Debtor in Possession (DIP) Financing is a type of financing that helps businesses in distress find new funding sources to carry on operations as usual. DIP financing can help a company dealing with bankruptcy get back on its feet. It is usually difficult for these businesses to obtain traditional financing as lenders may suspend services.
Under chapter 11 bankruptcy protection, a business can take advantage of Debtor in Possession Financing. This type of financing is available to companies that lenders feel have a credible plan to turn themselves around. It is not for companies wanting to liquidate. When in repayment, DIP financing loans are prioritized over additional debt, equity, and creditor claims. Many small businesses are unaware of the advantages of DIP loans.
How does DIP Financing work?
Once a business enters chapter 11 bankruptcy and finds a willing lender, the bankruptcy court still has to review and decide if approval is granted. There must be a security interest in the collateral, a premium interest rate, and an approved budget for DIP financing. The loan is dependent on the bankruptcy court’s approval of the DIP loan being made in good faith. The distressed business needs to obtain the existing lender’s consent to the new loan and prove they will be protected under the Bankruptcy Code.
A distressed company about to file or who has already submitted a bankruptcy filing can take advantage of DIP financing. The company can obtain the working capital they need to restructure and continue operating the business.
Accounts Receivable Factoring in DIP Financing
DIP financing also uses accounts receivable factoring as a financing tool. During the bankruptcy process, accounts receivable factoring can be a flexible way to obtain cash flow and funding. The distressed company receives the funding to operate not based on its credit but instead on the value of invoices and creditworthiness of customers. The factor also takes priority under the Bankruptcy Code.
How Porter Capital provides DIP Assistance
- Porter Capital can replace existing lenders in bankruptcy. If the existing lender wants out of a credit line secured by A/R, inventory, equipment, and/or real estate for a company entering bankruptcy, Porter Capital is a good fit. The existing lender is made whole on its entire loan.
- Porter Capital’s rates are very similar to non-bankruptcy financing, and factoring is an excellent tool for companies seeking a credit line when entering bankruptcy.
- If there is not a current lender, Porter Capital can offer financing secured by the company’s current or long-term assets.
Porter Capital structured a $13MM DIP Asset-Based Credit Line secured by the following assets and limits:
- $6MM A/R Loan
- $4MM PPE Loan
- $3MM Inventory Loan
If you have clients in the process of filing for bankruptcy or who have already filed, click here, and we can help them out.
Reasons to Secure DIP Funding
Businesses experiencing bankruptcy are in a unique situation — they need to restructure their business with only the limited resources available. With Debtor in Possession financing, companies can bounce back from bankruptcy and take advantage of greater working capital. Porter Capital’s DIP financing offers high-limit loans and lines of credit so your business can do its best with what it has. Companies choose DIP loan services to:
- Increase cash flow: With working capital, your business can make the appropriate decisions to reformat its goals and structure.
- Improve flexibility: Our DIP financing services allow companies to get what they need from their loan and enjoy new profits over time.
- Support their transition: Debtor in Possession lenders support your business as it goes through a vulnerable period.
Choose Porter Capital for DIP Financing Assistance
At Porter Capital, we are ready to discuss your DIP financing needs today. After more than 30 years in lending services, we know how to help businesses get back on their feet. We partner with various companies, each with unique working capital needs. Regardless of your budget, you can trust our DIP funding options to be an asset as you create new growth.
With DIP financing services, your business can soar to new heights. Porter Capital is eager to help you start. Invest in your company’s success with a strategic DIP loan or line of credit today! Apply online or contact our team to learn more about your options.