CIT failure would harm small business
CIT Bank logo.
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KAI RYSSDAL: If you'd never heard of CIT until you read the headlines this morning, you're in good company. It's a lender that specializes in financing for small and medium businesses. But the trouble it's in will sound familiar all the same. CIT's having the same kind of problem we first heard about with Bear Stearns and Lehman Brothers. Not enough liquidity, not enough cash flowing in, too much going out.
CIT got a $2 billion TARP bailout this past December. Since then, its troubles have only gotten worse.
Marketplace's Steve Henn reports from Washington.
STEVE HENN: CIT is a major lender to roughly 1 million small- and medium-sized businesses. But the company is facing a cash crunch.
David Marcantonio: Well, if CIT collapsed, that would be a disaster for hundreds of thousands of businesses across the United States.
David Marcantonio is a commercial loan broker in Connecticut. His state has lost roughly 4,000 small businesses this year, often because they had trouble getting financing. And he says CIT was traditionally a lender of last resort.
Marcantonio: Usually if someone goes into a bank and the bank says, "Gee, we can't help you." Then the next stop after that is CIT.
Bill Dunkelberg is chief economist at the National Federation of Independent Business. He says, unlike traditional banks, CIT doesn't raise most of its money from depositors with savings accounts. Instead, it gets its cash on Wall Street from investors.
Bill Dunkelberg: They use that to finance the loans that they make to small businesses for a longer term.
As the recession dragged on, many of its small-business loans have gone bad. And investors are getting nervous.
Bill Dunkelberg: And of course, if investors become unwilling to lend to CIT, then it can't support the small-business loans.
Marcantonio fears if CIT collapses, it would create a domino effect on Main Street as small businesses close down or pare back and lay off workers.
Marcantonio: We're not in good times as it is. That would just make everything much worse.
CIT has asked the federal government to step in and guarantee its debt. Last fall, the government did exactly that for Wall Street's biggest banks. But so far, CIT's application is still pending.
In Washington, I'm Steve Henn for Marketplace.