CIT Group is moving nearer a deal to get help from the Treasury and the FDIC as the firm struggles with a cash crunch that threatens to choke off credit to small businesses.

The company is known as a major lender to thousands of small businesses, as well as larger companies such as airlines, railways and manufacturers. House Financial Services Committee Chairman Barney Frank, D-Mass., told Reuters that the package could include a temporary loan, access to the Federal Reserve’s discount window and asset transfers, and possibly to the FDIC’s government debt guarantee program as well. The company previously got $2.33 billion in TARP money last December, but it is facing a critical cash flow shortage as small businesses draw down on their credit lines, fearing the collapse of the lender.

American Small Business League president Lloyd Chapman urged President Obama not to let down CIT and the businesses it supports.

“CIT makes successful loans available to thousands of hardworking small business owners that had been turned down repeatedly by other lenders,” he said. “CIT’s unique ability to work with new entrepreneurs and small business owners trying to expand their businesses will be impossible to duplicate.”

With small businesses still suffering from the credit crisis, the collapse of CIT could prove to be the kind of systemic risk that the financial bailout program was set up to prevent. Even though the U.S. is suffering from a case of bailout fatigue, this may be one rescue that the Fed can’t afford to pass up.

Note: The Wall Street Journal and NBC News are reporting Thursday morning that the CIT government rescue talks have collapsed and the company may need to file for bankruptcy in the next day or two unless it can get at least $2 billion in rescue financing from its existing debtholders.

Source:  http://www.webcpa.com/debits_credits/CIT-Reportedly-Close-Getting-Federal-Aid-51062-1.html