As businesses reduced inventory levels and capital spending, they tended to pay down debt and build cash positions. Indeed, in the most recent NFIB study, 34 percent of businesses reported lower sales as their biggest problem while only 3 percent cited lack of credit. And while some potential borrowers seek less credit, others are no longer qualified to borrow.
Weakened balance sheets, reduced income, falling real estate collateral values, and in some cases, a recent history of payment problems, have made it difficult for some businesses and consumers to qualify for loans, especially under the current stricter standards. Other factors unique to the current financial environment may also be weighing on the ability of small businesses to borrow.