Friday, August 14, 2009

What Small Business Financing?

Any small business owner can tell you that financing is tight.  A lot of lenders have disappeared, and the ones that are still around have locked the vault.  If what's going on with CIT Group is any indication, in spite of all the recent smiley faces, things aren't going to improve soon.

CIT Group provides a broad range of financing for businesses.  In a very real sense, the retail sector would cave in without CIT, because it provides financing for a substantial chunk of the vendors for the major retailers.  And we know what the economy would loook like if retail went any further south.

By Spring, CIT was one of the few left standing in this area.  Then it started to sink too, and it seemed headed for Chapter 11.  At the last minute, its bondholders agreed to bail it out.  Not much of a choice on their part, really; they could either fork over more or lose what they had.  But now the bondholders are being asked to give up more.  CIT has a tender offer on the table for about $1 billion of bonds maturing Monday.  The tender expires tonight, so we're sitting around waiting to see what happens.  CIT is offering the bondholders a 12.5% haircut, down from the 20% haircut initially offered but still significant.

How does this affect you?  Bondholders provide the capital that makes loans possible.  If banks are requiring both bailouts and haircuts of their capital sources, how many of those capital sources are going to decide it isn't worth it?  And what do you think that will do to loan availability?

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At August 29, 2009 at 3:04 PM, Blogger Sean Lelchuk said...

Great post. It is an unfortunate situation for so many of the SMEs currently working with CIT. I have fielded a number of call from existing clients of theirs worried about the future.

There are a number of non-bank financing options in the marketplace for SMEs. To find out more information, feel free to visit:

At January 23, 2010 at 6:45 AM, Blogger james said...

Interesting… I might try some of this on my blog, too. It’s quite interesting how you sometimes stop being innovative and just go for an accepted solution without actually trying to improve it… you make a couple of good points
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