Debtor-in-possession (DIP) financing is a type of financing that companies with financial problems and going through Chapter 11 bankruptcy receive. It allows companies a fresh start financially, but still applies some restrictions that each company must follow.
Many financial institutions compete with each other to provide debtor-in-possession loans to bankrupt companies, so if your company is on the verge of bankruptcy, but you would still like to operate, it is possible to obtain a loan to pay for daily costs.
A company referred seeking a debtor-in-possession loan typically has the following aspects after filing bankruptcy:
1. It is still managed by the same people as before the bankruptcy.
2. The company nearly always needs an immediate loan after filing for bankruptcy just to cover payroll and other ongoing business costs.
3. The company is always held to strict rules after receiving a debtor-in-possession loan, protecting the debtor-in-possession lender.
Action Steps
The best contacts and resources to help you get it done
Know if you qualify for debtor-in-possession (DIP) financing
If you are interested in getting a DIP loan, make sure you first know the rules you must follow and the steps you need to take to get started, or if you are even qualified to get a loan of this type.
I recommend: GE Commercial Finance explains why it offers DIP financing and to whom they offer it. The
Department of Justice United States Trustees Program website also explains DIP Financing and guidelines that the candidate for such financing needs to know.
Find a good lawyer who has worked with debtor-in-possession financing
Hire a lawyer who is well-versed in debtor-in-possession lending to represent your company. This will make the process run smoothly, especially if this is your first loan since bankruptcy. Most lawyers can give some advice regarding Debtor-in-Possession Financing, even if you decide not to use that particular lawyer.
I recommend: Sheppard Mullin Richter & Hampton LLP provides details about the options when entering into DIP Financing.
Robert J. Haeger also assists those dealing with bankruptcy issues.
Find an experienced DIP lender
It is best to work with a company that specializes in debtor-in-possession lending. Once you have outstanding legal backing and a helpful lender, the experience will be a positive one.
I recommend: Commercial Capital LLC offers DIP lending to businesses with at $500,000 in annual sales.
CapitalSource offers DIP loans as one of its financial services.
Tips & Tactics
Helpful advice for making the most of this Guide
- If you are not sure where to get started, talk to your local bank or credit union. They will typically provide you with free counsel before you spend money on a lawyer only to find that you do not qualify for a DIP loan.
The official source of Debtor-In-Possession (DIP) Financing is
the Debtor-In-Possession (DIP) Financing page at Business.com
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