GM, Bank of America, And Citigroup Benefitted From “Bailouts”–Why Can’t Small Businesses?

The government has not been nearly as willing to fund small businesses as they were big banks, so many small business owners have had to make do in other ways. A primer on Debtor in Possession financing.



Over the last three years, headlines have been dominated by news of government “bailouts” for cash strapped business and industries. Whether it was big banks like Citigroup and Bank of America or auto giants such as General Motors and Chrysler, Americans have watched as government money was injected into cash-strapped businesses in order to help them survive. More recently, we have seen entire countries, such as Greece, bailed out of their financial predicament (though they are not out of the woods yet!).  

These events have led many small business owners to ask a simple question: “What about me?” It is a great question, because after all, a great many small businesses in this country have created effective business models that really work–but which have run short on cash in our struggling economy. Unfortunately, the government has not been nearly as willing to fund small businesses as they were big banks, so many small business owners have had to make do in other ways. In recent years, a technique known as Debtor in Possession financing has emerged as a possible source of cash for distressed companies. And while not every company can qualify for this type of financing, it is still worth investigating.

Debtor in Possession financing is administered while a business is operating under bankruptcy, but is unique in that it allows the business to continue operations under specific conditions. The cash that is injected into a business gives management the opportunity to restructure their operation–theoretically allowing them to emerge from bankruptcy as a profitable entity.  

Of course, securing Debtor in Possession financing is not a simple process.  For a business to qualify, they must be able to provide a reorganizational plan that explains how the funding will be used to restore profitability. And unfortunately, many small businesses will not be eligible for this type of financing as many lenders will not issue this type of loan for amounts under one million dollars. However, Debtor in Possession financing is worth consideration for any small business in or facing bankruptcy. Your business bankruptcy attorney will be able to help you determine whether this is an option for you.  

Small businesses are the lifeblood of the American economy, and in an ideal world they would receive the same type of preferential treatment that the government routinely provides large corporations. Big banks and auto manufacturers have benefitted tremendously from the cash they received through government bailouts–and many small businesses would similarly be able to turn around their fortunes with a much smaller injection of cash. However, it is clear that small businesses must turn to alternative sources of funding–and for many businesses, Debtor in Possession financing may provide the solution.  


[Image: Flickr user John McNab]

About the author

Alex Wathen is Board Certified in Consumer Bankruptcy Law by the Texas Board of Legal Specialization and also serves on the Board’s Bankruptcy Exam Commission. Has has offices in Austin, San Antonio, and Houston.