DIP Financing: What Debtor-in-Possession Financing Means in Bankruptcy
Warren Team
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Key terms
- BankruptcyA legal proceeding for individuals or businesses unable to repay their debts. Chapter 7 liquidates assets, while Chapter 13 restructures debt into a repayment plan.
- Equity FinancingA method of raising capital by selling ownership shares (equity) in a company to investors in exchange for funding. Unlike debt financing, equity financing does not require repayment or interest payments, but it does dilute the existing owners' ownership percentage and control. Companies at various stages use equity financing, from startups selling shares to angel investors to established companies issuing stock through public offerings.
- Debt FinancingA method of raising capital by borrowing money that must be repaid over time with interest, typically through loans, lines of credit, or issuing bonds. Unlike equity financing, debt financing allows business owners to retain full ownership and control of their company. However, debt must be repaid regardless of business performance and increases the company's financial risk through required interest and principal payments.
- Living Below Your MeansA financial philosophy of spending less than you earn, creating a surplus for saving and investing. This habit is the foundation of building wealth over time, regardless of income level. It requires distinguishing needs from wants.
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