When businesses are entering Chapter 11 Bankruptcy, they may see it as the end of the line. Finding any sort of financial relief can be challenging, because traditional lending channels see struggling businesses as high-risk borrowers, often leaving businesses to completely liquidate – typically at a further loss – than provide funding to help them get back on their feet. Debtor-in-possession financing, or DIP financing, offers struggling or cash-poor businesses a path forward so they can reorganize and get operations moving again.
What Is DIP Financing?
DIP financing is offered to businesses that have filed for Chapter 11 bankruptcy so they can access the funds necessary to restructure and get the supplies they need to keep running. DIP financing is approved by a court once a business presents a plan for how the funds will be used, and how the financing will prevent the dissolution of the business itself. To qualify for DIP financing, a business must demonstrate that cash collateral is insufficient to maintain operations and management is unable to obtain additional credit through any other means.
How Does DIP Financing Work?
DIP financing exists separately from financial obligations incurred after filing for Chapter 11. Because of this, any debt from DIP financing takes a higher priority than other liabilities. Once DIP financing is approved, all entities with relationships to the business – i.e. customers, vendors, suppliers, etc. – are notified that operations are still functioning. DIP financing allows businesses to provide products and services, as well as make payments to creditors during the restructuring process. To secure DIP financing, a business must present a budget that includes cash flow forecasts, expenses, payroll, and any other capital outflows. Once approved, DIP financing is provided according to terms that are structured around reorganizing the business to maintain viability.
DIP financing is typically structured as a term loan or line of credit, providing struggling businesses with the capital and flexibility they need to avoid liquidation and get a second chance.
Bull Market Capital specializes in DIP financing for struggling businesses across all industries. If you need help rightsizing your business, contact the team at Bull Market Capital today.