What is DIP (Debtor–In-Possession) Financing and how is it beneficial for distressed businesses or companies?
Debtor-In-Possession Financing or DIP Financing is offered to the companies when they file for Chapter 11 bankruptcy under the US bankruptcy code. Moreover, it provides the distressed businesses with the cash flow or financial resources that they need to meet business expenses and as well help them to turn up quickly from the bankruptcy.
What do we mean by DIP Financing or Debtor-In-Possession Financing?
DIP Financing is a special kind of funding granted to the companies under financial crisis and as well under Chapter 11 bankruptcy process. It is also unique from other financing processes because of its superiority over existing debts, equity and other claims. It gives financially distressed companies a chance to make a new start but under the restricted terms and conditions.
What are the benefits of DIP Financing to the companies facing financial crisis?
DIP Financing resolves myriad of the purposes of the debtors including:
- Allows the debtors to operate during the Chapter 11 bankruptcy
- Provides protection to the pre-petition lenders as well for their outstanding debt
- Helps to keep positive cash flow and operations up and running
- Provides time to the companies to resolve their issues with their stakeholders, lenders and purchasers
- Enables the companies to take advantage of market opportunities
- Assists in meticulous liquidation of few or all the assets of a debtor
- Lessens the risk of delinquent debt
- Provides companies a platform to grow and as well offers substantial flexibility
- Re-establishes suppliers’ and customers’ confidence and faith in the company by providing uninterrupted services to the customers and meeting the obligations of the suppliers
- Provides funds to the companies to work out a resolution with the lenders before going to the court, thus helping the debtors to appear in bankruptcy court with a pre-packaged settlement
- Crucial to difficult restructuring process as it accelerates the cash flow.
- If managed and executed properly DIP Financing can result in rejuvenilled business and reduced percentage of debt in the balance sheet
Contact Wani and Associates P.C., if your business is facing any economical or financial crises. Our experienced and acknowledged team will lend you diligent support and advice to help you to turnaround your distressed business.