What CIT failure may mean in the suburbs

As CIT Group Inc. seeks a possible last-minute bailout from Wall Street firms, small and mid-sized businesses in the suburbs may need to seek alternative lenders to stay viable during this recession.

The New York-based CIT, one of the nation's largest lenders, was scrambling on Friday to get emergency funding after the federal government refused to bail it out. The bank holding company has provided loans to various businesses, including retailers and manufacturers, for about 100 years. It has roughly 1 million customers worldwide.

When such a lender could be lost, it would reduce the options that small businesses have for financing and credit, said John Schmitt, president and CEO of the Naperville Area Chamber of Commerce.

"I would hope that any local business that is affected would look for financing help in their local area," said Schmitt. "I would also like to see our local banks make every attempt to help local business."

On Friday, CIT's shares doubled when rumors circulated that it was seeking funds from JP Morgan and Goldman Sachs. Late Thursday, the company had said in a statement that its board of directors and management were "continuing to evaluate alternatives to improve the company's liquidity. CIT is in discussions with potential lenders to secure financing." It said it "is continuing to serve customers," although a bankruptcy filing could be looming. A CIT spokesman was unavailable for comment.

Some of CIT's more notable transactions included a loan with Daryl Katz to buy the Edmonton Oilers hockey team in July 2008, and the Sentinel Capital Partners' franchisee Southern California Pizza Co. to buy 123 Pizza Hut restaurants.

Several local chambers of commerce executives believed that CIT wouldn't have much impact on suburban businesses. But many other companies nationwide often provide products and services to major retailers, including Wal-Mart.

"For retailers struggling to get credit, especially if their sales are down and they want to keep their businesses going, this (a CIT bankruptcy) would make it tougher on them," said Pete Gill, spokesman for the Illinois Retail Merchants Association in Chicago.

While CIT is fighting its way out of this predicament, the National Federation of Independent Business in Washington, D.C., believes small and mid-size businesses need to operate with caution.

"We're not sure what impact this will have on businesses, but we're sure CIT hasn't been making new loans to anyone," said Bill Dunkelberg, the association's chief economist.

In fact, CIT may need to call in loans, or ask for the money back, from some companies, Dunkelberg said.

If local companies have an ongoing relationship with CIT, such as a line of credit, they may need to seek out other such sources. Alternatives could be GE Capital, GMAC or any number of banks, he said.

"CIT specialized in these kinds of loans," said Dunkelberg. "These loans may be too risky for banks and the companies may end up paying a higher rate of interest."