By Anne D'Innocenzio & Stephen Manning, AP Business Writers

WASHINGTON (AP) — The bankruptcy of a key lender that helps retailers stock their shelves is adding to the industry's worries ahead of the critical holiday shopping season.

CIT Group Inc. filed for Chapter 11 bankruptcy protection Sunday in New York after months of struggling to avoid collapse. The company provides badly needed credit to thousands of small and mid-sized businesses, and is a critical part of the flow of capital in the retail sector.

CIT stressed that its lending operations will continue to operate as it proceeds through bankruptcy with the hope of shedding $10 billion in debt. Chairman and CEO Jeffrey M. Peek said the company's prepackaged reorganization plan "will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy."

But retail groups and analysts warn that the case will likely add to the instability in the retail sector. CIT is an important source of capital, working with 2,000 vendors that supply merchandise to more than 300,000 stores. About 60% of the apparel industry depends on CIT for financing.

In the last few weeks, the nation's stores have begun filling their floors with holiday merchandise, but they still need a reliable source of lending to prevent shipping disruptions and to restock after the holidays. Even one day that vendors are cut off from much-needed financing could create a bottleneck, resulting in shipments of merchandise left on docks or in vendors' warehouses.

CIT expects to emerge from bankruptcy by the end of the year, but a dragged-out case or any glitches could further disrupt the already tight credit markets for retailers, said Joe Alouf, a partner with Eaglepoint Advisors, a crisis management company that is partly owned by Kurt Salmon Associates.