Commercial lender CIT Group Inc. moved closer to bankruptcy this week after talks with the government about emergency funding broke off, the Associated Press reported.

According to The Wall Street Journal, CIT had given existing debtholders 24 hours to decide if they could provide an additional $2 billion in rescue money to support the company, but didn’t receive much response. Late yesterday, the company said days of discussions with government regulators about a possible rescue had ended.

Though the company is small relative to other big commercial banks and is one-eighth the size of Lehman Bros. Holdings Inc., which collapsed last year, CIT has about a million clients, mainly small and mid-size U.S. businesses.

Shareholder investments and $2.3 billion in government bailout money provided last December would be wiped out in a bankruptcy filing, but CIT’s clients would not automatically lose their lines of credit, said banking analyst Bert Ely. By halting negotiations for a rescue, the federal government is betting that CIT’s failure won’t severely damage an economy already deep in recession and suffering from rising unemployment.

CIT has started cutting back on lending in recent months, which could lessen the blow to the economy if the company files for bankruptcy. The lender had $5.3 billion in credit lines to customers as of March, down from $6.1 billion at the end of last year.

CIT has $7.4 billion in debt due in the first quarter of 2010, plus other obligations. It had $75.7 billion in assets as of March 31.