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 cut them off.
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. DIP financing usually has priority over existing debt, equity, and other claims from the creditor. 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 must approve it.