when a company is able to secure dip financing it lets vendors suppliers and customers know that the debtor will be able to remain in business provide services and make payments for goods and services during its reorganization if the lender has found that the company is worthy of credit after examining its finances it stands to reason that the marketplace will come to the same conclusion 
as part of the great recession two bankrupt u s automakers general motors and chrysler were the beneficiaries of debtor in possession dip financing obtaining debtor in possession dip financingdip financing usually occurs at the beginning of the bankruptcy filing process but often struggling companies that may benefit from court protection will delay filing out of failure to accept the reality of their situation such indecision and delay can waste precious time as the dip financing process tends to be lengthy once a company enters into chapter 11 bankruptcy and finds a willing lender it must obtain approval from bankruptcy court providing a loan under bankruptcy law provides a lender with much needed comfort in providing financing to a company in financial distress dip financing lenders are given first priority on assets in case of the company s liquidation an authorized budget a market or premium interest rate and any additional comfort measures that the court or lender believes warrant inclusion current lenders usually have to agree to the terms particularly in taking a back seat to a lien on assets the approved budget is an important aspect of dip financing the dip budget can include a forecast of the company s receipts expenses net cash flow and outflows for rolling periods it must also factor in forecasting the timing of payments to vendors professional fees seasonal variations in its receipts and any capital outlays once the dip budget is agreed upon both parties will agree on the size and structure of the credit facility or loan this is just a part of the negotiations and legwork necessary to secure dip financing dip financing is frequently provided via term loans such loans are fully funded throughout the bankruptcy process which means higher interest costs for the borrower formerly revolving credit facilities were the most utilized method which allows a borrower to draw down the loan and repay as needed such as a credit card this allows for more flexibility and therefore the ability to keep interest costs lower as a borrower can actively manage the amount of the loan borrowed 