CIT Group, Inc. is a commercial finance company focused on small and mid-sized businesses that traditional banking won’t lend to. With over 950,000 lending relationships, it is both the largest SBA lender as well as the largest factoring company in the U.S. It has served small and medium sized businesses for many years and is now on the brink of collapse. What bankruptcy of CIT might mean to you depends on what type of relationship you have with them and who your customers are.
If you are a CIT SBA customer, your business might suffer some disruption while another loan servicing lender takes over your loan. The disruption will be critical if you need any kind of loan modification, especially collateral subordination or release. With SBA loans, this process ordinarily takes more time than it should, but when your lender closes its doors or sells off its portfolio, finding a sympathetic ear at the new servicing entity can be especially difficult.
If you have a SBA loan application in the works with CIT, now is the time to consider moving it to another lender. If CIT goes into bankruptcy, chances are good that there will be many layoffs and turmoil during the process.
Factoring and asset-based loan customers may have a tougher time if CIT goes into bankruptcy, though the good news is there are thousands of other factors in the U.S. who can earn your business and help you with working capital.
CIT’s market niche is providing non-recourse factoring relationships to companies that sell goods to big box retailers like Wal-Mart, Sam’s Club, and Costco. Unlike traditional factoring, financing companies that distribute goods to big box retailers requires a skill set in underwriting customers (debtors) who have significant dilution because of retail marketing programs and other deductions from the payment stream.
If you are a CIT customer and need to find another factoring company, make sure the companies you consider have experience with your industry and type of customer. Most factors and ABL lenders are somewhat shy of retail customers (for good reason), and most aren’t used to working with companies that experience large percentages of invoice dilution, such as those distributing goods to big box retailers. Lastly, most factors and ABL lenders won’t structure their relationships as non-recourse, so be prepared to assume that any new relationship will be full recourse (meaning that if your customer doesn’t pay, you must).
Whatever happens with CIT Group, don’t worry that you won’t find another financing source. CIT’s potential exit from SBA lending, factoring, and asset-based lending will be quickly replaced by other companies anxious to try their hand at doing your kind of business.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
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