Investors clutched at straws Friday, with CIT Group Inc.'s (CIT) shares and short-dated bonds sharply higher, as the lender's fate still hangs in the balance.

Efforts are continuing to secure funding from bondholders and banks that would help keep the company afloat. Bondholders held calls Thursday to discuss options for the company, including whether to swap some of their claims for an equity stake to cut CIT's debt pile. Another possible debt exchange could involve swapping unsecured near-term bond maturities for secured debt using CIT's unencumbered assets, as well as extending the maturity of the debt.

Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), and Barclays PLC (BCS) are also in early talks to provide $2 billion to $3 billion in financial help for CIT, according to people familiar with the matter. This would include new money, rather than simply rolling over existing debt.

This money could either be used to keep CIT out of court or become debtor-in-possession financing in a worst-case scenario. DIP financing would give the banks seniority over all of CIT's other creditors. Curt Ritter, a spokesman for CIT, didn't respond to requests for comment.

Bankruptcy is still on the table if the rescue talks fail, according to one of the people, who said that a filing could come early next week.

CIT may need as much as $6 billion in funding to avoid filing for bankruptcy protection after talks with the federal government over a rescue package failed earlier this week.

But any deal to save the company will depend on the government allowing CIT to transfer its unencumbered assets to its deposit-taking bank.

"All of these things have to come together for CIT to skirt this problem in the near term," said Chris Munck, high-yield trader at B. Riley & Co.

Discussions on any financing are still fluid, according to one bondholder, who declined to be named.

CIT is an important lender to small and medium-sized businesses. But with only 1% of the U.S. lending market, it isn't viewed as too big to fail in the government's eyes, which gives CIT fewer options. It has reported losses for eight quarters in a row and has been shut out of the debt markets, on which it relies to fund its businesses.

Harold Reichwald, at Manatt, Phelps & Phillips LLP in Los Angeles and who represents some of CIT's manufacturing clients, isn't optimistic about an out-of-court solution for the company.

"In any case like this, you need speedy resolution," Reichwald said. "If there is no speedy resolution, there is little chance of something like CIT succeeding. They need capital, and they need it immediately to support their business."

CIT's short-dated bonds were higher Friday, according to MarketAxess, as market participants bet CIT will reach some sort of deal.

The floating-rate notes due August 2009, the most actively traded bond, were recently up 13 points at 69.5 cents. CIT shares were also higher, up 29 cents, or 71%, to 70 cents at the close.

"There's definitely speculation about some kind of bond exchange over the weekend, but it's just speculation," said Pete Brady of Broadpoint Capital.

Like the common stock, CIT's Series A and Series C preferred stock soared Friday on the potential financing deal, after cratering Thursday on the risk of impending bankruptcy.

In the credit-derivatives market, the cost of protection on CIT debt remains firmly at distressed levels, indicating doubts that a rescue plan will be forthcoming. Longer-dated bonds were also lower.

Insuring $10 million of CIT's senior bonds against default for five years was around 44.5 points upfront, according to Phoenix Partners Group. That's against 49 points upfront Thursday. It now costs investors $4.45 million upfront plus a $500,000 annual fee to insure this debt.

-By Kate Haywood, Dow Jones Newswires; 212-416-2218; kate.haywood@dowjones.com

(Andrew Edwards, Max Murphy, Joe Bel Bruno, Matthias Rieker and Alistair Barr contributed to this report.)