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What Is DIP Financing?

DIP, or Debtor-in-possession, financing is a specific type of financing available for companies in Chapter 11 bankruptcy. With several types of DIP financing available, you are more likely to be able to pull your company out of bankruptcy while remaining in operation. 

Access to funds is necessary for successful restructuring, and there are financial companies out there ready to help see your business succeed once again. Filing Chapter 11 bankruptcy can be a hard thing to face.

However, knowing that you could have the support you need to make a profitable comeback is everything. Reach out to the experts who know the trucking industry and get financed in a way that works for both you and your company. 

How Does DIP Financing Work?

DIP financing can allow companies that have filed for Chapter 11 bankruptcy protection to continue operating while obtaining funds. They can raise capital to finance their business during the process of their bankruptcy case. 

DIP financing can be beneficial for companies in decline. Also, DIP financing generally takes priority over any existing debt, claims, and equity. This is because the goal is to allow the company to continue operating as they rebuild their business with the purpose of making a profit and being able to pay off existing debts.

Willing lenders work with companies to create restructured plans and loans that the bankruptcy court will approve. There are specific legal requirements for these new loans. With these loans, the company can let their vendors, suppliers, and the like know they are able to make payments and remain in operation. 

Who Qualifies For DIP Financing?

DIP financing is only available for companies that have filed for Chapter 11 bankruptcy. This shows the lenders and the courts that the company wants to restructure and continue operation instead of liquidating. 

What Does Chapter 11 Include?

Chapter 11 bankruptcy is often referred to as reorganization bankruptcy. Those in Chapter 11 bankruptcy are typically aiming to keep their company alive by restructuring their business plan, paying off existing debts, and becoming profitable. 

To avoid liquidation of all companies in decline, DIP financing is available to those who qualify. While not every company will qualify for this type of financing, with the right lenders and business plan, you could see your company thrive once again.  

Timing of DIP Financing

DIP financing is a time sensitive option. This type of financing is generally addressed before the bankruptcy filing and it is often approved at your first bankruptcy hearing as well. If you are in breach of bankruptcy, filing quickly is important. 

Choices of DIP Financing

Typically, term loans and invoice factoring are the most popular types of DIP financing. Term loans may allow the company to borrow cash upfront while agreeing to a specific repayment schedule with designated interest rates. 

Other borrowing terms will likely apply. Invoice factoring is also known as accounts receivable financing. 

This allows the company almost instant access to working capital by leveraging their unpaid invoices. This means that the company is selling their invoice(s) to a lender for a set percentage of the invoice. 

Benefits of Using an Invoice Factoring Company for DIP Financing

Invoice factoring companies can help provide a steady cash flow which provides the financial flexibility so many companies require for operation. Invoice factoring helps companies get funds without credit having an impact. 

There are invoicing factoring companies meant specifically to help trucking companies and owner-operators. Thankfully, they know the trucking industry and what it takes to run a successful trucking company. 

With the right invoice factoring company financing your operations, you won’t have to worry about delaying payments for your invoices any longer. 

Easier to Obtain

A major benefit of invoice factoring is that it is easier to obtain than conventional financing and traditional term loans. Because it uses accounts receivable as the main source of collateral, your previous financial history is often not considered. 

Banks can have strict qualifications for their traditional loans and this can make obtaining one difficult for certain business owners. Bank loans are also known to have a much longer application and approval process. 

Predictable Cash Flow

A stable cash flow is a huge advantage of invoice factoring. Instead of having to wait to get paid, you can submit your invoices to an invoice factoring company and get paid right away. 

When you don’t have to worry about whether or not your customers will pay their invoices, you can instead focus on your company’s operations with confidence since you’ll know that you have the necessary cash flow that you need to run a successful business. Obtain a steady cash flow without the risks of traditional bank loans. 

Factoring Grows With Your Sales

Invoice factoring can also help you grow your sales with less chance of risk. Since you’ll have a stable cash flow, you won’t have to turn down clients who may take longer to pay their invoices. Slow payment terms don’t have to intimidate you any longer. 

Those who invoice factor through DIP financing generally have a greater chance of emerging from Chapter 11 bankruptcy. This is largely because unlike loans, you won’t accumulate debt when you choose the right invoice factoring company. 

Precautions with DIP Financing

While DIP financing is an appealing financial option for many declining companies, there are risks to consider before you agree to this form of financing. If you don’t properly review the contract terms, you could risk losing control to third party lenders. 

Of course, the ability to have a stable cash flow is desirable, but there will be fees that you need to consider beforehand. There will also likely be contract terms to consider. 

Even if you end up profiting earlier than you thought, you may still be committed to using an invoice factoring service for the duration of your contract. There are experts in this area and they can help you decide on the right financial move today. 

Secure the Funds You Need Without Debt! 

Running a profitable business is rewarding and tough. If you have regular customers that don’t pay invoices on time, it can delay how timely you can pay your own. This can put you in the red or on bad terms with vendors, both unpleasant scenarios. 

With DIP financing, you could secure the steady cash flow you need to keep bills paid on time without question. Contact the right financial company today to see if DIP financing could be the answer to your cash flow struggles. 

TAFS is More than Freight Factoring

As one of the industry leaders, TAFS assists trucking companies to increase cash flow with some of the lowest factoring rates in the industry and 1-Hour Advance option.

TAFS is More than Freight Factoring

As one of the industry leaders, TAFS assists trucking companies to increase cash flow with some of the lowest factoring rates in the industry and 1-Hour Advance option.