ANALYSIS - CIT troubles could hurt; widespread impact uncertain

By Chelsea Emery

NEW YORK (Reuters) - Financial difficulties at commercial lender CIT Group Inc could hurt small businesses that depend on credit to fund their growth and operations, though many of CIT's units serve an important function and are unlikely to disappear if the company restructures in bankruptcy court.

The company, which lends to small- and medium-sized businesses, is scrambling to devise a plan to assure clients and investors it can work its way out of a deepening liquidity crunch, the Wall Street Journal reported on Sunday.

On Saturday, the paper reported that CIT was preparing for a possible bankruptcy filing.

A CIT spokesman declined to comment on Sunday.

CIT said on Friday it is in active talks with the U.S. government to gain access to a key lending program, but there is no guarantee the Federal Deposit Insurance Corp FDIC will allow CIT to join the Temporary Liquidity Guarantee Program.

The government has made it clear that a possible bankruptcy by CIT is not seen as a systemic risk to the financial system, the Wall Street Journal reported, since other lenders including JPMorgan Chase & Co or Deutsche Bank AG can take on many of the same loans in which CIT specializes.

"I don't think it (a possible bankruptcy) would have a wide impact. We're not talking about a systemic issue," said on Sunday a restructuring adviser with extensive experience working with companies in the financing sector. The adviser declined to be named due to the sensitivity of the topic.

A U.S. Treasury Department spokesman declined to comment on Saturday when asked if the administration might consider coming to CIT's aid.