How does crowding out affect the availability of credit for start-up companies?

How does crowding out affect the availability of credit for start-up companies?

Crowding out refers to the phenomenon where increased government borrowing leads to a decrease in the availability of credit for private borrowers, including start-up companies. When the government borrows more money to finance its spending, it increases the demand for credit in the financial market. This increased demand for credit leads to higher interest rates, making it more expensive for start-up companies to borrow funds for their operations and expansion. As a result, crowding out reduces the availability of credit for start-up companies, making it more challenging for them to access the necessary funds to grow and thrive.