What If CIT Group Fails?

Associated Press
July 21, 2009

You may not have heard of CIT Group Inc., but there's a good chance you've shopped in stores that it helps keep in business.

The New York-based bank is one of the nation's largest lenders to small and midsized businesses. Despite the scope of its customer base, however, CIT emerged from meetings with federal regulators Wednesday failing to secure the cash infusion it needs to avoid bankruptcy.

In turning CIT away, the Obama administration is betting that any ripple effect from the company's demise wouldn't pose a critical risk to economic recovery.

CIT is now rushing to raise billions of dollars in financing from debt holders. As the company fights for survival, here are some questions and answers about how small businesses and the broader economy are affected by CIT.

Q: First of all, what is CITGroup?

A: It's a century-old company that primarily provides lending to small and midsized businesses. To a much lesser extent, it also provides advisory services and leases out property such as airplanes and rail cars.

The company has been bought and sold a number of times over the years. Most recently, it was acquired in 2001 by Tyco International Ltd., which at the time was embroiled in an accounting scandal. To pay down debt, Tyco spun off CIT Group in an initial public offering in July 2002. CIT has been an independent public company since then.

Q: Who does CIT serve?

A: CIT says it serves more than 1 million business customers, most of them small or midsize businesses.

The company's clients run the gamut, but tend to be in industries considered riskier in the small business landscape, such as restaurants and retail. Dunkin' Donuts franchisees and Dillard's Inc. are among the company's clients.

The bank is also the nation's biggest lender for entrepreneurs and minority-owned businesses.

It's not clear what percentage of the country's small business lending market CIT Group holds, but the company is the ninth-largest commercial and industrial lender in the United States, according to Foresight Analytics.

As of March 31, CIT Group held 1.7 percent of the $1.4 trillion in commercial and industrial loans on bank balance sheets. (Those include loans to businesses of any size.)

Q: What role do small businesses play in the broader economy?

A: Small businesses provide about half of all private-sector jobs. According to the U.S. Small Business Administration (SBA), small firms generated 60 percent to 80 percent of net new jobs every year over the past decade.

Small businesses - defined as having fewer than 500 workers - made up 99.9 percent of the 27.2 million businesses in the country in 2007, according to the SBA. Just 17,000 were large businesses.

The odds aren't great for small firms, however. The SBA says that while two-thirds of new businesses survive at least two years, only 31 percent survive at least seven years.