Lending Freeze

DEFINITION of 'Lending Freeze'

A period of time when banks either do not have excess money to loan or implement strict rules regarding loan qualification so that less lending is approved. This is a protective measure by the banks to ensure that they do not run out of capital or expose themselves to increased risk. The result is that borrowers have less access to loans, and therefore are unable to secure a mortgage, an automobile loan or business loans, which can negatively impact hiring and expansion.

BREAKING DOWN 'Lending Freeze'

Lending freezes occur when banks need to protect against further losses. Banks may not halt lending altogether, but will become more selective when it comes to handing out loans. The credit crisis of 2007-2008 forced companies to make difficult choices; without access to loans, many corporations were forced to make large-scale layoffs, while individuals had very little chance to secure credit.