Priming Loan

DEFINITION of 'Priming Loan'

A form of debtor-in-possession, or DIP financing, whereby the debtor company is able to obtain a loan to assist in specific areas of the business while it is in Chapter 11 proceedings. A priming loan must satisfy requirements for the existing creditors, and language in the loan contract may call for money to be automatically set aside by the company to pay interest and outstanding debt to existing creditors. Funds from a priming loan can usually only be used to maintain the core business, as in repairs, supply chain management and payroll.

BREAKING DOWN 'Priming Loan'

A priming loan can be the break a company needs to get through a Chapter 11 healthy enough to make a fresh start. Existing lenders usually will have a say in whether or not a company can get a priming loan, as such a loan will have priority repayment terms over any existing debts of the company.

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