CIT bankruptcy could have domino effect
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.
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