The US government has not underwritten borrowing by CIT (CIT) and now the company faces a cash shortage which could push it into Chapter 11. If the government looks more closely at CIT's core business, it may decide it should come to the financial firm's rescue.
According to The Wall Street Journal, CIT is "a lender to almost a million mostly small and midsize businesses across the country." While it is not clear whether any of these loans would be affected by a bankruptcy, firms of this size employ well over half of American of the American working population and access to capital is critical to their ability to keep current payroll levels.
The Obama administration is so keen to help small business as a way to push unemployment down that it is considering using bailout funds to help struggling firms. According to The Washington Post. "The Obama administration is developing an initiative to take money from the $700 billion rescue program for the banking system and make it available to millions of small businesses." This goal could be undermined if CIT goes into Chapter 11.
If the government is serious about helping the prospects of the small business owner, it won't let CIT go under.
Douglas A. McIntyre is an editor at 24/7 Wall St.