Cit Factoring Agreement

Curt Ritter, a spokesman for the CIT, said the company`s factoring volume for the first six months of the year was $US 16.5 billion compared to 20.7 billion a year ago. He added that CIT continues to sign new factoring activities and engage with its customers. Factoring agreements are even harder to come by than their larger cousins — asset-backed loans or ABLs that normally have a provision to evict a lender that has declared bankruptcy, according to an expert. CIT said it has 2,000 factoring customers who serve 300,000 retailers and wholesalers. The business is estimated to be at least five times larger than its next competitor, Wells Fargo & Co WFC. N followed by others like GMAC and Rosenthal & Rosenthal. According to experts, factoring was CIT`s bread and butter business, but the economic slowdown and credit crunch made it more expensive and hurt many retailers in the sector. CIT provides commercial financial services to approximately one million small businesses, mainly in the manufacturing, textile and apparel sector. Many of these customers are small, family-owned businesses with no access to adequate bank financing. CIT finances them by “factoring” their accounts. On the other hand, ABC has a current credit risk of $US 20,000. If CIT fails, ABC will become an uninsured creditor.

It can`t stop monthly payments from Super-Mart to CIT, even to collect the 20,000 $US that really belong to ABC. Businesses that lose access to these types of factoring loans — which range from a few million dollars to $20 million or more — would immediately face cash flow issues, which would mean more bankruptcies in the retail business, Carr said. This copy is for your personal, non-commercial use only. The distribution and use of this material is subject to our subscriber agreement and copyright. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com…