Owners Of Smaller Businesses Face Tightening CreditOwners Of Smaller Businesses Face Tightening Credit

During the dot com boom, option grants and stock prices dominated water cooler conversation. Then after that blew up, financial small talk shifted to how far underwater those (worthless) options were, but even that dismay was leavened by the relentless increases in real estate values. Now the talk is about what bank will fail next, will the credit markets seize up entirely, and when your essential business equipment will be liquidated.That the Dow is bouncing to and fro like a game of pong isn't calming any nerves and impotent is the modifier of choice for government right now. And globalization isn't going to be the saving grace -- banks with umlauts are getting bailed out and according to at least one report this would be far worse without the Chinese National Day celebration.

So what's going on? One of the most straightforward explanations of the current crises that I've seen comes courtesy of journalist and author Seth Hettena (full disclosure -- I know him) who lays out how the "average Joe" will see this affect their life.

And though most small and midsize businesses have more evolved financing resources and concerns than the typical citizen, few can call upon the resources (must less expect a government bailout) that large enterprises command.

That access to resources might explain the perspective of Microsoft's Steve Ballmer:

"Our industry is not immune to what goes on in the global economy. And yet as I travel...given the current circumstances, people still see a certain buoyancy in the marketAt least, for now, people are feeling, I won't say optimistic, but better than you would be feeling if you are watching CNBC all day,"

Admittedly, he said that last week and this week (yesterdays nose dive at least) might change his view. By contrast, the consensus on the outlook for SMBs is less rosy. According to a National Small Business Association (NSBA) report, 67% of the business owners were affected by the credit crunch in August (up from 55% in February) and 32% reported a deterioration in the terms of available loans (up from 27%). Said NSBA president Todd McCracken:

"If there is a squeeze on banks, even if only large investment banks, the repercussions can easily flow over into commercial bank loans. Based on what history suggests, if banks have to pull back, they'll pull from small business loans first."

And sans credit (or in the face of a bank failure), business owners will have little choice but to rein in spending, stop hiring, and start looking at potential cuts. That's even more troubling for the broader economy, given the recent ADP report showing that while overall employment has declined (down 33,000 jobs in August), smaller companies have been hiring (adding 20,000 new hires in August). And don't forget that according to SBA estimates, roughly half of all non-government employees in the U.S. work for small businesses. From an economic system perspective Small Is Large (and this isn't new).

Polemics for the government plan that may or may not happen aside, the outlook for business owners isn't tinted rosy right now. But John Jantsh of Duct Tape Marketing did have one tidbit of advice when I spoke with him yesterday:

"Now's the time to narrow focus and find a clear point of differentiation -- a product or services that no one has or is delivered or packaged differently. Now can be a great time to buy market share if you focus your target."

More From bMighty: Financial Crisis Survival Kit