Gateway Commercial Finance Extends $800K Debtor-in-Possession Invoice Factoring Facility for Midwest Distributor

Gateway Commercial Finance concluded an $800K Debtor in Possession (DIP) factoring arrangement for a long-standing Midwest Distributor, which has been a family-owned business for over 20 years. This distributor faced a significant drop in revenue due to the impact of Covid-19 and had exhausted its PPP and EIDL loan proceeds. To make matters worse, the company had resorted to high-interest Merchant Cash Advance (MCA) Loans, which further strained its daily cash flow.

Recognizing the company's potential with an expanding customer base and increased sales, its bank referred the struggling business to Gateway when it couldn't offer additional financing options. "Upon our initial discussion and a thorough assessment of their financials, we believed in the strength of their business model. However, the accumulation of high-interest MCA loans posed a significant risk to its viability as a going concern," explained Marc J. Marin, Managing Director of Gateway.

In a strategic move, the company decided to file for Chapter 11 Bankruptcy while simultaneously partnering with Gateway to secure an $800K post-petition factoring facility. "The first-day motions unfolded as anticipated, and Gateway secured a priority position in post-petition accounts receivable (A/R), enabling us to swiftly provide essential day-to-day working capital for the company," Marin added.

Within a mere 19 days from the initial conversation, the DIP factoring facility was established, and the initial funds became accessible to the company upon approval from the Court, facilitating its path toward financial stability. "This is the third Chapter 11 DIP factoring arrangement we have provided in the last 8 months and expect more as small business bankruptcy filings are up more than 30% from 2022," said Marin.