By now, we should have all heard about the economic phenomenon that has got individuals to small businesses to corporate giants shaking in anguish, with the thought of what will happen to them next. This occurrence is called the credit crunch.
What is actually meant by the term credit crunch is a sudden decrease in the availability of finance. The reason for this might be due to a change in market conditions, increased fear of economic risk and even a tightening of under-writing.
This credit crunch is not a localised happening and is actually a global problem. The trouble initially happened in the US, when the adverse lending sector (lending to those who have low incomes or bad credit) started to encounter economic shortfalls. This in turn lowered money supply in the US economy and amplifies the recession effect.
Since the fears of recession reached English shores last September, the credit crunch has affected all financial sectors, making lift very hard for both consumers and lenders. The lenders have been hit hard because they haven't been able to get finance on the wholesale money markets, as well as the increased costs associated with inter-bank lending. So the knock on effect has meant it has been more expensive and more difficult to raise the finance needed for lending.
For consumers, this has had the knock on effect of making it harder for borrowing. It is also more expensive as lenders are trying to protect themselves as much as they can from the consequences of the credit crunch. loans, credit cards and mortgages are among the main finance products that have been tightened up, by not allowing people with certain credit to get them at all and by setting very high interest rates.
It is predicted by the experts that the effects of the credit crunch are only going to get worse over the next year. As well as this being fundamentally bad for our economy, it is an immediate problem for people trying to get finance in the form of loans or credit cards, due to the increased strictness being enforced by lenders in the UK.
However, it is not everybody who will not be able to get credit because of the credit crunch. If you have a decent credit history, you will be able to still get credit, albeit at a slightly higher interest rate. The shock will be to people who have slightly damaged credit, who would have easily passed for credit last year, but will struggle to find a good rate now.
Also, do not make the mistake of rushing to take out the finance you need, as you will end up going for an even more expensive option than perhaps you could get, through being worried that is the only offer for a loan you will get. It is still worth comparing credit cards, loans and other finance options, so you get the best deal in the long run.
For businesses, the same worries apply, but there are other options available in terms of getting finance. In the last ten years there has been a huge influx of finance companies for equipment and IT leasing.
Technology analyst firm, IDC, has estimated worldwide IT leasing and financing market was worth at least £35 billion in 2020. By the time comes around it is expected that the market would have grown to around £50 billion.
Equipment leasing commanded around 70% of all financing and leasing in the world last year, but the IDC forecasts that this will drop 50% by . They also say that software and services financing will grow to make up the other 50% of the worlds market.
Equipment leasing and IT finance are definitely alternatives for businesses, and as brokers will have dozens of lines of credit across a broad spectrum, that can be accessed, it is very rare they will ever turn anyone down.
More and more of those affected by the credit crunch will go to these equipment leasing and it leasing companies for their needs, as they need an alternative. As well as this, the credit crunch will show people the value of actual cash (and not spending it), and will make them seek and encourages the use of these alternative credit lines (when available).
has already been a tough year and it could get tougher. Lending policies are firmer, lending volumes will drop, house prices are getting lower and lower, and it seems the general economy will suffer as public spending diminishes. However, things will get better, so just hang on in there and spend wisely.
For services in IT finance and IT leasing take a look at IQ Finance.