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.
Know if you qualify for debtor-in-possession (DIP) financingIf 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.
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 financingHire 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.
Find an experienced DIP lenderIt 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.
- 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.