People walk by the CIT Group headquarters in New York City.
People walk by the CIT Group headquarters in New York City. - 
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KAI RYSSDAL: An update now on a story we've been bringing you, and bringing you, and bringing you for the past couple of months. After much back and forth, CIT finally succumbed to Chapter 11 bankruptcy yesterday. Late last year Washington pumped more than $2 billion in TARP money into the company, on the theory that CIT's a critical lender to small and medium-sized businesses. Now it's up to a bankruptcy court to sort things out.

From the Marketplace Entrepreneurship Desk at Oregon Public Broadcasting, Mitchell Hartman reports.

MITCHELL HARTMAN: CIT's primarily a lender to small and mid-sized businesses. It was risky loans to homeowners and students that got it in trouble. The government decided just one infusion of capital was enough for CIT.

Scott Stuart is a partner at bankruptcy consulting firm Donlin Recano. He says if CIT makes it out of bankruptcy, it could be a game-changer.

SCOTT STUART: If this succeeds, it will be a victory against a high level of regulation, in that the free market forces, the investment community, the bondholders came together to find a solution.

Stuart says not plowing more government money into CIT was risky. For one thing, it left thousands of businesses scrambling for credit. And it took a big risk with taxpayer money.

DOUG ROBERTS: $2.3 billion is a quite significant amount.

Doug Roberts is chief investment strategist at Channel Capital Research. He says that bailout probably saved CIT, its customers and the Treasury more money down the line.

ROBERTS: Without the government involvement, CIT could have gone the liquidation route, and there's no guarantee that that capacity would have then been taken up by somebody else.

The bad news is that, so far, other banks haven't started lending more to small businesses. Once it's out of bankruptcy, CIT will be smaller, but it should be in a better position to help. It'll shed roughly $10 billion in debt, and it's getting a billion dollars in cash from financier Carl Icahn.

I'm Mitchell Hartman for Marketplace.

Follow Mitchell Hartman at @entrepreneurguy