What’s your reaction to the CIT Bankruptcy?
As I read some of the hundreds of stories about the CIT bankruptcy, I’m reminded that the media has a tendency to “enhance” stories to gain readership. There is certainly no doubt that the credit markets have been significantly altered from the economic turbulence of the past couple of years. The media typically looks through a big picture lens, which has its place, but what you really want to know is how will this affect your business?
So let’s break the situation down into more useful chunks.
The troubles with CIT are not new to the public nor are they new to CIT.
According to the Boston Globe and CIT’s most recent quarterly earnings report, in order to preserve cash the company’s originations dropped from $11.3 billion in the first half of 2008 to $4.4 billion in the first half of 2009. Some portion of this decline was due to a decrease in demand for financing, however, the balance of that difference was funded by someone else. What does this mean? This should tell you that while there is less capital available from some sources, other sources have money to lend and the continuing demand for capital from small businesses is creating new and innovative products from lenders to meet that demand.
The continuing loss of credit sources is a trend that should put every business owner on notice.
If the seemingly constant news about bank failures, or the pull back on business credit cards hasn’t tipped you off, let the bankruptcy of CIT spur some action. What does this mean? I recently wrote about this business credit perfect storm and CIT’s bankruptcy is further evidence that the ability to finance your business cannot be taken for granted no matter what your financial picture. Even if you do not need access to capital today, someday you will and that means positioning your business now.
What about the financing programs for my customers?
The media focus so far seems to have been on CIT’s direct small business customers. However, they also had a significant vendor financing program which has left those vendors wondering what’s next. What does this mean? I would argue the points made above also apply to them. Overall, the decline in CIT’s originations whether directly to the end user or through a vendor, have been picked up by other sources. Just like a business owner should have multiple sources of capital available to them, vendors should consider having multiple sources of vendor financing set up.
What’s the bottom line?
The CIT bankruptcy, bank closings, reduced and closed credit lines – all of these circumstances are just further evidence that every business needs multiple sources of capital and to preserve cash if they want to best position themselves to take advantage of the opportunities recessions offer and be prepared for when the recession ends.
Has your business done anything differently since the announcement of the CIT bankruptcy?
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