The drastic reduction on the availability of credit funds makes it difficult or impossible for companies and borrowers to obtain a loan. The lack of funds and unwillingness to loan money dramatically increases the borrowing rate to unaffordable grounds. Generally, business suffers from credit crunch since higher rates are imposed to their borrowed capital while struggling to find financial aid from lenders. Small and big corporations are greatly affected by the ongoing imbalance on the credit cycle. If the regular process of the credit cycle is interrupted, the credit market becomes unstable which slows down the lending activity.

Business companies thrive from borrowed capital which are commonly acquired from banks and independent lenders.  The occurrence of a credit squeeze hinders the proper flow of the credit cycle. When banks refuse to lend them enough capital, company owners will be unable to sustain their production and operational costs. This forces them to impede their existing operation and stop hiring new employees due to insufficient funds. The production and manufacturing of goods suffer a fallback as companies try to cut down their expenditures.

When a business suffers from credit crunch, there options become limited and in order to survive drastic measures must be administered. Cutting down their overall expenses by reducing their employees is seen as the best solution. A collapsing company resort to lay-offs and retrenchments as their last hope for survival. With a limited wok force, labor demand for each individual increases. Instead of being productive their workers will be more exhausted since they will have to double the effort to meet the product and work demands.

Affected companies cut back their marketing and advertising campaign since they do not have enough resources to back it up. The lack of good marketing strategy is reflective of an evident decrease in profit gains. Their product quality depreciates since research and product development is ceased.  A tight budget may not allow them to buy new equipments to ensure their products are of high standards.  When the quality of product becomes questionable, their sales start to decline leading to a consistent drop on their revenues and earnings.

As the company starts to fall down, their stock value depreciates. Investors and stock holders will soon doubt the company’s integrity and will most likely decide to pull out their shares or sell it off. When the majority of stockholders pulls out or resells their shares, it will further aggravate the already depressed situation of the company. Stock price may completely diminish leaving them with no other option but to file for bankruptcy or worst they might have to close the company.

The credit crunch can severely impact both big and small companies. The extent of damage can be massive resulting to the closure of small establishments and even large corporations. Its effects are not only felt by business owners but as well as the labor force that works for them. The economy suffers as unemployment rate rises leading to a meltdown.