Saturday, October 3, 2009

Let's talk about CIT baby, Let's talk about you and me. Let's talk about all the people that could lose their financing.

From the CIT website:
'Factoring is an agreement between CIT and your company in which CIT purchases your accounts receivable and, in non-recourse arrangements, assumes responsibility for your customers’ financial inability to pay. If a customer is financially unable to pay, CIT makes payment on undisputed, approved invoices. CIT extends credit to your customers, collects the accounts receivable from your customers and performs the related bookkeeping functions. As needed, CIT may also provide cash advances against open receivables prior to collection.'

From personal experience let me say that the last line is all you care about if you are a small business owner. You're not giving them a lien that includes everything and your pencils for the heck of it. When you factor your receivables you now have cash flow.

Its' the big step up for any entrepreneurial dream. Now you can have some smart guy or gal sit next to you and tell you about multiples and how you can by focusing on the top line and outrunning the churn make a payday for yourself.

In truth factoring arrangements either end up with the small business owner either paying the factor off through liquidation, selling the company or switching to another factor.

The most optimistic but least likely scenario is that it allows you to fuel such expansion that you can graduate to better facilities.

One truth stands out however, once you factor you don't go back and without it you don't exist.

How many businesses depend on CIT for existence?

Enough to still make it the 5th largest bankruptcy if it occurs.

After all on July 16th ...for investors in [CIT] the company's bonds, "the prudent course is to brace for bankruptcy," per CreditSights.

One would suppose if you are still relying on CIT to get that wire into your account for the billing that you just finished getting out yesterday in order to meet your payroll that week then you really have no other choice.

Seriously once you factor you don't go back and if I'm here and you're here doesn't that make it our system and isn't that really systemic?

By Bob Blandeburgo
Money Morning
October 3rd

We believe CIT may need to reduce its debt burden by approximately $9.3 billion to regain access to the unsecured capital markets,” CreditSights Inc. analyst Adam Steer said in an e-mail obtained by Bloomberg News. By targeting $5.7 billion, “we question whether CIT is improving its profile enough,” he said.

(Mr. Hand what's wrong with a little money for our system? AIG could lose another 4 billion and crickets would chirp.-AM)

CIT said its bank and its operating units would not be a part of the bankruptcy filing, which would technically leave its day-to-day functions unimpeded.

A CIT bankruptcy would be the fifth-largest of its kind by assets in U.S. history, following Lehman Brothers Holdings Inc. , Washington Mutual Inc. , WorldCom Inc. and General Motors Corp., according to WSJ.

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