compliance with financial covenants and regular valuation updates. These types of facilities are often provided by pre-petition creditors that are already familiar with the borrower and financial situation.
Invoice Factoring
Invoice factoring or accounts receivable factoring is a service where a company sells outstanding invoices to a factoring company to improve cash flow. This type of DIP financing is 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 financing provides 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 lenders receive an administrative priority claim and repayment priority over most other creditors. With strong compliance and execution, DIP financing can stabilize a borrower’s operations and support the development of a successful plan of reorganization.
How Does DIP Financing Work in Court?
Navigating DIP financing within 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 Approval and Bankruptcy Code Requirements
DIP financing requires approval from the bankruptcy court under 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 superpriority status 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-Petition Lienholders
When new lenders request priming liens over pre-petition collateral, courts review whether unsecured alternatives exist and whether secured creditors are adequately protected. A valuation of 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-petition creditors.
Advanced DIP Financing Options
Beyond basic funding, DIP financing can strengthen the entire restructuring process. The following strategies illustrate how DIP loans can drive operational improvement, improve negotiations with stakeholders, and position a business for a smoother transition out of bankruptcy.
Leveraging DIP Financing for Restructuring
DIP financing can provide benefits beyond liquidity by also strategically funding restructuring goals. Borrowers may use a DIP loan to enhance systems, restructure operations, or invest in efficiency projects, which can improve value during the Chapter 11 case.
Using DIP Financing To Strengthen Creditor Negotiations
Well-documented DIP agreements that include reporting, covenants, and visibility help build trust with the creditors’ committee and unsecured creditors. These agreements can facilitate smoother negotiation and plan confirmation.
Integrating DIP Financing Into Exit Financing and Roll‑Up Agreements
Some DIP lenders offer exit financing or roll-up structures, where pre-petition debt 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 financing through a service called invoice factoring.
Invoice factoring is a flexible DIP funding strategy that allows companies to sell their outstanding invoices and access cash almost immediately. It’s especially useful when traditional DIP lenders are unavailable or unwilling to lend against non-traditional collateral or when the process to obtain more structured DIP financing is too cumbersome.
This process offers several benefits:
- It provides liquidity quickly, 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 financing strategy 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 process and can support your company and your attorney at all stages of the bankruptcy filing process.
Pre-Petition
We can work with your attorney to structure an agreeable DIP financing package and help secure funding as soon as first-day motions are concluded. Our team is experienced in navigating the bankruptcy code and drafting motions that align with court expectations.
Post-Petition Financing
Generally, we’ll have your account set up, and we’re simply waiting to release funds subject to court approval. Once your DIP financing plan receives court approval, we can release funds.
Exit Financing
As your business emerges from Chapter 11 protection, we can support exit financing strategies and continue providing cash flow solutions 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 financing provides vital liquidity and plays a central role in restructuring, improving creditor relationships, and guiding your business through the Chapter 11 bankruptcy process. With structured covenants, stakeholder alignment, and strategic planning, Gateway Commercial Finance helps borrowers navigate financial distress and 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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