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.