Credit committees were often approving only 25 per cent of viable applications due to capital rationing
and taking a very selective stance.
The continued impact of that capital rationing
can be seen even now as some of the UK's biggest banks withdraw from parts of the SME lending market such as asset finance.
A company may adopt a posture of capital rationing
because it is unwilling to use external sources of financing for its capital expenditures.
The case provides an opportunity to consider the effects of capital rationing
IRR has also been criticised because it doesn't always correctly evaluate mutually exclusive projects or ensure the best allocation of resources when capital rationing
While it is typically assumed that all value-generating projects should be accepted, Shapiro addresses the important issue of limited project choice due to capital rationing
or mutual exclusivity in the chapter's appendix.
Successful financial managers must arrange funding from various sources, some of which are not traditional lenders; consider strict capital rationing
for new capital projects; ally with partners to meet the company's strategic mission; and be prepared to motivate credit sources with equity sweeteners.
On the topic of planning he talks about capital rationing
and shows how a nine-step Heuristic approach works in the process of selecting a project from a list of several.
Second, a greater use of the payback criterion is likely to be accompanied by more capital rationing
within the firm.
Chapter 6 (Financial Planning) provides a typical discussion of asset-side decision rules, capital budgeting and capital rationing
Chapter 12: Evaluating Project Economics and Capital Rationing
By contrast, soft capital rationing
exists where the restriction on funding is imposed by the managers of the company--and where they could agree to ease that restriction.