| Own a company in chapter 11 bankruptcy and need | | | | alternative for most debtor in possession companies, |
| financing? Read this article to learn about DIP | | | | are there other alternatives? In fact, there are. |
| financing. Going through a chapter 11 bankruptcy | | | | There is an option that is usually overlooked by most. |
| processes can be one of the most harrowing | | | | It's called factoring. Furthermore, as opposed to |
| experiences that a business owner can go through. | | | | other alternatives, it's easy to obtain and setup. If |
| You will have to deal with the courts' involvement in | | | | your company sells products or services to other |
| your business and deal with endless negotiations with | | | | businesses (or government agencies) you most likely |
| your secured and unsecured creditors. You will also | | | | have to wait 30 to 60 days to get your invoice paid. |
| have to deal with the uncertainty of not knowing | | | | Waiting to get paid can negatively impact your |
| whether your business will survive the process. One | | | | liquidity, as you will need the funds to pay suppliers, |
| way to help your chances of business survival is to | | | | employees and other business expenses. By factoring |
| obtain debtor in possession financing. Debtor in | | | | your invoices, you can get an advance on your slow |
| possession financing is a type of financing that is | | | | paying invoices. This provides you the cash liquidity |
| extended to companies that are about to go or are | | | | you need to meet your payment obligations. |
| undergoing chapter 11 reorganization. It provides the | | | | Qualifying for accounts receivable factoring tends to |
| company with the liquidity that is needed to operate | | | | be a lot easier than obtaining other types of financing. |
| through the reorganization process and provides the | | | | The biggest requirement is that you do business with |
| lifeline that may help the company emerge from the | | | | reputable commercial or government clients. It also |
| bankruptcy process. Most conventional debtor in | | | | works best if one of your biggest challenges is lack |
| possession financing is hard to obtain and usually not | | | | of liquidity due to slow paying clients. Generally, |
| readily available to small and medium sized companies. | | | | factoring financing lines can be established very |
| For example, few banks will provide business | | | | quickly. However, debtor in possession financing |
| financing to bankrupt companies. This is | | | | requires the approval of the court and of your |
| understandable, as banks usually provide business | | | | secured (or senior) lenders, which should be taken |
| loans to companies that have solid financials, hardly | | | | into consideration. In summary, receivables factoring |
| the case for a company going through a chapter 11 | | | | remains a strong a viable alternative that need |
| reorganization. Since a business loan is not an | | | | flexible debtor in possession financing. |