Definition of Cash Crunch
By Dave Manuel
What is a "cash crunch"? What is the definition of the term "cash crunch"?
A "cash crunch" occurs when a company is running low enough on cash so that it starts to have an impact on their operations.
A "cash crunch" doesn't necessarily mean that a company is going bankrupt - instead, it can simply mean that they need to convert some of their non-liquid assets into cash.
Companies need cash to purchase equipment, pay employees, pay suppliers, etc. If a company is going through a "cash crunch", then they may have trouble paying these crucial cogs in their business.
How might a company address a cash crunch? Many companies will turn to the debt markets in order to raise cash. In addition, companies could also choose to unload assets or even sell a part of their company in order to raise needed cash.
Having said all of that, many companies will turn to the debt market in order to address any cash concerns. The problem for some companies is that taking on debt can be just too expensive if they don't have a favorable credit rating.
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