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Obama must save CIT

The fate of CIT is on everyone’s mind this morning. A lender to almost one million small businesses, CIT is a pivotal lifeline for many franchises, and quite simply, it needs to be kept alive for the sake of the American economy.

The signs don’t good look for CIT. The latest reports state that talks between CIT and the government broke up last night with no resolution to the crisis. CIT is seeking a second bailout from the Obama administration (they were given $2.33 billion in December from the government), but CIT sources told the Wall Street Journal there was "no appreciable likelihood" that further funding was imminent. CIT has said that is currently ‘evaluating alternatives’. Yahoo reported that CIT might declare bankruptcy as early as last night, though it survived the night, it has ceased trading on Wall Street.

We cannot speak for the US government. We have not seen CIT’s balance sheet and we sympathize with reports saying that CIT’s initial bailout will not be salvaged.  But we do know how dependent franchises are on lenders like CIT. It is our belief that like AIG or GM, CIT should not be allowed to fail. It is one of the main providers of capital to America’s small business sector and, while  it is unclear what would happen to the many franchises out there should CIT fold, this is not good news.

Again, the government has pumped trillions into the economy in the last year, largely to save the poorly-run financial sector and automotive companies. As we have seen over the years, small businesses are the lifeblood of the US economy. Franchises are ready to lead the American economy back on track, as they have done in the past. But should a leading loan provider for franchised businesses go under, how will aspiring franchisees open new units? How will enterprising franchisors spread their business concept?

CIT is the top originator of SBA-backed franchise loans. IFA president Matthew Shay has written Treasury Secretary Timothy Geithner, urging him to save CIT.

“The volume of CIT’s small business lending is down dramatically this year, and we are very concerned that allowing CIT to enter bankruptcy will send the wrong signal to small businesses on Main Street,” Mr. Shay said in his letter.

Something must be done to save CIT. Time is running out.

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