The industry scrambled for financing Thursday as CIT Group Inc. tried to raise capital and avoid bankruptcy after being refused a government bailout.

With CIT on the brink of insolvency, thousands of fall orders booked with the vendor clients of the commercial lender’s factoring arm were pushed into limbo, and thousands of small and midsize manufacturers and retailers sought to figure out financing alternatives in a turbulent and uncertain economic climate.

CIT accounts for about 60 percent of the industry’s factoring volume and lent the apparel industry about $4 billion last year, a 20 percent drop from 2007, according to estimates from trade associations and analysts. The commercial services unit provides factoring services for 2,000 vendors who collectively sell to 330,000 retailers. The firm advances suppliers cash for shipments and lends to small and midsize retailers in a variety of industries.

The 101-year-old lender did not appear at press time to have made any discernible progress in what many deemed to be a long-shot bid to arrange financing. There are some hopes the profitable factoring arm that guarantees shipments to stores could be separated from the company or sold and kept afloat.

Sources familiar with discussions at CIT said the firm was considering having the holding company file for Chapter 11 while some subsidiaries, such as the factoring arm, are excluded from the filing.

A financial executive familiar with CIT’s operations said the factoring business is set up as a separate corporation. CIT spokesman Curt Ritter declined comment.

Many vendors who use CIT as a factor were clearly panicked.

“I’ve had 26 calls from garment center companies since 12 p.m. yesterday,” said bankruptcy attorney Jerry Reisman, a partner at Reisman, Peirez & Reisman. “It’s going to have such a ripple effect that the government doesn’t understand. Tomorrow, if it’s payroll day, how will these manufacturers be able to obtain money for payroll?”

Steven Kolb, executive director of the Council of Fashion Designers of America, said designers were concerned.

“They don’t really know where to turn when the government isn’t going to bail out CIT,” Kolb said. “There is a level of unfairness when you look at some other industries that have been bailed out.”

Fitch Ratings said there was a “high probability” that CIT would file for bankruptcy soon and also cut the firm’s credit rating on $35 billion in debt to “C” from “BB-minus.”

Ultimately, it might be CIT’s own clients who sink the company by drawing down their credit lines, in effect making a run on the bank and soaking up its reserves.

“The company’s already tenuous liquidity position has been further eroded as its customer base has likely been drawing down on its availability credit lines,” Fitch analyst Vincent Arscott wrote in the downgrade.

The ramifications of a failure could be both subtle and dramatic. “A lot of easy money that helped this industry for a long time is not going to be around,” said David Strasser, an equity analyst with Janney Montgomery Scott. “There’s going to be a product that nobody’s going to expect to be big…and they’re not going to be able to get it out there.”

The industry hoped to dodge this bullet with an assist from Washington, which gave CIT a $2.33 billion boost from the Troubled Assets Relief Program in December. But late Wednesday, after days of negotiations with federal officials, the New York-based lender said there was “no appreciable likelihood of additional government support being provided in the near term” and that it was “evaluating alternatives.”

The government apparently concluded the U.S. economy would sustain a CIT failure without damage to the financial system.

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