When a client files for Chapter 11 bankruptcy, access to capital can be the key variable between a successful reorganization and a forced sale or liquidation. As a legal advisor, knowing when to explore Debtor-in-Possession (DIP) financing can make all the difference in your strategy—and your client’s outcome.
At Edgewater Lending, we regularly partner with attorneys and advisors to provide real estate-secured DIP and exit financing. Based on our experience, here are the three most common indicators that it may be time to bring a lender into the conversation.
1. Trouble Securing Traditional Refinancing While in Chapter 11
Many borrowers enter bankruptcy assuming they’ll be able to refinance once they reorganize or confirm a plan. But in practice, lenders are hesitant to issue conventional debt to a borrower mid-case or post-filing—particularly if the asset isn’t fully stabilized or the market conditions are volatile.
If a client is struggling to secure a term sheet from traditional lenders—or is getting stuck in underwriting purgatory—DIP financing may be a way to:
- Provide working capital
- Satisfy creditor claims
- Bridge to a future refinance or sale
DIP loans are specifically structured for borrowers in Chapter 11, and they are often granted superpriority status by the court to attract lender participation.
2. A Viable Asset, But No Working Capital
A distressed balance sheet doesn’t always mean a distressed property.
We regularly see debtors with valuable assets—multifamily buildings, retail centers, development land—but no access to operating capital. They’re unable to pay vendors, cover insurance, or fund critical improvements needed to generate revenue. And without liquidity, their ability to reorganize is limited.
DIP financing can inject capital quickly to:
- Maintain operations and prevent further asset decline
- Preserve tenant relationships
- Avoid unnecessary pressure from creditors or utility providers
This is especially important in single-asset real estate bankruptcies, where the value is tied directly to property performance.
3. A Short Window to Meet Creditor or Court Obligations
Timing is everything in bankruptcy. If a debtor needs to pay secured creditors to avoid lift-stay motions, satisfy plan milestones, or finalize a 363 sale, short-term DIP capital can be the difference between hitting deadlines and missing opportunities.
We’ve funded DIP loans in as little as 10–14 days, allowing clients to meet court-imposed requirements or take advantage of fast-moving deal structures. When exit financing is delayed—or when there’s no room for delay—DIP funding can preserve leverage and avoid defaults.
How to Spot DIP Potential Early
If you’re advising a client in Chapter 11 and seeing any of the following signs, it may be time to consider DIP financing:
- Lenders won’t issue term sheets
- The client has equity, but no liquidity
- The plan hinges on short-term obligations or sales
- You’re worried about foreclosure pressure or loss of control
Edgewater Lending: Your Capital Partner in Bankruptcy
We work closely with attorneys and trustees to underwrite and fund DIP loans quickly, with terms that reflect court structure, exit plans, and the unique pressures of bankruptcy cases. Whether it’s a stopgap or a bridge to stability, we provide fast, thoughtful solutions that support—not complicate—your legal strategy.
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