Credit crunch

Lenders may reduce amounts, withdraw facilities, demand more security or apply stricter eligibility conditions because of funding, capital, confidence or credit concerns. The effect is not identical to a business voluntarily limiting investment or to every rise in interest rates. Assess whether the constraint arises from credit supply, weaker demand or the borrower’s own circumstances. Reduced access can create refinancing and working-capital pressure even for an otherwise profitable business. The causes, timing and policy responses depend on the particular financial system and event.