What CIT's Bankruptcy Means for Small Business

Months of speculation ended on Sunday when financial lending giant CIT Group Inc. filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court in the Southern District of New York. The filing includes CIT Group Inc. and subsidiary CIT Group Funding Company of Delaware LLC.

According to a press release from CIT, the filing – a prepackaged reorganization plan – does not include any of CIT's "operating subsidiaries," and those subsidiaries are "expected to continue normal operations" while the case moves through the courts. These operational subsidiaries include CIT Bank and CIT Small Business Lending Corp.

While this is good news for the small and middle market businesses that CIT services, not everyone is as optimistic as the lender. While credit markets remain tight, particularly for small to middle market businesses, any holdup in the plan could be devastating to companies who rely on financing from CIT, Joe Alouf, a partner with Eaglepoint Advisors, told the Associated Press.

And many banks that are already scaling back lending to existing customers could be hesitant to extend new credit to CIT clients looking for another option. (Read distributors' take on current credit conditions: Credit Conditions Still Tough.)

While CIT hopes to reassure its customers that everything will work out in the end, what the filing ultimately does is add another layer of uncertainty to an already uncertain recovery.

Details
In the filing, CIT listed debts of nearly $65 billion and assets of $71 million.

The prepackaged plan already has the support of about 85% of CIT's debt holders, encompassing nearly 90% of CIT's debt. Because of this support, CIT expects to exit bankruptcy by year end.