DEFINITION of 'Financing Squeeze'

A situation in which would-be borrowers find it difficult to obtain funds because lenders are afraid or unable to make loans. A financing squeeze can also occur if credit is available, but only at a price that is unaffordable for most potential borrowers. A severe financing squeeze was a major component of the Great Recession of 2008.

BREAKING DOWN 'Financing Squeeze'

Causes of a financing squeeze, also known as a credit crunch, include increased lending risk (for example, because many borrowers have been defaulting on their loans) and/or increased capital requirements (when governments force banks to hold more money in their reserves). A financing squeeze can affect all types of potential borrowers, from large corporations to small businesses to individuals.

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RELATED FAQS
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    Learn about short long squeezes, the difference between short and long squeezes, and how investors and traders can be squeezed ... Read Answer >>
  2. How does a credit crunch occur?

    A credit crunch occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to ... Read Answer >>
  3. How can I evaluate if a stock is a short squeeze?

    Determine whether a stock is a short squeeze by studying the catalyst that caused the rally. Traders need to determine whether ... Read Answer >>
  4. How is the short interest of a company related to a short squeeze of a company?

    Learn about the short interest and short squeeze, how to determine if a stock is a short squeeze candidate and how short ... Read Answer >>
  5. Why do high profiting sales mitigate credit risk?

    Learn more about credit risk in loaning to individuals and businesses. Understand how credit risk is determined and the impact ... Read Answer >>
  6. How does days to cover a short position relate to a short squeeze?

    Learn about days to cover and how it relates to a short squeeze. Smart traders can use this metric to help them avoid getting ... Read Answer >>
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