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Credit Card Applications » News » Other » Analysts say Credit Crunch Far from over

Analysts say Credit Crunch Far from over

October 03, 2009
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Financial experts, led by Meredith Whitney, cautioned Americans against being too complacent in the face of better job figures. Even with some indication that the economy is improving, Whitney and other analysts say that the credit crisis is far from being over. In fact, Whitney says that credit market crunch may just be halfway through the tumultuous financial cycle it regularly undergoes during tougher economic environments.

In her opinion column, Whitney focused her attention on the small businesses in the U.S. The well-acclaimed financial expert said that small enterprises employ half of American workers and it contributes 38 percent of the nation's Gross National Product or GDP. Without it, experts say, the U.S. economy can slip into further recession. Whitney further added that these small businesses are finding it harder to find access to credit. She points out that without credit, many of the enterprises will be forced to close down.

Several experts echoed Whitney's observation, adding that many small business are feeling the economic pinch as banks and creditors are cutting credit lines to limit their losses. Some studies conducted in recent months suggest that subsequent cuts can contribute to the eventual failure and closure of small enterprises. Analysts say that the credit industry is reeling from a series of losses due to defaults and late payments. Card companies are resorting thus to slashing credit limits and increasing fees and charges.

Many economic analysts express fear that the continuous decline in credit limits can result in more small enterprises closing their doors and laying off their employees. Without these businesses, experts say, the U.S. economy may never recover fully. Whitney further explained that smaller banks who have not felt the brunt of the recession can help by setting-up business loans on a larger scale. Experts now believe that with the proper motivation and incentives, smaller lenders and banks can provide business loans to struggling enterprises.

If small businesses continue to suffer, Whitney and other experts believe that some $1.5 trillion of credit lines can still be lost by the end of 2010. This would have a tremendous impact on the credit ratings of millions of Americans, resulting in fewer financial opportunities and less access to credit.

Some analysts are also calling on entrepreneurs to manage their credit debt more wisely by cutting back on non-essential purchases. They also suggest avoiding charging personal purchases to business cards because these may only compound the growing problem.

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