What is DIP Financing (Debtor in Possession)?
Debtor in possession or DIP financing is for businesses that are in financial distress and plan to file or have filed for Chapter 11 bankruptcy, to protect themselves from creditors. It is used to enable the reorganization of a business by accessing capital to support operations while their bankruptcy is under way. DIP financing is unique in that it usually has priority over existing debt, equity, and other claims for the creditor.
A typical candidate for DIP financing is able to show lenders that their company has a valid plan with a foreseeable outcome to turn its business around. This is not an option for businesses that just want to liquidate their company. The phrase ‘Debtor in Possession’ refers to the fact that the current management and board of directors still remain ‘in possession’ of the business after its Chapter 11 bankruptcy filing.
Debtor In Possession Financing can be the Answer to Overcoming Bankruptcy
Businesses in financial distress usually find that their financing sources become limited, even though it may be their time of greatest need. Their current lenders may cut off any further advances and they may also fall into default.
However, for many of these distressed businesses there is still hope for accessing new financing. Many small business owners are not aware that they can obtain financing to turn their company around after they have declared bankruptcy. If they file for Chapter 11 bankruptcy protection, they may be able to take advantage of debtor in possession financing. DIP finance will help companies get back on track, provide restructuring support, and return to being profitable.
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DIP Financing with SouthStar
SouthStar Capital brings a lot of experience to the table when working with DIP Financing. It is best for our client to come to us prior to filing for bankruptcy, so we are able to help you establish the best plan and prepare for the Chapter 11 filing. This also allows us to file directly behind your bankruptcy filing, to ensure the process is not delayed. Although coming to us before filing for bankruptcy is ideal, we may still be able to help your business if you have already filed for Chapter 11 bankruptcy.
Factoring your company’s accounts receivables is one of the most flexible forms of Debtor in Possession Financing, allowing you to obtain funding and recapitalization during the Chapter 11 bankruptcy process. Companies that factor their accounts receivables do not incur debt, but instead are advanced the capital they need from their outstanding invoices. This also helps your business re-establish its credit, so eventually you can qualify for traditional bank financing.
Benefits of SouthStar's DIP Financing
- Easy and fast qualification
- Private lender
- Fast decision making
- Protection from creditors
- Challenged credit is a non-issue
- Pre-check of customers
- Years of DIP Financing experience and insight
- No equity required
- Collections services
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“Business was good and our company was growing, but our slow paying clients had our cash flow tied up in invoices. Paying our staff on time was a constant struggle that resulted in us losing employees. SouthStar’s Payroll Funding has really turned our business around. Now I have the cash I need to pay employees on time and I’ve used the extra funds to take on more clients.”
– Andrew, Owner of a Distribution Company