Roll-up Financing and Bankruptcy

Roll-up financing is a strategy used to help businesses that are in Chapter 11 Bankruptcy remain viable. As a business owner it may be in your best interests to work with a Bryan bankruptcy lawyer when seeking roll-up financing and other financing methods.

Financial Protection during Reorganization

A company may file Chapter 11 bankruptcy when it needs to reorganize its debts in order to remain in business. Chapter 11 protects the business from creditors while this reorganization process is taking place. A business bankruptcy differs from personal bankruptcy in that a company may need additional financing to purchase materials used for the business. A strategy that is often used to this purpose is offering unpledged assets as collateral in what is termed “roll-up” financing.

Obtaining new financing allows the company to remain open rather than fail during the bankruptcy reorganization. Roll-up financing also gives creditors a better chance of seeing a return on their loans, for if the business fails, they stand to lose considerable debts owed to them.

Roll-ups and Collateral

With roll-up financing, the lender obtains collateral to secure its loan in the form of the unpledged assets. If the bankruptcy court gives permission, a company that is in Chapter 11 can offer roll-up financing, thereby using its own assets that have not been pledged in order to gain new loans that will help it remain in operation. These new loans become priority administrative expenses during the bankruptcy.

Gaining Approval for Roll-up Financing

The bankruptcy court must approve any new loan. However, provided the business is acting in good faith by working with the bankruptcy trustee on the repayment plan the court is likely to approve roll-ups. The court recognizes that in doing so all parties have a high potential for benefitting. The creditors benefit because as they offer more credit they provide the business greater leeway in paying off debts. The business benefits because it avoids having to liquidate and go out of business.

For Assistance with a Business Bankruptcy

If you own a business that is facing serious financial difficulty, bankruptcy may be your best option. By hiring a Bryan bankruptcy lawyer you will have a resource that will help you through the complicated process of bankruptcy. Call Peterson Law Group today at 979-703-7014 or 936-337-4681.