CIT, GE Capital add to factoring businesses

Flags fly at the CIT offices in New York, September 30, 2009.

NEW YORK (Reuters) - CIT Group Inc (CIT.N) and GE Capital announced new deals for their business financing arms, in a sign the companies are taking advantage of traditional banks' reluctance to lend in the aftermath of the global economic crisis.

CIT, which provides financing to small and mid-sized businesses, said on Monday that a subsidiary of Hong Kong consumer goods company Li & Fung Ltd (0494.HK) had hired the company to provide factoring services. Factors advance funds against money that retailers and other businesses are owed by their own customers.

The announcement came on the same day GE Capital, the finance arm of General Electric (GE.N), said it would buy Royal Bank of Scotland Plc's (RBS.L) German factoring and invoice financing business for an undisclosed amount.

Banks sharply curtailed lending in favor of shoring up their balance sheets during the credit crisis. This has helped non-bank lenders grab business.

"Today the banks are not posing any kind of competition because they're not lending," said Daniel Alpert, a managing partner at Westwood Capital. "Grow while you can."

CIT will now provide factoring services to Kids Headquarters, a designer, marketer, and seller of young men's and children's apparel in the United States. The deal is expected to provide about $700 million in additional annual factored volume for CIT Trade Finance, the company said.

Kids Headquarters, which makes clothing under license for popular brands including Calvin Klein, Timberland and Marvel, was purchased last year by LF USA Inc. LF USA is a subsidiary of Li & Fung.

"We've had a long-standing relationship with CIT, so when we acquired Kids Headquarters, it was natural that we would move the factoring business to CIT," said Rick Darling, president of LF USA, said in a statement.

CIT Trade Finance provides factoring and credit protection services to consumer products companies, including apparel, footwear, furniture and home furnishings firms.

Its parent, bank holding company CIT, filed for bankruptcy in November after the global financial crisis left the company unable to fund itself. The company emerged from bankruptcy a month later after cutting debt by about $10.5 billion and deferring significant debt obligations for three years.

GE CAP EXPANDS FACTORING

Separately, GE Capital said the purchase of RBC's German factoring business "perfectly fits our strategic focus."

GE has cut back its finance arm, aiming to lower its exposure to real estate and consumer finance but has been stepping up its presence in commercial lending.

"GE Capital and CIT have an advantage because they have access to capital," said Alpert. "They can take on a lot of higher-quality business that they would have lost to banks prior to the crisis."

(Reporting by Chelsea Emery; Editing by Steve Orlofsky)