An Effective Source of Bankruptcy Financing

Going through a chapter 11 bankruptcy can provide you with the necessary breathing room to reorganize your company, while giving you a chance to reduce obligations that would have otherwise forced you out of business. Although no one desires to go through a corporate bankruptcy, many times itÂ’s the only available solution.
Contrary to popular belief, many companies going through a chapter 11 reorganization can obtain financing. This type of financing is called debtor in possession financing, commonly abbreviated to DIP financing. As matter of fact, obtaining DIP financing usually increases your chances of emerging from the bankruptcy process as a viable company.
In the past, debtor in possession financing was offered only to large companies that had substantial revenues and assets. And it was only offered by large banks or big corporate financing companies. However, a new alternative has began to emerge as a leading solution. And as opposed to other conventional options, this alternative is open to small companies. This solution is called factoring.
Having liquidity right after filing for bankruptcy is critical. Your company will need money to pay employees and new purchases from suppliers. However, after filing for bankruptcy your assets will be tied by the court. And if you sell to commercial or government customers you may need to wait up to 45 days to get your invoices paid, creating a liquidity crisis. Invoice factoring provides you with a substantial advance on your accounts receivable. This enables you to keep running the company while you navigate the bankruptcy process. It provides the funds to pay employees and vendors.
Accounts receivable factoring does not work for every company, but it can help businesses that sell goods to other businesses and wait 30 to 60 days to get paid. Qualifying for this type of financing is generally easy and can be setup fairly quickly. The approval of the bankruptcy court will be required and as a common practice, most companies file for bankruptcy and debtor in possession financing at the same time. That enables the company to minimize the disruption in operations and enhances the chances of a successful bankruptcy.