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DIP Financing Made Simple

If Your Company Is In Transition, You Still Have Good, Affordable Options For Financing

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Debtor-in-possession (DIP) financing allows a company to secure additional financing for the ongoing operations of the business throughout its Chapter 11 bankruptcy. DIP financing enables a company to continue to pay employees and suppliers while it restructures and stabilizes its business.

CFI works directly with bankruptcy attorneys to streamline the DIP financing process to get clients the funds they need.

How DIP Financing Works During the Chapter 11 Bankruptcy Process

To best serve the needs of the debtor-in-possession, an understanding of the DIP financing needs is critical to the success of the restructuring process. Below is a quick guide on what to expect throughout the DIP financing process.

  • Step I - Client engages bankruptcy counsel and files Chapter 11 bankruptcy.
  • Step II - DIP financing plan presented to court for approval.
  • Step III - Bankruptcy counsel proposes an exit plan to include exit financing if needed
  • Step IV - Company executes plan and is back to business

Additional Details Below:

Step I: Engaging bankruptcy counsel & filing Chapter 11 bankruptcy

  • Gather information about all assets and outstanding debts (including everything from lines of credit, promissory notes, judgements, etc.)
  • File bankruptcy petition
  • Prepare and file the schedules listing assets and liabilities

 

TIP: CFI can be engaged before the filing of a bankruptcy petition so that funding can be available immediately upon court approval at the beginning of a case.

Step II: DIP financing plan and court approval

  • CFI’s in-house counsel works with the client’s bankruptcy attorney to prepare and file the motion and proposed order.
  • Court approves DIP financing plan that typically lasts throughout the duration of the bankruptcy.

 

TIP: CFI has an in-house team that is ready, prepared, and has the knowledge to help draft the motion and proposed order allowing CFI to readily provide funding.

Step III: Exit plan development, exit financing, and court approval

  • Prove feasibility of the plan (convincing the court that the client can actually make the payments according to the plan); the cash flow created by the approved DIP financing motion makes it easier to prove feasibility.
  • Court approves exit plan.

 

TIP: DIP financing can be converted to Exit Financing or CFI can provide exit financing if there was no DIP financing or the client is not satisfied with its existing DIP lender.

Step IV: Getting your clients back to business as usual

  • Exit financing- If your client has come to us for traditional DIP financing but needs ongoing financing to implement the plan, we are ready, prepared, and able to help prepare a motion for exit financing so your client can get back to business as usual.

TIP: Our partnership with your client throughout the bankruptcy creates a strong foundation to work together to see your client’s business prosper once they exit the bankruptcy.

The Benefits of DIP Financing

Companies in bankruptcy are usually experiencing inherent cash flow challenges and conventional lenders are usually unwilling to assist them with traditional loans. DIP financing can bridge the gap during the restructuring process and provide funding for:
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  • Operation and overhead costs
  • Payroll
  • Legal fees

In addition, with DIP financing in place, the company has access to capital to work better with its creditors, thus leaving more time to address and correct organizational, financial, and operational issues.

Overall, debtor in possession financing gives the company the ability to remain in possession of the business after the Chapter 11 bankruptcy filing and provides them with the financing, time and resources to reorganize for a fresh start.

The Benefits of DIP Financing with CFI

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  • Swift Approvals
  • Timely Funding
  • Efficient Collections
  • Pre-Petition, Post-Petition & Exit Financing Available
Why Attorneys and Our Clients Choose Commercial Funding for DIP Financing:
Get a proposal to your client quickly:

If your client provides the necessary documents quickly, we’ve been able to provide proposals within a few hours.

Our team is dedicated to supporting attorneys and clients throughout the DIP financing process and beyond:
Our expert knowledgeable staff has significant DIP financing experience, can expedite the funding process, and provide exit financing.
Our internal legal support is second to none:
Our internal team understands the stress and nuances of a Chapter 11 bankruptcy. We understand that as a DIP or bankruptcy attorney you may not get the support you need from other institutions. Consequently, we’ve developed an internal procedure and requisite documentation to streamline the process.

 

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DIP Financing FAQ’s:

 

Q. What can a prospective client do to speed up the DIP financing process?

A. We need a signed letter of intent (supplied by us, outlining the general terms of the financing), the application, W9, certificate of insurance, customer address list, and current account receivables aging report.

Q. How quickly can CFI fund on purchased invoices after the court approves the motion?

A. The verification process that precedes funding can move very quickly but is dependent on the responsiveness of the bankruptcy client’s customers (also known as account debtors). If CFI receives the information from the account debtors quickly, funding can occur in as little as a few hours.

Q. How can factoring help a company facing a Chapter 11 bankruptcy?

A. By purchasing the invoices, the client gets funded faster than if they wait for their customers to pay the invoice. This provides a more predictable and steady income stream that the company can use for a court approved cash collateral order (which allows the entity that just filed bankruptcy to spend their cash on hand while in bankruptcy).

Q. Is DIP financing a loan or an advance?

A. DIP financing is a term for providing liquidity during the bankruptcy process. The three most common types of DIP financing are: a traditional loan, a line of credit, and factoring.

Q. What industries will CFI work with?

A. CFI works with a wide array of industries including logistics, manufacturing, oil and gas, staffing, transportation, and waste disposal. Our clients are all business-to-business entities, meaning they invoice other companies (not consumers) for products and services provided.

Q. Will CFI factor pre-petition invoices, post-petition invoices, or both?

A. If there is no lien on pre-petition invoices (invoices for work done prior to the bankruptcy filing) we may be willing to purchase them. Certainly, we are willing to purchase post-petition invoices upon court approval and completion of our underwriting and approval process.

Q. Does CFI provide DIP financing to companies filing Chapter 11 bankruptcy under Subchapter V?

A. Yes, CFI can absolutely work with companies filing under these new bankruptcy provisions.

Q. When is the best time to apply for DIP financing?

A. CFI is able to help your client at any stage of their bankruptcy journey. That said, CFI is able to help with the fewest complications early on in the bankruptcy. We have had excellent results when we have the opportunity to partner with companies from the earliest stages of this journey, before the bankruptcy case is even filed.

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