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.

If the company does restructure its operations in bankruptcy court, some clients could suffer, though its most important units will survive.

CIT has been an important provider of credit to not only retailers and retail suppliers, but a vast array of businesses for over 100 years, said Scott Avila, a partner for corporate restructuring adviser CRG Partners, which is not doing business with CIT. So whatever restructuring they go through, I expect CIT or some portion of CIT to continue in the future.

In particular, CIT's factoring business is vital to the retail industry and unlikely to disappear.

Factors buy the right to collect on the invoice of a retailer or other company at a discount to the value of the invoice. Then the factor assumes the risk that the invoice will not be paid.

Still, there could be some pain to the company's smallest clients in the retail industry.

It's a difficult lending environment, and those small retailers that have seen sales slow to a minimum already may have a hard time securing lending sources until spending picks up, said Melinda Crump, a spokeswoman for Sageworks Inc, which tracks and collates the financials of thousands of privately held U.S. companies, in an email.

Businesses that require substantial working capital depend on credit. Changes in financing options could force small businesses into tough choices such as having to fund a portion of their growth from cash flow until other sources of lending were to become available, she said.

Among its services, CIT provides financial products and advice to small and middle market businesses. It has more than $60 billion in finance and leasing assets and operates in more than 50 countries across 30 industries.

The lender became a banking company in December and obtained $2.33 billion of funds from the federal Troubled Asset Relief Program.

But it has lost close to $3.3 billion since the end of 2007, and in a May regulatory filing said it had $10 billion of funding needs to address in the year ending March 31, 2010.

On Wednesday, Fitch Ratings downgraded CIT deeper into junk status, a move that affected $35 billion of CIT debt.

Shares of CIT closed at $1.53 on Friday.