The Federal Fund Rate has also risen to 1.5% and now there is a credit freeze as financial analysts like to call it. Small businesses as a result have faced the crunch even more because of the increase in the cost of capital. Interest rates are also rising which has dampened the spirits of many investors since 70% loan officers according to a survey have reported that the interest rates are increasing enormously and small investors are feeling the crunch badly.
This increase in rates is again record breaking as a result of a survey. The loan spreads are being lowered as a result as according to a survey 30% of loan officers during 2007 claimed to be lowering the spread which confirms the widespread effects of the credit crunch. The financial crisis and economic slowdown have been placed at 2 which is the second most important factor in the economic reasoning to come to an answer for the question. Since credit availability is an issue and unemployment is increasing continuously thus starting up a business is a bad option in the slow economy since everyone is feeling the credit crunch. Many surveys conducted confirm the concern over the credit crunch situation in the slow economy. 63% of the small businesses are suffering from the credit crunch according to survey thus the conditions are beginning to get tougher for small and new businesses (SBA, 2009).
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