Just as shunned bank customers continue searching for credit sources, many of CIT Group Inc.'s smaller business clients may also turn to credit unions for alternative financing.
In a July 20 SEC filing, the lender said bankruptcy protection could be an option if it is not able to restructure some of its debts.
"CIT has a lot of challenges. They put together a short-term financing package that may not be that favorable in the short term to meet their liquidity needs," said Stan Van Aartsen, fixed income, senior research analyst, with MEMBERS Capital Advisors. "Personally, I think it delays filing for bankruptcy. The same underlying problems that existed two weeks ago, still exist."
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Credit unions could potentially fill a void left by CIT by providing accounts receivable, lines of credit and general banking services, Van Aartsen said. CIT's "junk bond" status is distressing, said Stu Rossmiller, director of fixed income research at MEMBERS Capital.
"If CIT finds a way to survive, they will have to dramatically shrink their operations," Rossmiller said.
Larger companies with household names that are more financially sophisticated may have an easier time finding credit. It's the smaller businesses that may feel the sting.
"We're talking Granny's quilt shop," Rossmiller said. "It wouldn't be unusual to see these types of businesses turn to credit unions. Their lifeblood is lines of credits."
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