Debtor-in-possession lending and financing can be a complicated process, but it allows debtors to retain physical assets while filing for protection under the Federal Bankruptcy Code. A DIP loan is usually short term, and provides a low loan to value ratio. The purpose of DIP loans are to give a debtor the necessary capital to choose a reorganization plan or sell an asset.

A DIP lender must know the Federal Bankruptcy Code and have a solid background in accounting and lending practices. To be a debtor-in-possession lender, you must train to work for financial companies and learn the skills needed to determine viable risks. You can find many debtor-in-possession (DIP) financing education and training opportunities through:

1. Programs in accounting and finance at a college or university.

2. Online training that teaches skill sets specifically for debtor-in-possession lenders.

3. Seminars that allow networking and continuing educational opportunities.

Action Steps
The best contacts and resources to help you get it done

Get a degree in financing to work with DIP lenders

Anyone working for an institution that loans money to consumers and debtors will need a strong background in finance. You can find many finance programs through colleges, universities and online schools. There are also many programs available, including those that provide you with an associate's, bachelor's or master's degree.

I recommend: Wharton University of Pennsylvania provides a comprehensive degree program in finance. Courses include basic and advanced finance topics that cover bankruptcy and businesses restructuring. Western Governors University provides a bachelor of science program in finance that can be completed online.

Take online courses to learn more about debtor-in-possession loans

Because debtor-in-possession loans mix finance with law, specific skills for determining risk and following federal codes is necessary. There are many resources online where you can find training courses for debtor-in-possession loans, how to assess risk for these loans, and what they can do for businesses.

I recommend: Law Seminars International offers an intensive home study course based on its seminar, "Workouts & Remedies in Real Estate," covers issues in real estate transactions, including DIP loans. The class is suitable for real estate agents, buyers, lenders and lawyers. The International Factoring Association provides a course called "Accounting Executive and Loan Officer Training." This course covers many topics, including debtor-in-possession lending, collections services and management strategies.

Attend seminars to learn more about debtor-in-possession loan practices

Seminars are another great way to learn about debtor-in-possession loans. Seminars are short but intensive training opportunities that are geared to who those already work in the field, but novices can also benefit by attending.

I recommend: The Association of Insolvency & Restructuring Advisors provides many events throughout the years that cover financial topics including DIP lending. FindaSeminar.com has many listings for seminars related to DIP lending, including a seminar on bankruptcy law.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  An internship with a financial company that works with debtor-in-possession loan practices is another educational opportunity for those in the finance industry.

Debtor-in-possession (DIP) financing is a type of financing that companies with financial problems and going through Chapter 11 bankruptcy receive. It allows companies a fresh start financially, but still applies some restrictions that each company must follow.

Many financial institutions compete with each other to provide debtor-in-possession loans to bankrupt companies, so if your company is on the verge of bankruptcy, but you would still like to operate, it is possible to obtain a loan to pay for daily costs.

A company referred seeking a debtor-in-possession loan typically has the following aspects after filing bankruptcy:

1. It is still managed by the same people as before the bankruptcy.

2. The company nearly always needs an immediate loan after filing for bankruptcy just to cover payroll and other ongoing business costs.

3. The company is always held to strict rules after receiving a debtor-in-possession loan, protecting the debtor-in-possession lender.

Action Steps
The best contacts and resources to help you get it done

Know if you qualify for debtor-in-possession (DIP) financing

If you are interested in getting a DIP loan, make sure you first know the rules you must follow and the steps you need to take to get started, or if you are even qualified to get a loan of this type.

I recommend: GE Commercial Finance explains why it offers DIP financing and to whom they offer it. The Department of Justice United States Trustees Program website also explains DIP Financing and guidelines that the candidate for such financing needs to know.

Find a good lawyer who has worked with debtor-in-possession financing

Hire a lawyer who is well-versed in debtor-in-possession lending to represent your company. This will make the process run smoothly, especially if this is your first loan since bankruptcy. Most lawyers can give some advice regarding Debtor-in-Possession Financing, even if you decide not to use that particular lawyer.

I recommend: Sheppard Mullin Richter & Hampton LLP provides details about the options when entering into DIP Financing. Robert J. Haeger also assists those dealing with bankruptcy issues.

Find an experienced DIP lender

It is best to work with a company that specializes in debtor-in-possession lending. Once you have outstanding legal backing and a helpful lender, the experience will be a positive one.

I recommend: Commercial Capital LLC offers DIP lending to businesses with at $500,000 in annual sales. CapitalSource offers DIP loans as one of its financial services.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  If you are not sure where to get started, talk to your local bank or credit union. They will typically provide you with free counsel before you spend money on a lawyer only to find that you do not qualify for a DIP loan.

Debtor in Possession (DIP) is a term for a fictional entity when a company is undergoing bankruptcy. It refers to the fact that the debtor is still managing the company, but cannot make any major financial decisions or sell off large assets without the approval of the bankruptcy court. The debtor makes only day-to-day decisions that keep the company running until the final decisions are made. During this process, the debtor may secure financing to meet company expenses--this is Debtor-in-Possession financing.

Action Steps
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Out-of-court restructurings

Out-of court restructurings are sometimes called workouts. Debtors attempt to negotiate terms with banks, tax authorities, vendors, and others who have extended them credit. It is usually less expensive and better than declaring bankruptcy. Most of the time, these restructurings will reduce a company's debt and extend its terms of repayment.

I recommend: The Turnaround Management Association offers articles, webinars and other resources that explain the benefits of out-of-court restructurings and give examples of successful ones.

In-court restructurings

For in-court restructurings, debtors go to court and declare bankruptcy. The structure for paying back debts--often a small amount of the total owed--is worked out during the court process.

I recommend: Distressed Debt Analysis: Strategies for Speculative Investors by Stephen G. Moyer explains in-court restructurings.

Plan of reorganization

A Plan of Reorganization, or POR, explains how the debtor plans to get out of bankruptcy. In some cases, the creditors vote on the plan. In others, especially during larger proceedings, committees may influence the final court decision.

I recommend: Pathfinder Metrics explains the purpose of a POR.

Post-petition financing/Debtor-in-Possession agreement

Post-petition Financing/Debtor in Possession Agreement are the arrangements that are made between a debtor and a creditor to finance the business after the bankruptcy case begins. The bankruptcy court must approve this agreement.

I recommend: South Bay Law Firm Law Blog discusses Post-petition Financing.

Turnaround financing

Turnaround financing infuses capital into a failing business. Prior to offering funds, investors look at key areas of the company to see if changes would result in a stronger, more profitable business.

I recommend: BusinessFinance.com shows how an investor evaluates whether or not to provide turnaround financing.

Creditors meeting

A creditors meeting is often called a '341 meeting,' because that is the section of the bankruptcy code that sets the requirements for such a meeting. The meeting is a fact-finding session to determine the debtor's assets and liabilities. Creditors may come to ask questions, but most do not attend unless they believe the debtor has done something fraudulent.

I recommend: Biz Help 24 and Moran Law Group explain what creditors meetings are and why they are held.

Debtor in possession financing is a loan extended to a defaulted borrower that allows them to keep their assets while undergoing a bankruptcy proceeding or other restructuring plan. These loans are usually short in nature and are meant to give the business financial stability in the form of a cash infusion, while still showing that the company has assets to sell or utilize for the purposes of restructuring.

Take the time to learn about debtor-in-possession (DIP) financing and see how a loan of this nature may help your business in a time of need. Here are some resourceful links to get you started. Think of this tutorial as "debtor-in-possession (DIP) financing for beginners.

1. Read resource websites that given an overview of DIP financing.

2. Find companies that specialize in debtor in possession financing and set up a consultation for your business.

3. Locate and read the laws associated with debtor in possession financing so that you know the rights of your company while undergoing the process.

Action Steps
The best contacts and resources to help you get it done

Find financial websites that detail debtor-in-possession (DIP) financing and how it operates

There are many financial websites dedicated to the explanation of some of the complex strategies associated with restructuring debt for corporations. Find the websites that detail and explain the process of DIP loans and how they can help a company re-organize debt so that it can emerge from bankruptcy proceedings and get back on the right track.

I recommend: Visit the website of First American. This is a financial resource tool in a multitude of areas including explaining DIP lending. Also visit the website for All Business for a further explanation of debtor-in-possession loans.

Locate companies that perform debtor-in-possession financing and have a consultation

There are many companies throughout the United States that specialize in providing a DIP loan to a company in need. Take the time to seek out these companies, set up a consultation so that you may learn how the process works, and see how a DIP loan might apply to your company. Things that will be discussed at the meeting are the assets of your company, any potential debt and the potential earnings projections for the next several quarters or years.

I recommend: Go to the website for Haynes and Boone. There you can read more about the DIP lending process. Also, Ocean Pacific Capital is another lender that specializes in DIP loans. Visit this website for more information.

Find and read any associated federal or state laws pertaining to debtor in possession financing

Both federal and state laws may apply to your situation if you are trying to secure a DIP loan while going through a bankruptcy proceeding. Be sure to learn about the laws that apply to your situation so that you may maximize the protections given to your company while undergoing a bankruptcy proceeding. You might also want to consult a bankruptcy attorney when researching this matter as such laws are consistently changing.

I recommend: Visit the official website for the US Courts and read about the debtor in possession laws and how they relate to filing chapter 11 bankruptcy. The financial company Osler also details some of the DIP loan laws on its website.