At the same time, the deteriorating situation of firms and particularly the uncertainty surrounding their economic outlook also made banks increasingly reluctant to grant loans to SMEs. Moreover, the financial crisis has put a strain on banks’ balance sheets, leading them to increasingly tighten the terms and conditions for granting credit.
More recently, firms have used credit derivatives, a relatively new type of derivative that allows them to purchase protection against the risk of loss from the default of a given entity. By purchasing such protection, financial and nonfinancial firms alike can reduce their  BIS Review 12/2004  1  exposures to particular borrowers or counterparties.