Financing the debt while on bankrupt situation may be really possible. Aside from the help of bankruptcy attorney San Diego, discussed here is one of the financing methods while on bankruptcy scenario. Its detailed information for this financing option and the ways to obtain it are all discussed here.
The DIP Financing
DIP or the Debtor-in-Possession financing is a specialized method of financing specifically offered for establishments or businesses under bankruptcy. Moreover, this financing method is utilized to operate the reorganization of a debtor-in-possession or a business state that filed for bankruptcy. DIP financing permits to heighten the capital in order to fund their business as bankrupt situation runs their course. Furthermore, the difference of DIP financing which makes it stand out from other methods is its prioritization over the present debt, equity, and claims.
DIP financing is only applicable to those establishments that filed bankruptcy protection covered by Chapter 11. They are permitted to have an access with the DIP financing that usually occurs at the very beginning of the filing process.
How to obtain DIP Financing
At the start of the filing process, DIP financing also begins hand-in-hand. Yet, most of the time, establishments that have lots of struggles may take advantage from the protection of the court. This will eventually cause delay of filing out of failure to receive the reality of the scenario.
Seniority
The Chapter 11 of bankruptcy states that the moment a company enters into this stage and seeks for a lender, the company must have to acquire for an approval from the court of bankruptcy. Under the law of bankruptcy, it caters the lender with enough comfort in offering financial assistance to establishments or businesses under distress. Lenders recognized by DIP financing are provided with much focus on the assets based on the liquidation of the business, approved budget, interest rate, and added measures included in the warrants.
Approved budget
The budget is one of the essential areas of financing under DIP. Included in the so-called DIP budget are the company’s receipts forecast, expenditures, cash flow, and outflows. Moreover, in DIP financing, the following must be taken into consideration: payments schedules, professional fees, receipts’ variations, and capital outlays, if there is any.
Loan types
The DIP financing works generally through term loans. Loans under this option are completely funded via the process of bankruptcy. This simply means that the borrower may have a greater cost of interest. Moreover, one must be guided with an introduction of long term loans.
