CIT Group Inc. filed for Chapter 11 bankruptcy protection Sunday in New York after months of struggling to avoid collapse. The company provides badly needed credit to thousands of small and mid-sized businesses, and is a critical part of the flow of capital in the retail sector. CIT said in a statement that its bondholders overwhelmingly opted for a prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.
“The positive is that CIT has a pre-packaged bankruptcy; which is a positive for the company and their customers in the long term,” explained consultant Emanuel Weintraub. Prepackaged bankruptcy refers to a plan for financial reorganization that a company prepares in cooperation with its creditors that will take effect once the company enters bankruptcy.
“My comments are geared to the CIT factoring business,” Weintraub continued. “That part of the firm is extremely well run. It is run like a small banker would run it. They know everyone they deal with.”
“But companies do not like uncertainty,” said Weintraub. “And if they feel the CIT situation isn’t resolved, they will seek other avenues.” And they have. CIT factors 65% of all apparel retail ending. Most retailers and vendors are sourcing internationally. And international business is done by letters of credit. And on either side of the transaction, you want certainty.
CIT is involved with all aspects of small business financing. The figure given is one million customers. Weintraub said there aren’t enough of the CIT-type firms to pick up the slack. “If you’re a strong company financially, another lending source or bank will pick you up. If your not, you are stuck with CIT.”
In comments to Associated Press, Craig Sherman, Vice President of Government Affairs at the National Retail Federation, believes the industry "dodged a bullet on the holiday season.” This is because most merchandise is in stores' distribution centers. He did say “CIT's woes could throw a wrench in ordering for the 2010 spring season.”
However, small businesses have options regarding financing and loan sources. CIT's competitors include larger commercial banks, such as Wells Fargo & Co. and Bank of America Corp.; General Electric Co.'s General Electric Capital Corp.; and some regional and community banks. Another source are credit unions.
The Credit Union National Association (CUNA), a trade association, said that nearly 2,200 credit unions (27 percent of the nation’s 8,000 credit unions) reported outstanding business loans at the end of 2008. Larger credit unions are more likely to make business loans. Businesses must be aware that credit unions can only lend to their members.
The Independent Community Bankers of America represents 5,000 community banks of all sizes and charter types throughout the United States.
And then there is the US government itself. Programs are available through the US Small Business Administration.