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MONEY

More Trouble Ahead for Small Business Loans
 

A struggling lender's sale could further tighten small firms' access to capital.

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Small businesses have one more reason to worry about getting a loan.

CIT Group, the struggling financial institution that was once one of the biggest commercial lenders to small businesses, will soon be on the auction block, according to various news sources including Bloomberg News, the Wall Street Journal, and Fox News.
 
Wells Fargo is considered the most likely buyer, with the lender poised to fetch up to $10 billion, sources said. But an acquisition by Wells Fargo would reduce the number of competing small business lenders, and by doing so could further constrain small business bank financing.
 
Since 2008, when the financial crisis began, small business loans have fallen each year. In 2011 alone, the aggregate number of small business loans under $1 million fell 7% to $607 billion, according to the Small Business Administration.
 
Under its current leadership by former Merrill Lynch banker John Thain, CIT has grown since its 2009 bankruptcy filing--but primarily by making loans to private equity firms focused on small and medium-sized business mergers and acquisitions, rather than via traditional small business lending, the firm's previous bread and butter.
 
Trade newspaper American Banker cited sources inside CIT in late 2011 saying the lender was looking for a partner to bolster its new growth path. On Monday, the Wall Street Journal reported that CIT would make a good partner for Wells, which in recent months has also been trying to beef up a unit focused on small business merger and acquisition advice. CIT president Nelson Chai first raised the prospect of a sale in June.

Wells Fargo, the fourth-largest bank in the U.S. by assets, is also an important small business lender. It was the top 7(a) lender, according to the SBA, making nearly $600 million of such loans during the first half of the federal government's fiscal year 2012, which ended March 31. Wells Fargo ranked No. 25 for all small business loans under $1 million in 2011, which is the most recent data on lenders from the SBA.
 
 CIT stock was down 2 percent  to $40.41 and Wells Fargo was down three quarters of a percent to $35.44 in late afternoon trading on Tuesday.

 

Last updated: Sep 25, 2012

JEREMY QUITTNER is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.
@JeremyQuittner




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