Vendors, retailers await CIT fallout

Nov 03, 2009 (The Pittsburgh Tribune-Review - McClatchy-Tribune Information Services via COMTEX) -- CIT | Quote | Chart | News | PowerRating -- Small businesses and particularly retail-related companies could face problems in securing funding to expand, restock and survive in the new year with CIT Group Inc. immersed in bankruptcy, experts said Monday.

New York-based CIT on Sunday filed for protection under Chapter 11 of the U.S. Bankruptcy Code, a move that had been expected for months, as the lender struggled even after receiving $2.3 billion of taxpayer funding Dec. 31.

"The CIT bankruptcy will have a devastating impact on retailers, particularly small and family-owned businesses," said retail consultant Burt Flickinger III.

"There isn't a store that doesn't somewhere in its supply chain have a connection to CIT," said Marilyn Landis, president of consulting firm Basic Business Concepts Inc. on the North Shore. "CIT is the backbone for a lot of financing in stores."

South Side-based American Eagle Outfitters Inc.'s spokeswoman Jani Strand said the CIT bankrutpcy filing was "not something we would like to comment on."

Findlay-based Dick's Sporting Goods Inc.'s chief marketing officer, Jeff Hennion, couldn't be reached to comment.

The National Retail Federation estimates that CIT is a source of capital for about 2,000 vendors that supply merchandise to more than 300,000 stores.

CIT handles annually about $40 billion of retail lending known as factoring. In factoring, suppliers and manufacturers sell payments owed for goods and services to companies like CIT because they need immediate cash to continue operating. The process gives vendors money to produce goods retailers have ordered.

When retailers make their payments, usually within 90 days, a factor company like CIT keeps a fee based on a percentage of the total order's value.

One positive in the CIT bankruptcy filing is that it happened well after most retailers stocked their shelves and warehouses in preparation for the holiday shopping season. However, experts said that as retailers look to stock shelves post-holidays, particularly with expectations that 2010 will be a stronger retail year, the uncertainty CIT's bankruptcy brings could hamper recovery.

"Big retailers have other sources of funds," said Tom Nist, a Duquesne University finance professor and former banking executive. "The filing might create a seller's market for small business lenders, and if word gets out that a company does business with CIT, that company's vendors might shy away from providing goods."

CIT, until the most recent federal government fiscal year ending Sept. 30, had been a major player providing Small Business Administration-guaranteed loans.

"While one of the large SBA lenders, over the last 12 months, CIT's loan volume has decreased significantly," said SBA spokeswoman Hayley Matz.

SBA data shows that during the year ended Sept. 30, 2007, CIT handled 1,589 loans for $873 million, but two years later handled just 142 loans worth $105 million. No SBA loans were made by CIT in the Pittsburgh region in the last fiscal year, Matz said.

Rick Stouffer can be reached via e-mail or at 412-320-7853.

To see more of The Pittsburgh Tribune-Review or to subscribe to the newspaper,
go to http://www.pittsburghlive.com/x/pittsburghtrib/. Copyright (c) 2009, The
Pittsburgh Tribune-Review Distributed by McClatchy-Tribune Information Services.
For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or
847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group
Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index