NEW YORK—Almost a million small businesses around the nation are anxiously awaiting the fate of CIT Group Inc., a leading small business lender currently under financial distress.
The New York-based CIT is one of the biggest U.S. lenders to small businesses, providing equipment financing, vendor financing, small business administration loans, and factoring. It serves around 1 million U.S. small- to medium-sized businesses.
But now the company’s survival may be on the line if rescue talks between CIT and Obama administration officials don’t pan out. The company faces a $1 billion debt payback in August, and CIT has suggested that it may not have the funds to make the payment.
The Wall Street Journal cited people familiar with the CIT discussions that the parties are “in advanced talks.” Addressing the CIT issue, U.S. Treasury Secretary Timothy Geithner said at a press conference in London this week that, “We have a significant interest generally in trying to make sure the financial system gets through this, adjusts where it needs to adjust and emerge stronger.”
Aside from its commercial lending, CIT is a major player in the factoring business, where the company provides advanced payment to small businesses secured against the lender’s invoice receivables.
For example, a small business that has $100,000 in invoice payments receivable due in 30 days can get more than 80 percent, or $80,000, up front in a factoring arrangement with CIT. This shifts the risk of vendor non-payment to CIT, and away from the small business.
While CIT isn’t large enough to result in systemic market failure should it fail, analysts and economists are most concerned about its role in factoring for small businesses. Tens of thousands of small businesses could be faced with a sudden cash shortage should CIT suddenly collapse.
Rating agency Standard & Poor’s this week cut CIT’s credit rating down a hefty four notches, from BB- to CCC+.
S&P noted, “CIT has more than $1 billion of unsecured notes maturing in both third- and fourth-quarter 2009—payments that could become increasingly difficult to make if borrower draws increase significantly and CIT does not win regulatory approval of its strategic initiatives.”
The New York-based CIT is one of the biggest U.S. lenders to small businesses, providing equipment financing, vendor financing, small business administration loans, and factoring. It serves around 1 million U.S. small- to medium-sized businesses.
But now the company’s survival may be on the line if rescue talks between CIT and Obama administration officials don’t pan out. The company faces a $1 billion debt payback in August, and CIT has suggested that it may not have the funds to make the payment.
The Wall Street Journal cited people familiar with the CIT discussions that the parties are “in advanced talks.” Addressing the CIT issue, U.S. Treasury Secretary Timothy Geithner said at a press conference in London this week that, “We have a significant interest generally in trying to make sure the financial system gets through this, adjusts where it needs to adjust and emerge stronger.”
Credit Line for Small Businesses
CIT is seeking a bailout from the U.S. on grounds that it too, is “too big to fail,” as its bankruptcy could hurt the country’s small businesses.Aside from its commercial lending, CIT is a major player in the factoring business, where the company provides advanced payment to small businesses secured against the lender’s invoice receivables.
For example, a small business that has $100,000 in invoice payments receivable due in 30 days can get more than 80 percent, or $80,000, up front in a factoring arrangement with CIT. This shifts the risk of vendor non-payment to CIT, and away from the small business.
While CIT isn’t large enough to result in systemic market failure should it fail, analysts and economists are most concerned about its role in factoring for small businesses. Tens of thousands of small businesses could be faced with a sudden cash shortage should CIT suddenly collapse.
Rating agency Standard & Poor’s this week cut CIT’s credit rating down a hefty four notches, from BB- to CCC+.
S&P noted, “CIT has more than $1 billion of unsecured notes maturing in both third- and fourth-quarter 2009—payments that could become increasingly difficult to make if borrower draws increase significantly and CIT does not win regulatory approval of its strategic initiatives.”
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