Recent Recession

Credit crunch is a situation where an economic condition in which investment capital is difficult to obtain. Normally banks and investors become cautious of lending funds to corporations which drives up the price of debt products for borrowers. A credit crunch is generally considered to be an extension of recession. A credit crunch makes it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults which might result in higher rates of interest. The result is a prolonged recession which occurs as an outcome of shrinking credit supply. A credit crunch is also known as credit squeeze, finance crunch or credit crisis. This is a situation where reduction in the general availability of loans or sudden tightening of the conditions availability of credit independent of rise in official interest rates. In such conditions, the relationship between credit availability and interest rates has absolutely changed, either credit becomes less available at any official rate of interest or there or it is not available totally. Many times the credit crunch is accompanied by a flight to quality by lenders and investors as they seek less risky investments. The money lenders and financial institutions hesitate to invest into larger venture since they don’t find any security for their investments. Business credit crunch is an economic condition in which loans and credits for investment are become unavailable abruptly. This is largely due to the increase in cost of loans provided by the banks and other financial institutions in an environment in which large losses and asset value write downs are taking place.