CIT bankruptcy could have domino effect

November 3, 2009

Small and medium-sized businesses are wild with concern that the bankruptcy filing of CIT Group will cut off the financing they use to pay employees and creditors, according to an attorney who has many apparel and retail businesses among his clients.

“My phone has not stopped ringing,” said Jerry Reisman, a partner at law firm Reisman, Peirez and Reisman in Garden City, New York. Reisman said he represents 21 groups that depend on CIT for factoring and other financing. He also represents an additional four parties that have applied to CIT for new business financing.

“People were astonished. They don’t know what to do,” said Riesman, who took more than 10 calls during Sunday’s baseball World Series game and at least 10 more on Monday morning before 10 am EST.

“They have to make payroll this week — they don’t know whether they will be able to meet obligations for payroll or for suppliers.”

One of the biggest concerns is so-called antecedent debt, which refers to checks from CIT that its clients have received in the past 90 days, said Reisman.

“Any money received from CIT in payment of antecedent debt is considered a preference, and, under the bankruptcy code, has to be returned to CIT,” he said. “It could cause my clients to have to file bankruptcy. This could have a staggering domino effect. It’s going to be devastating. It will destroy their own businesses.”

Reisman said his firm is trying to find other sources of financing for his clients. “But now the problem is, some of them don’t qualify because credit markets have tightened,” he said. “They don’t qualify for financing from other lenders.”

Dunkin Donuts franchisees are particularly concerned, said Reisman.

“I also have as clients people who want to purchase Dunkin Donuts franchises, who have applications for financing pending. CIT has been the lender of choice, and we’re not sure if CIT will be able to fund the acquisitions,” he said.

How will CIT’s bankruptcy affect your business? Post your comments below:

4 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Here we go again…..

Posted by dorkster | Report as abusive

It’s a shame we have to get such bad news when the global economy seems to be making such a recovery. Let’s hope this doesn’t have the knock on effects discussed and article.

The last thing we need is the dreaded ‘W’ shaped credit crunch so many people are talking about

swansea jobs

[...] bankruptcy could have domino effect CIT bankruptcy could have domino effect [...]

Jon,

The “global recovery” bs is smoke and mirrors. Every small business in America is faced with situations like this. The antecedent debt rule is going to cause havoc on business. I have clients who are getting ripple down effect from large contractors and developers going bankrupt. They are having to file bankruptcy because thier 2 largest customers filed bankruptcy. The court has demanded money they received 2 years ago.

Posted by mark bec | Report as abusive

If CIT common is now worthless, why is it trading on the otcbb

Posted by Tom Moran | Report as abusive