Cash is king everywhere, but it reigns supreme in the business world since every company needs enough funding to survive for the long term. Generating sufficient capital is the first step that can make or mar the life of a business, but other expenses can slow down your growth since you also have to cover for factors that sustain your new venture.
There’s no doubt that spearheading a small business can be tough, especially when you run into blunders that leave your company strapped for cash. When you’re financially struggling, you can borrow money to renew your company’s vigor by getting credit from vendors, financing from commercial banks or other lenders, or obtaining equity infusions if you have shareholders.
All these financing options give your business a second chance to get back on its feet, but there is a better alternative for those stuck in a bind and facing bankruptcy: Debtor in Possession (DIP) Financing.
What Is Debtor in Possession (DIP) Financing and Why Should You Consider It?
A Debtor in Possession financing is a type of financing that aids businesses struggling to generate income and find the right funding sources to help them sustain their daily operations. DIP financing is the right choice for businesses struggling with chapter 11 bankruptcy, which involves searching for a willing lender with the approval of the bankruptcy court.
Keep in mind that the bankruptcy court plays a pivotal role, so you need to get their approval first before moving forward with the loan. Seeing as DIP financing involves high risks from borrowers, you will need to provide a security interest in the form of collateral with a premium interest rate.
How Can DIP Financing Turn Your Business Around?
With that in mind, DIP financing can bridge the gap in your operations and restructuring processes by covering the following critical expenses:
- Operation and overhead costs;
- Legal fees;
DIP financing also allows you to access the capital, which means you have more room to correct any organizational, financial, or operational mistakes that led to your bankruptcy in the first plac