The latimes.com published a small business makeover plan to help entrepreneurs find affordable financing for expansion plans. The article reported that small business owners in struggling industries like construction and real estate are trying to increase existing credit lines to $100,000 or $200,000 and form joint ventures with larger companies to save face with lenders.

The recent sub prime collapse has stunted credit access for small businesses looking for long-term financing. Banks hesitancy to lend to sectors directly affected by the waning housing market – construction, real estate, mortgage brokerage – has prompted these entrepreneurs to explore alternate financing means. Apart from forming a joint venture or increasing existing credit lines, small businesses can look at leveraging up to 75 percent to 80 percent of their accounts receivables.

For more information on accounts receivables financing or other ways to build business credit read our breakdown of the best business loans according to industry type.

Small businesses suffering from an overly conservative lending market may find are now looking to hedge funds for asset-backed loans, according to a report by www.businessweek.com.

Banks, rattled by the $400 billion loss in bad investments over the past year, have largely cut off lending to small businesses throughout the U.S, forcing entrepreneurs to explore unconventional financing methods. Hedge funds providing asset-backed loans - commercial loans secured by the business’s inventories, equipment, accounts receivables, real estate or other collateral – have become a popular source of credit.

Since the 4th quarter of 2007 lending from 300 asset-based lenders has dropped substantially. Unlike larger corporations, small businesses don’t have large reserves to float the business through tough times. Asset-backed loans from hedge funds generally cost 2 to 3 percentage points higher than the prime rate, require asset appraisal, and may involve physical inspections. Fortunately, the processing time is only a 2 to 3 weeks.

Struggling to recover from the multibillion-dollar losses, banks are reducing loans to small business owners. Without a working capital cushion, business owners cancel expansion plans and slashing costs, stunting macroeconomic growth.

The depletion of small business funding sources like commercial and industrial loans and short-term commercial paper applies pressure on entrepreneurs while gas prices rise and home values plummet. In the past, banks lent much more freely, but younger and smaller companies should see credit lines completely dry up over the next few months.

For small businesses with a solid credit history and profitable margins, credit is still available but at a higher rate and a longer approval process.

Additional Resources:

• Learn about alternative financing methods to safeguard your business against financial crisis.
• Find out how to control business expenses and reduce unnecessary expenditure.
• Weigh your financing options and receive one-on-one financial advice, register and fill out a loan application.

Businesses mark up prices as a result of heightened demand. However, with the rising oil and food prices driving inflation, small business owners must increase the price of their goods and services to cover higher costs.

Even with the unemployment rate up and wage costs sinking, businesses still see costs rising. Prices have increased 5 to 10 percent for restaurants, retail establishments and other businesses tied to the food and oil industry.

To lower costs, small businesses in the service industry should outsource backend labor to states with rampant unemployment and low wages like Florida and Michigan. Also, small businesses that export goods and services can effectively take advantage of the increased competitiveness that the falling dollar has given American companies.

Small business owners who can uphold service standards during the economic slowdown will successfully capture market share. Read more about how to protect your business and personal portfolio during the recession in a recent blog post.

Over the past couple of months, the market’s volatile reaction to the mortgage backed securities meltdown and the Bear Sterns collapse has been nothing short of alarming. The house of cards isn’t just falling – it’s losing value.

U.S. housing prices sank 11 percent this month, the largest monthly dip in over 20 years. And there’s no silver lining. Despite cheaper homes, ownership is still beyond the financial capacity of the average income earner. A recent study by Joseph Stiglitz showed housing prices out pacing median income growth by 4 to 5 percent annually over the past decade. Housing prices still need to come down by 20 to 25 percent before the market stabilizes. We see this market alignment already happening in places like Florida Las Vegas, Nevada.

To curb the homeowners’ equity loss, the Fed must bail out the crumbling MBS market and create a rescue package similar to during great depression. In the short run, tax payers are going to take a hit, but a long-term asset deflation is a much more painful alternative. With the soaring deficits we can expect to see either higher inflation or cutbacks in public and private services.

Without a hasty move from the Fed, expect a painful market realignment process. But either way, it’s clear that with the spreading market uncertainty and freezing buyout markets, the worst is yet to come.

The mortgage crisis has spread into the broader economy, threatening the revenues of startup and existing small businesses nationwide. And though skeptics vary on the potential magnitude of the recession, most agree small businesses regardless of industry, location or size will be affected.

So what steps should a small business owner take to fare the recession?

• Maintain personal and business credit history by making all payments on time
• Negotiate discounts on office supplies, phone bills and other miscellaneous expenses
• Reduce indirect expenses and spend money only where and when required
• Secure lines of credit and term loans from banks before they tighten small business lending standards

Despite the ominous economic forecasts, recessionary periods are excellent times to identify areas of growth. Small business owners who can build up cash reserves to access these opportunities will survive the recession and come out on top.