CIT Bankruptcy is Large Blow to American Businesses & Economy
November 6th, 2009
CIT is probably the largest lending institution hardly anyone seems to have heard of. It is not a bank with branches on every corner like, Bank of America or Citibank. However, it is a very large lender to small and medium size businesses. According to last Monday’s Wall Street Journal, CIT is a lender to nearly a million such businesses. It provides vital liquidity that allows many to purchase inventory, invest in equipment, even make payroll during off times of the year.
Before I continue, let me clarify that MadeinUSAForever.com, which I founded and own, is not affected by the CIT bankruptcy. It has no debt, and is fully funded by myself and revenue generated from product sales. My concern is for the hundreds of thousands of other business affected.
CIT filed for bankruptcy last Sunday. The good news is it is expected to survive and emerge from bankruptcy a much smaller, but at least viable firm. The bad news is thousands of businesses have already been frozen out of normal lending, and hundreds of thousands of others will shortly find themselves without a willing lender.
Credit is still very hard to get, not just for people but also for businesses, as financial institutions react to the economic downturn. CIT going into a coma and shrinking drastically means many businesses will suddenly face much higher interest rates if they can borrow at all. For example, for a business considering a factory expansion that wants to borrow $10 million, they could easily see an extra $500,000 in interest expenses in this climate without CIT. That is a high hurdle that few will make it past, meaning new jobs associated with such projects will not be created.
Worse yet, those business already facing hard times with revenue dropping in this economy may find themselves facing layoffs or even closures.
Since small and medium sized businesses create 70% of new jobs, this is a very serious issue for the economy and our nation. The media has not caught on, but the shockwave from this situation could easily destroy or put off more jobs than the 600k+ supposedly “created or saved” by the government’s stimulus plan.
Cash availability is vital to small and medium sized businesses, which in turn are the only real option for creating enough good jobs to pull us out of recession. This issue must be addressed.
Todd Lipscomb
Founder of www.MadeinUSAForever.com, your source for made in USA products.
Friday, November 6th, 2009 at 6:47 amand is filed under Uncategorized.
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