Cash-strapped consumers who are cutting back on spending? Check. Rising commodity costs? Check. Stratospheric energy prices? Check. Small businesses have been hit with a triple whammy of challenges this year. Now comes what might be the biggest blow of all: traumatized credit markets. It couldn't come at a worse time. Just when business owners are most in need of loans to help them survive slowing sales and rising prices, the meltdown of banks such as Lehman Brothers ( LEH) and Washington Mutual ( WM) have made other institutions wary of lending to anyone, no matter how good their credit. Enter the government's much-debated bailout plan. Throughout all the haggling in Washington, both political parties agree on the basic goal: buying up the nearly worthless mortgage-backed securities clogging the financial system. The big question: Will it help small businesses? According to an August survey by the National Small Business Association, two-thirds of its members said they had been affected by the credit crunch, up from 55%in February. Nearly a third of the small-business owners surveyed said terms on their outstanding bank loans had become less favorable in the past year. The Discover Small Business Watch, a monthly survey of 1,000 small-business owners commissioned by the business-card unit of Discover, recently found that 73% think economic conditions in the U.S. are getting worse. Almost three-quarters of those who had sought loans said it's gotten harder to borrow money. Even banks that aren't turning over their books to government regulators have gotten jittery. This week, the rate that banks charge one another for short-term loans (the Libor, or London interbank offered rate) shot to its highest level ever. That means banks are holding off on lending to one another -- and, therefore, less willing to lend to businesses and homeowners.
But don't stuff your remaining cash under the mattress just yet. Look beyond the headlines, and you'll see the news isn't all bad. That same Discover study found that most respondents were taking home less money due to the tough economic climate, but 67% of respondents had not been forced to seek loans. "The fact that small-business owners are not borrowing during these times hints at their independence -- from Wall Street and other economic factors -- as well as their flexibility in finding ways to keep their businesses going," said Ryan Scully, director of the Discover Business Card. Businesses that do go in search of loans may find the largest bank chains in crisis mode, but there are other options. According to the nonprofit association Independent Community Bankers of America, there are about 8,500 community banks in the U.S., with assets ranging from $10 million to a few billion. The vast majority never got tangled up in mortgage-based securities or other risky financial derivates, which means their balance sheets are solid. "The community banks are benefiting here," says Lynn David, president of Community Bank Consulting Services in St. Louis. "Banks that kept to their market, with proven borrowers, are doing just fine." David mentions a client, a bank in Pennsylvania, that has started getting referrals from loan officers at a competing bank that's no longer funding new loans. "The biggest banks are not as proactive in taking new loans," says David. Americans understand that the government plan isn't a bailout per se, handing free passes to the financial whizzes who got us into this mess in the first place. It's a way to thaw a widespread credit freeze that's affecting everyone from the neighborhood diner to the Fortune 500 company. So, yes, the bailout is good for all companies, no matter what their size. But don't let all the drama make you think small businesses are on the point of collapse. Small-biz owners are nimble, creative and persistent. It takes more than a Wall Street meltdown to topple them.