1. While it does involve taking on debt, why is credit so important for businesses to function? The recent global recession impacted people and businesses in different. ways, including the temporary restric- tion of credit both for businesses and individuals. As the recession worsened, banks turned inward and significantly reduced or stopped lending money and businesses began having difficulty accessing credit. Bank credit usually falls under a busi- ness's notes payable or long-term debt. This increases liabilities on the balance sheet because businesses must pay off this debt over a certain time period. A com- pany that depends too much on credit might incur long- term debt that they will be unable to pay off, resulting in bankruptcy. However, during the recession, the opposite problem occurred: a severe reduction in credit and loans. While credit does result in debt, it is usually necessary in order for small business owners to have the necessary funds available to start a business. Indeed, small business owners were among those most impacted by the loss of credit, which in turn harmed the economy. It is estimated that the U.S. alone supports 27 million small businesses, making up roughly 50 percent of the economy. Many small businesses that rely on credit to survive were forced to lay off employees or shut down altogether, resulting in the loss of hundreds of thousands of jobs. A business that suf- fered from loss of credit is Capitol Hill Bikes. The company flourished pre-recession, but once the recession hit, the bank reduced the shop's credit and consumer traffic flow decreased. Owner Denise D'Amour could not afford her rent. Eventually, the business ran out of credit and began running through cash reserves. The company had to strug- gle to stay afloat.