Tuesday, July 14, 2009

CIT Bankruptcy will impact Business Acquisitions Financing

The potential bankruptcy and failure of CIT could prove disastrous to small business. CIT has been a significant force in lending to small businesses for start-up capital, working lines of credit, leasing and business acquisition loans. While CIT lending activity has been quiet for many months they have continued to provide a lifeline for many small businesses during the recent financial crisis.

CIT has petitioned the federal government for additional funds to maintain their liquidity. Thus far, the government has been slow to respond to this potential bankruptcy which I believe is critical mistake. There seems to be growing sentiment that other financial institutions will step in to fill the void left by a CIT bankruptcy. I have not seen any evidence that there are other banks willing to lend to small businesses. In fact, we continue to see loan requests put into a holding pattern and loan brokers have told us that the banks are showing no signs of life.

Small business owners with lines of credit from CIT are, and should be, very nervous right now. If a CIT credit line is cancelled I do not see any banks lining up to replace these loans. There may be a secondary market willing to fill this gap but it will come at a dear price to business owners in the form of exorbitant interest rates and onerous terms.

CIT may be too big to fail and the government should act quickly and decisively to avert derailing the timeframe of any economic recovery.

No comments: