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. A significant portion of small businesses rely on the owners’ personal assets and credit to fund their operations. As a result, small businesses are affected by tight consumer credit conditions, in addition to an unfavorable business credit climate.