Bankruptcy Filing Tips

The Bank's Debtor in possession financing option

It is a known fact that companies that obtain bankruptcy financing have a probability much greater than that arising from Chapter 11 as a viable company than those who do not guarantee the debtor in possession financing. However, obtaining DIP financing has always been a challenge. There is the obvious reason that companies can be bankrupt investment risk for commercial finance companies, and not many businesses offer the product. And mostly, the DIP financing has only been offered by banks and corporate finance businesses to large enterprises. Because of this, many companies SMEs were never able to secure funding and went into bankruptcy.

Recently, the trend has been reversed and a number growing financial companies have begun offering specialized forms of bankruptcy financing for small and medium enterprises. Although not yet widely available, a number of small businesses have been able to secure DIP financing and exit bankruptcy.

One of the biggest challenges bankrupt companies have is that they lose control of all bank accounts as soon as they declare bankruptcy. Most of the assets to the point of bankruptcy must be used to pay off past debts. If your clients take 30 to 60 days to pay their bills, which means that you may have to go without a lot of liquidity for a number of weeks, unable to pay employees or buy new supplies. Factoring financing is a form of DIP financing that can help in these situations. Factoring Account Receivables provides an immediate advance on their slow paying invoices, providing the necessary funds to pay employees and suppliers. Factoring receivables provides liquidity and breathing room to run your business while you surf Chapter 11 bankruptcy process.

Qualifying for factoring is relatively easy. The biggest requirement that factoring companies have is that you sell products or services to creditworthy business customers who pay within 90 days. Factoring works best if your customers pay in 30 to 45 days and if your profit margin is at least 15%, but is flexible enough to work in other situations.

One of the substantial benefits of accounts receivable factoring is that it is readily available to small and medium enterprises. Like any form of debtor in possession (DIP) financing must be approved by the court. And, it is best to request DIP financing and bankruptcy at the same time, as it will give a more solid basis in the critical weeks immediately after bankruptcy.

About the Author

About Commercial Capital LLC
Marco Terry is Managing Director of Commercial Capital LLC, a leading DIP financing company. To learn more about its debtor in possession financing program or corporate bankruptcy financing program, please call (877) 300 3258.

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