CIT Group Earns A Profit After Bankruptcy

May 29th, 2010 by Reed Allmand

One of the nation’s largest business lenders, CIT Group, has reported that it has turned a profit in the first quarter of this year after emerging from bankruptcy. CIT Group earned $97.3 million as of March 31, 2010 and generated $900 million in new loans and leases after exiting bankruptcy.  However, short-term loans have suffered since the company emerged from Chapter 11 bankruptcy.

Loans from CIT Group’s factoring business fell in the first quarter because of seasonal trends and the residual effect of some clients ending their agreements with the company last year.

Factoring is short-term financing that guarantees that suppliers get paid by merchants. The loans provide cash to suppliers that can’t afford to wait the 60 to 90 days it takes to get paid for shipments to retailers.

The drop in the company’s short-term financing could have a negative impact on retailers who are still suffering financially from a drop in consumer spending.  Suppliers who are unable to receive these important loans may begin demanding upfront payment from retailers, especially those who seem at risk for bankruptcy.  Already, many retailers who are facing bankruptcy face cash demands from suppliers who fear they will not be paid if they retailers file bankruptcy.  The ability of CIT group to revitalize its short-term lending will be important for retailers wishing to keep a steady flow of supplies without being required to produce upfront cash.  However, if the retail industry continues to experience a large amount of bankruptcy filings, many lenders such as CIT Group could remain wary of lending suppliers.