DIP Financing: Working Capital Through Chapter 11
Chapter 11 stops collection actions, and payroll, suppliers and operations still need cash while the case runs. DIP financing supplies it with the bankruptcy court’s approval, and the review comes the same day on a complete file.
- ✓Before or after you file: starting before the petition works best.
- ✓Court-approved under 11 U.S.C. 364, with interim and final orders.
- ✓No equity required; challenged credit does not rule you out.
Start your DIP financing request
Tell us whether you have filed for Chapter 11 or are preparing to. An IFXI specialist reviews your request and forwards it the same day, and the review comes the same day on a complete file.
- ✓ Before or after your Chapter 11 filing
- ✓ Challenged credit and tax liens reviewed case by case
- ✓ No equity required
Executive Summary: DIP Financing
What it is: DIP financing is defined as court-approved funding for a company operating in Chapter 11, which pays for payroll, suppliers and operating costs while it reorganizes. The business becomes a debtor in possession: it keeps running its operations and assets under court supervision. DIP financing is a loan.
The numbers: Review: same day on a complete file · Court approval: required under 11 U.S.C. 364 · Orders: interim, then final under Bankruptcy Rule 4001 · Equity: none required · Terms: Variable.
Key constraints: You need a viable reorganization plan; a case aimed only at liquidation does not qualify. Challenged credit and tax liens get a case-by-case review. The court reviews the terms, and creditors can object before it rules.
The Fast Facts on DIP Financing
Can I get financing during Chapter 11 bankruptcy?
Yes, you can get financing during Chapter 11 when the bankruptcy court approves it under 11 U.S.C. 364. Your attorney files a motion, the court enters an interim order and then a final order, and you draw as the orders allow. Compare factoring vs. a business loan.
Can I get DIP financing before I file?
Yes, you can start before you file, and that is the better order. The review happens ahead of the petition, so your attorney can file the financing motion with the first-day papers and payroll stays funded from the first day.
Who qualifies for DIP financing?
The short answer is a business in Chapter 11 with a viable reorganization plan and a clear use for the funds. Liquidation-only cases do not qualify. Challenged credit is reviewed, as on poor-credit business funding.
Cash flow gaps DIP financing can close
Your bank froze the line
Existing lenders often stop advancing once a Chapter 11 petition is near. Payroll and supplier bills keep arriving on schedule.
Suppliers moved you to cash on delivery
Vendors who learn about the case can demand payment in advance. Production slows when you cannot prepay them.
The plan needs time to work
A reorganization plan takes months to confirm. Your business has to stay open and serving customers while the court reviews it.
What is DIP financing?
Filing and the financing motion
When you file Chapter 11, your business becomes a debtor in possession. Your attorney files a motion asking the court to approve new credit under 11 U.S.C. 364, and creditors receive notice of the terms.
Interim order, then final order
Bankruptcy Rule 4001 sets the steps. An interim order can approve a first draw to avoid immediate harm, and the final hearing comes at least 14 days after the motion is served.
Collateral, priority and subchapter v
Section 364 lets the court grant the new loan priority or liens on your assets, including receivables. Small businesses in a Subchapter V case use the same court approval; see asset-based lending for lines outside bankruptcy.
Applying before vs. after you file
Before you file
Your attorney expects a filing within weeks. The review runs ahead of the petition, and the financing motion goes in with the first-day papers.
After you file
Your case is open and cash is tighter than projected. You can still apply, and the court process adds time to the start of funding.
When your lender exits mid-case
Existing financing ends before the plan is confirmed. A new DIP loan needs its own motion and court approval.
How to get funded with DIP financing in 3 steps
Send your request
Complete the request form with your business details and filing status. An IFXI specialist reviews it and forwards it the same day.
Review & court approval
The lending partner reviews your plan, cash needs and assets, and the review comes the same day on a complete file. Your attorney files the motion, and the court enters interim and final orders.
Draw and repay
You draw as the court orders allow and use the funds for payroll, suppliers and operations. You repay under the agreement the court approved.
Funding timeline for DIP financing
| Stage | Typical Timeframe |
|---|---|
| Request submitted | Day 0; an IFXI specialist forwards it the same day |
| Plan and asset review | Same day on a complete file |
| Pre-filing planning | Your attorney lines up the financing motion with the petition |
| Interim order | Early in the case, to cover a first draw |
| Final order | At least 14 days after the motion is served (Bankruptcy Rule 4001) |
| Draws and reporting | As the court orders and the agreement allow |
Timeline notes for DIP financing
- ✓DIP financing is a loan, and the bankruptcy court approves its terms.
- ✓Creditors receive notice of the motion and can object before the court rules.
- ✓The court can grant the loan priority or liens on your assets under 11 U.S.C. 364.
- ✓No equity stake is required.
- ✓Terms are Variable and set out before your attorney files the motion.
Who qualifies for DIP financing and what you need
| Requirement | What qualifies | Notes |
|---|---|---|
| Case type | Chapter 11, before or after filing | Liquidation-only cases do not qualify. |
| Reorganization plan | A viable plan to return to profit | The review looks at the plan and the use of funds. |
| Assets | Receivables, inventory and equipment | The court decides how new liens rank. |
| Court approval | Interim and final orders | Required under 11 U.S.C. 364 and Bankruptcy Rule 4001. |
| Tax liens | Reviewed case by case | A tax lien does not rule you out. |
| Your credit | Challenged credit can qualify | The application authorizes business and personal credit reports. |
Quote documents for DIP financing
- ✓Your filing status and case number, if filed.
- ✓A 13-week cash flow budget.
- ✓The reorganization plan or its outline.
- ✓Receivables aging, inventory and equipment lists.
- ✓Your bankruptcy attorney’s contact details.
What delays funding: a budget that does not tie to the plan, missing asset schedules, and creditor objections the court has to hear.
Transparent Costs for DIP Financing
| What to Expect in Costs | What Affects the Costs |
|---|---|
| Pricing: Variable, quoted case by case. Court review: the bankruptcy court reviews the pricing and terms. Repayment: follows the agreement the court approves. | Your plan: a stronger plan supports better terms. Your assets: receivables, inventory and equipment secure the loan. Case timing: filing before or after the request affects the schedule. See pricing. |
Worked example: a $900,000 DIP loan
| Line | Amount |
|---|---|
| Loan amount in the motion | $900,000 |
| Available under the interim order | $250,000 |
| Drawn for payroll and suppliers before the final hearing | $180,000 |
| Interim availability left | $70,000 |
| Available after the final order | $720,000 |
| Pricing | Variable |
Illustrative example. The court orders and the lending partner’s agreement set your actual loan amounts, draws and pricing.
DIP Financing vs. Bank Line of Credit vs. Merchant Cash Advance (MCA)
| Feature | DIP Financing | Bank Line of Credit | Merchant Cash Advance (MCA) |
|---|---|---|---|
| Typical Approval Speed | Same-day review, then court approval | Estimated: rarely available during Chapter 11 | New credit in Chapter 11 needs court approval |
| Min. Credit Score Requirement | None: plan-based review | Estimated 650–700+ (owner personal) | Estimated 500+ (owner personal) |
| Maximum Advance Rate | Variable: sized to the plan and assets | Variable (% of collateral or assets) | Estimated 70%–80% of monthly revenue |
| Debt Added to Balance Sheet? | Yes: a court-approved loan | Yes: revolving debt liability | Yes: recorded as a liability |
| Hidden Fees / Covenants | Variable terms the court reviews | Origination, maintenance, annual review, covenants | Factor rates, daily ACH debits, prepayment penalties (Variable/Estimated) |
| Best For | Chapter 11 businesses with a viable plan | Established companies outside bankruptcy | Businesses with steady deposits outside bankruptcy |
When DIP financing is not the right fit
- ✗Liquidation-only cases do not qualify. The loan supports a plan to keep operating.
- ✗The court process adds cost and time. Your attorney files the motion, and hearings come before the final order.
- ✗Creditors see the terms. They receive notice of the motion and can object before the court rules.
- ✗It is debt with priority. Under 11 U.S.C. 364, the court can grant the loan liens or priority over other claims, and you repay it under the agreement.
How IFXI handles your request for DIP financing
No equity required
DIP financing comes with no equity stake, so you keep ownership of your company through the reorganization.
Terms before the motion
Pricing and repayment terms are set out before your attorney files the financing motion, and the court reviews them.
An IFXI specialist on your request
An IFXI specialist reviews your request, gathers what the review needs, and forwards your file the same day.
Funding scenarios for DIP financing
Fabricator lines up funding before filing
- Funding Amount
- $750,000
- Industry
- Metal fabrication
- Customer Type
- Contract manufacturing clients
- Funding Type
- DIP loan
- Invoice Terms
- Interim and final orders
- Advance Rate
- Variable
A lost anchor customer left the company short on payroll for 140 employees, and its bank stopped advancing.
The SolutionThe review ran before filing, so the financing motion went in with the petition and the court entered an interim order early in the case.
ResultPayroll met from the first week; the final order approved the full $750,000.
Distributor funds suppliers mid-case
- Funding Amount
- $1,200,000
- Industry
- Building products distribution
- Customer Type
- Contractors and retailers
- Funding Type
- DIP loan
- Invoice Terms
- Interim and final orders
- Advance Rate
- Variable
Two months into Chapter 11, suppliers moved the company to cash on delivery and receivables fell behind the budget.
The SolutionThe lending partner reviewed the plan and receivables, and the attorney filed a new financing motion with the court.
ResultA $1,200,000 loan approved in the final order; supplier prepayments resumed.
Services firm replaces an exiting lender
- Funding Amount
- $400,000
- Industry
- Commercial facilities services
- Customer Type
- Property managers and hospitals
- Funding Type
- DIP loan
- Invoice Terms
- Interim and final orders
- Advance Rate
- Variable
The existing lender ended its financing before the plan was confirmed, with a tax lien on file.
The SolutionThe lending partner reviewed the tax lien case by case and the court approved the new loan on notice to creditors.
ResultA $400,000 loan carried operations to plan confirmation.
Where IFXI arranges DIP financing
Texas, Florida, New York, Illinois, Georgia, Ohio, and Pennsylvania.
Frequently asked questions about DIP financing
What is DIP financing?
DIP financing is defined as court-approved funding for a company operating in Chapter 11, which pays for payroll, suppliers and operating costs while it reorganizes. It is a loan, the bankruptcy court approves it under 11 U.S.C. 364, and you draw as the court orders allow.
Can I get financing during Chapter 11 bankruptcy?
Yes, you can get financing during Chapter 11 when the bankruptcy court approves it. Your attorney files a motion under 11 U.S.C. 364, creditors receive notice, and the court enters an interim order and then a final order under Bankruptcy Rule 4001.
Can I get DIP financing before I file?
Yes, you can start before you file, and that is the better order. The review runs ahead of the petition, so your attorney can file the financing motion with the first-day papers and payroll and suppliers stay funded from the first day of the case.
How much of a $900,000 DIP loan can I use before the final order?
The short answer is that you can use $250,000 of a $900,000 DIP loan before the final order when the interim order allows that amount. After $180,000 in draws, $70,000 of interim availability is left, and the final order opens $720,000 more. The court sets the actual amounts, and pricing is Variable.
Does bad credit or a tax lien stop me from getting DIP financing?
The short answer is no: challenged credit and tax liens do not rule you out, and the lending partner reviews them case by case. The review looks first at whether your reorganization plan is viable and what the business owns.
Who qualifies for DIP financing?
The short answer is a business in Chapter 11 with a viable reorganization plan and a clear use for the funds. A company that only wants to wind down and liquidate its assets does not qualify, and no equity stake is required.
How long does court approval take?
The short answer is that DIP financing court approval comes through an interim order early in the case and a final hearing at least 14 days after the motion is served, under Bankruptcy Rule 4001. Starting the review before you file lets the motion go in with the petition.
Sources
- 11 U.S.C. §364, obtaining credit in a bankruptcy case (Cornell Law School, Legal Information Institute)
- Federal Rule of Bankruptcy Procedure 4001 (Cornell Law School, Legal Information Institute)
General information about DIP financing. Rates, loan amounts and approval come from IFXI’s lending partner after its review and can change.
Ready to unlock your cash flow?
Fill out the request form at the top of the page to get started. There is no obligation and no equity required.