What is debtor-in-possession (DIP) financing?
- Debtor-in-possession financing (DIP financing) is specifically geared toward companies that are financially distressed and in bankruptcy.
- A “debtor-in-possession” is the legal term for a company that has filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, but is still in “possession” of the property in question.
- As such, the company still needs to operate the business during the bankruptcy proceedings.
- That’s where DIP financing comes in.
- Usually in the form of a short-term bridge loan, DIP financing gives the company the liquidity it needs to pay its vendors and suppliers, continue its day-to-day operations, and otherwise stay afloat during the bankruptcy.
Sample loan programs for companies in bankruptcy
Lenders that specialize in DIP financing are usually willing to consider all commercial property types, and typically offer the following terms:
- Loan amount: Some lenders offer ranges such as $500,000 to $20 million. Others offer $250,000 minimum and no maximum.
- Loan-to-value ratio (LTV): Some lenders are willing to go up to 65% or even 80%.
- Term: The terms are typically short, ranging from six months to three years, with the possibility of interest-only payments and no prepayment penalties.
- Closing time: Lenders recognize the urgency of the situation and endeavor to close within two weeks, for example.
Book a call with us today
Lending in the Time of COVID-19 (Volume 5): S.O.S.! I need help with the mortgage loan on my commercial real estate!
In this series of guides ("Lending in the Time of COVID-19"), we explore your mortgage loan options, despite the...
In this series of articles (“Beyond Banks”), we explore borrowing opportunities from ALL sources, not just your...
Bank Turndowns (Volume 10): Are you looking for debtor-in-possession (DIP) financing to keep you afloat during bankruptcy?
If you are contemplating filing for bankruptcy on behalf of your company, looking for a new loan may be the last thing...
Send Us A Message