CIT's shaky future hurts small biz
People walk by the CIT Group headquarters in New York City.
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Kai Ryssdal: By way of refresher, CIT is this country's biggest lender to small and medium-sized businesses. Chances are though, you'd never heard of it 'til this summer when it ran into some trouble over how much money it owed. It tiptoed away from Chapter 11 back then, thanks in part to a $2 billion donation from the TARP. But since we're talking about it today, you can safely assume that wasn't enough.
There are reports today CIT is once again scrambling to work out a deal with its bondholders. If that deal does not work out, CIT may become one of the biggest bankruptcies in this country ever. Bad enough for its investors. Worse still for small businesses across the country. Here's our senior business correspondent Bob Moon.
BOB MOON: CIT's lending accounts for up to 70 percent of the monetary lifeblood of businesses ranging from Dillard's department stores to Dunkin' Donuts.
It's been three months since the warning bells first sounded at CIT, but economists say it's still the leading source of credit for the corner store. Small business analyst Bob Coleman says if anything, he's even more fearful of another credit collapse.
BOB COLEMAN: CIT is too big to fail, and I think it would be disastrous.
Coleman says loans by big banks are even harder to come by since CIT first flirted with bankruptcy, and that's hit small businesses hard.
COLEMAN: They're not going to have any options. So their option is try to make it by cutting costs. And where do you cut costs? You fire people, you slash purchasing -- all detrimental impacts on the economy. There will be someone who will probably lose their job that you know because of a CIT failure.
At the Credit Union National Association, economist Mike Schenk agrees that a CIT failure would jolt the still-fragile economy.
MIKE SCHENK: It would more than likely cause some small businesses to go out of business themselves. The key for any small business at this point is to be looking for alternatives.
The credit union economist concedes, though, that there aren't many other places for small businesses to go.
SCHENK: We keep stepping to the plate and helping these folks out as much as we can. Loans at credit unions -- business loans -- actually grew 14 percent in the 12 months ending June.
But that would still leave a huge financing gap, and analyst Bob Coleman says it's wrong to abandon small business.
COLEMAN: It's indicative of a mindset that, hey, we need to take care of Wall Street, but when it comes to Main Street, they're certainly willing to let these small businesses fail, which is tragic.
Before rejecting further help in July, the government had already given CIT $2.3 billion last year. Analysts now expect that will be a total loss for taxpayers.
I'm Bob Moon for Marketplace.