When to Consider Debtor-in-Possession Financing—and Why It Matters
In Chapter 11 bankruptcy, timing and liquidity are often the difference between a successful reorganization and a forced liquidation. For legal advisors working with real estate owners or business operators, one of the most strategic tools available is Debtor-in-Possession (DIP) financing.
DIP loans allow debtors to access capital during the bankruptcy process, enabling them to stabilize operations, meet plan obligations, and retain control while pursuing a path forward.
But how do you know when DIP financing is appropriate? And what should you expect from a lender in these situations?
Here’s a quick breakdown of what DIP financing is, how it works, and three signs that it may be the right move for your client.
What is DIP Financing?
DIP financing is a type of post-petition loan that provides capital to a debtor who has filed for Chapter 11. Unlike traditional loans, DIP financing must be approved by the bankruptcy court and is typically granted superpriority status, placing the lender ahead of prepetition unsecured creditors.
This type of financing is especially useful in real estate-driven bankruptcies, where asset value exists but liquidity is constrained—and time is of the essence.
Three Signs DIP Financing May Be the Right Fit
1. The Debtor Cannot Secure Traditional Financing During Chapter 11
Even if the underlying asset is strong, many banks and credit unions won’t lend to a borrower mid-bankruptcy. Their internal policies restrict loans to active debtors, leaving few options at a critical time.
DIP lenders step into that gap, offering real estate-backed capital based on asset value—not just credit or cash flow.
2. The Client Has a Viable Asset—but No Working Capital
This is common with single-asset bankruptcies. A borrower may own a commercial property with tenants or future value—but they can’t cover operational costs, legal fees, or plan-related payouts.
DIP financing provides the runway to maintain the asset and execute the plan.
3. Court or Creditor Deadlines Are Approaching
A DIP loan can provide the liquidity necessary to meet urgent deadlines tied to plan confirmation, 363 sales, or creditor negotiations. Fast access to capital can make or break a restructuring timeline.
Why Edgewater Lending?
At Edgewater Lending, we specialize in court-conscious capital that fits within the framework of active Chapter 11 cases. We work in tandem with attorneys and trustees to close DIP loans quickly—often within 10–15 business days—and structure them in a way that supports, rather than complicates, your client’s case.
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