Financial Constraints
Short definition
Financial constraints are the firm’s inability to fund a positive-NPV job at an internal price. An external finance premium, collateral, covenants and credit standards produce the constraint.
Detailed explanation
A constrained firm depends more on cash flow; investment–cash sensitivity rises. The constraint arrives as price (spread) or quantity (no line); in Türkiye the quantity channel is often the binding one.
Measures are indirect: refused credit, more collateral, a dividend cut, a forced asset sale. Constraint does not only raise WACC; it creates a rationing shadow price.
Why it matters for the CFO
Growing above SGR under constraint is a working-capital crisis. Even if the policy rate falls, tight standards keep the constraint.
How to read it
Constraint is a continuum, not a binary. Ratings, collateral and bank coverage change how loose it is.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.