Reasons
for Hard Capital Rationing
Reason
for hard capital rationing may be explained in liquidity shortage, poor credit
history, new entry, high gearing.
1. Liquidity Shortage
First
reason for hard capital rationing may be liquidity shortage in the market. It
means market is not offering credit due to shortage of fund in the market.
2. Poor Credit History
Second
reason for hard capital rationing may be the poor credit history of the
organization. it means company has a default or late payment history. In such cases
bank feel shy to offer credit to the company.
3. New entry
Third
reason for hard capital rationing may be the new entry in the market. There is
not sufficient data available about the entity to judge its performance and
financial position, and therefore entity may face problem to arrange funds.
4. High Geared Company
Fourth
reason that company is high geared or very high geared. Such company carries
high risk for nonpayment. in high geared company the share holder carry very
low financial risk, and company may be subject to high risk taking projects.
