Debtor-in-Possession financing (or DIP financing) is an often overlooked solution for businesses that are facing bankruptcy or restructuring. DIP financing is an essential way to keep distressed businesses cash-fluid while they are going through the Chapter 11 process.
How DIP Financing Works
At its heart, DIP financing is extended credit designed to meet the working capital needs of businesses that are seeking bankruptcy protection. DIP financing provides businesses with immediate cash to sustain operations and maintain liquidity throughout their reorganization during bankruptcy.
Why Access to DIP Financing is Important
Debtor-in-Possession financing is nothing new, but the need for DIP financing has come to the forefront. The COVID-19 pandemic led to many businesses downsizing, and some had to put operations on hold for months. As the pandemic stretched into the second, third, and likely fourth-quarter of 2020, some businesses could not sustain themselves, even with scaled-down operations. While the CARES Act does make provisions for financing alternatives, borrowers need to be creditworthy. This can cause problems for businesses that have pushed their own credit to the limits to keep operations running through the pandemic.
Using Factoring as DIP Financing
Many businesses are using factoring as a form of DIP financing. Accounts receivable factoring is perhaps the most flexible way to get DIP financing through the restructuring process of Chapter 11. Since factoring is not based on the creditworthiness of your business, you can leverage unpaid invoices for immediate capital without placing additional debt on the books or signing over assets to a bank. Since factoring is not offered by traditional lenders, the option is frequently overlooked by struggling businesses in need of assistance.
If your business is in need of Debtor-in-Possession financing for restructuring, contact the team at New Century Financial. We provide comprehensive factoring services, as well as DIP financing options for businesses nationwide. When the going gets rough, you want a financing partner who is on your side to help you get the outcome you want. Contact New Century Financial today to learn more.