CIT reportedly preparing for bankruptcy filing
- Source: Global Times
- [23:45 July 13 2009]
- Comments
Financial difficulties at commercial lender CIT Group Inc could hurt small businesses that depend on credit to fund their growth and operations, though many of CIT’s units serve an important function and are unlikely to disappear if the company restructures in bankruptcy court.
The company, which lends to small-and-medium-sized businesses, is scrambling to devise a plan to assure clients and investors it can work its way out of a deepening liquidity crunch, the Wall Street Journal reported Sunday, following its report one day earlier that CIT was preparing for a possible bankruptcy filing.
CIT said Friday it is in active talks with the US government to gain access to a key lending program, but there is no guarantee the Federal Deposit Insurance Corp will allow CIT to join the Temporary Liquidity Guarantee Program.
The government has made it clear that a possible bankruptcy by CIT is not seen as a systemic risk to the financial system, the Wall Street Journal reported, since other lenders can take on many of the same loans in which CIT specializes.
A US Treasury Department spokesman declined to comment Saturday when asked if the administration might consider coming to CIT’s aid.
If the company does restructure its operations in bankruptcy court, some clients could suffer, though its most important units will survive.
“CIT has been an important provider of credit to not only retailers and retail suppliers, but a vast array of businesses for over 100 years,” said Scott Avila, a partner for corporate restructuring advisor CRG Partners, which is not doing business with CIT. “So whatever restructuring they go through, I expect CIT or some portion of CIT to continue in the future.”
In particular, CIT’s factoring business is vital to the retail industry and unlikely to disappear. Still, there could be some pain to the company’s smallest clients in the retail industry.
“It’s a difficult lending environment, and those small retailers that have seen sales slow to a minimum already may have a hard time securing lending sources until spending picks up,” said Melinda Crump, a spokeswoman for Sageworks Inc, which tracks and collates the financials of thousands of privately held US companies.
Businesses that require substantial working capital depend on credit.
Changes in financing options could force small businesses into tough choices such as having to fund a portion of their growth from cash flow until other lending sources were to become available.
Reuters