Harley-Davidson Inc. (HOG)'s lending arm, once a huge money-maker, has become the motorcycle maker's biggest headache as funding becomes harder to get and customers struggle to repay loans.

The company, which on Friday reported a 58% slide in fourth-quarter net income, said its Harley-Davidson Financial Services unit has $1 billion in unmet cash flow needs for 2009.

Harley said Friday its best hopes for filling the gap are to borrow unsecured debt or tap a federal fund designed to meet the credit needs of households and small businesses. Both options are far from surefire.

"That's really what we're concerned about right now - can they manage their cash and can they take out new debt?" said Edward Jones analyst Robin Diedrich.

The lending unit, which helps consumers finance their motorcycles and independent dealers their inventory, was a drag on Harley in the fourth quarter.

Lending on the iconic bikes was prime business back when credit was easy to obtain and Harley's relatively high-income buyers had little trouble repaying loans. But Harley is no longer immune to the same troubles racking mainstream manufactures, such as Detroit's troubled auto makers.

The financial services segment swung to a loss of $24.9 million on $63.5 million in write-downs due to higher projected credit losses.

Despite tightening lending standards in 2008, Harley expects credit losses to continue into 2009.

At the same time, Harley predicts sales will continue to slow this year. The company's U.S. retail sales dropped 20% last year, though international sales were up 0.7%.

The results came as Harley said it will cut about 1,100 jobs, or about 11% of its work force, over the next two years as it scrambles to restructure. The company expects the job cuts to result in charges of $110 million to $140 million over 2009 and 2010 and expects to save $60 million to $70 million a year through the moves.

Adding to the uncertainty at Harley-Davidson Financial Services is the abrupt departure earlier this month of financial services chief Sy Naqvi.

"We've been taking good underwriting actions, however we are facing a lot of headwinds out there," said Harley Chief Financial Officer Thomas Bergmann, who is heading the financial services unit on an interim basis.

Bergmann said Harley will look to borrow unsecured debt as one of its top options. The company hopes to access the federal Term Asset-Backed Securities Loan Facility put in place late last year to help struggling small business and consumers. Bergmann said Harley meets conditions that would make it eligible for funding.

The company also filed a shelf registration statement last month, which registers securities that the company may periodically offer for sale.

The financing unit has participated in the Federal Reserve's commercial paper facility, even as it taps other sources to meet short-term funding needs.

Analysts who questioned Bergmann and Chief Executive Officer James Ziemer during a conference call on Friday were far from appeased by those options given the inaccessibility of credit and uncertainty around securing federal funds.

Bergmann made the case that Harley's financial unit is well-positioned to succeed, despite the challenges.

"Clearly the reality of the capital market and access to funding has changed," he said. "There is still a lot of great expectations of the HDFS business as well as the strategic value."

Shares of Harley-Davidson were trading down 10% Friday morning. The stock has fallen more than 70% in the past year.

-By Sharon Terlep, 248-204-5532; sharon.terlep@dowjones.com.

(Kerry E. Grace contributed to this article).

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary. You can use this link on the day this article is published and the following day.