Uncle Sam defines a small business as a company with as many as 500 employees. Yet over 98% of the nation’s small businesses employ less than one-hundred people, almost 90% employ less than twenty. and about 50% of the total are home-based. The last time the census bureau reported the data, nearly 83 percent of all of the net new jobs in our economy came from businesses with fewer than 20 employees , including home-based businesses. Nevertheless, for these smaller small businesses finding money can be especially difficult, and even more so for someone trying to start a home-based business.

Lending standards have been tightening at many banks for more than a year—you know that we’re sure, and that’s confirmed by the recent Federal Reserve’s quarterly survey of senior loan officers. In the three months ending in July ‘08, for example, 65% of banks said they tightened credit. Lenders reported that they view any company tied to the housing industry as risky. Plus people who relied on home equity lines to fund their businesses have seen those sources dry up as home values fall.

But there’s hope. According to the SBA the only reason they’ve guaranteed fewer loans lately is becuase of reduced demand by small businesses, borrowers are on the whole less creditworthy, and some lenders have tightened their credit standards—not bank’s unwillingness to lend. The National Federation of Independent Businesses confirms that small business demand for loans is lower, but—get this—only 3 percent of owners cited the cost and availability of credit as their primary business problem, far from the record 37 percent reached in 1982. Additionally, 34 percent reported that they found the money they needed, and only 5 percent reported problems obtaining financing—the remainder did not want/need to borrow.

For those that have had problems paying existing SBA guaranteed loans, the Small Business Administration has urged its lenders to give struggling borrowers a break. The agency recently issued a statement “strongly encouraging” SBA lenders to allow borrowers facing financial difficulties to defer payments on their 7(a) and 504 loans for three months.

Half of all small businesses are home-based according to the SBA Office of Advocacy. But the SBA guaranteed fewer loans in FY2008, but only because of a “perfect storm” of tightened credit by commercial lenders, declining creditworthiness, and reduced demand for loans from small business borrowers uncertain about the future.

SBA posted a record year in 2007 with nearly 100,000 loans approved, but that number dropped by nearly 30 percent in 2008.  (About 1% of small business have SBA loans). Oddly, average loan size increased from $142,000 to $183,000 betweeb FY2007 and FY 2008. But the good news is these loans may actually contribute to more sustainable and successful small businesses. You start off with more money, you’re more likely to succeed, in other words. Or at least last longer.

According to the National Federation of Independent Businesses (NFIB) only 3 percent of the owners cited the cost and availability of credit as their primary business problem, far from the record 37 percent reached in 1982. Additionally, 34 percent reported that they found the money they needed, compared to 5 percent who reported problems obtaining financing. (The remainder did not want/need to borrow).

Here are a few concise tips to help you through this credit crunch. (Count on it lasting at least through 2009, and probably into 2010 if no other major events extend it.)

1. Use your credit, your cash is always good. Credit may be tight, but if you have credit lines and credit cards use them instead of your savings. (Just don’t get late on credit card payments. They’ll eat you alive).
2. Borrow if you can. That may seem to contradict tip #1, but if you can borrow, do it! Pay back the loan in a short time (six months). Think of the money you spend on interest as an investment in your credit rating.
3. Don’t over-extend or get cocky and cancel your credit line. If you’re in pretty good shape right now, be careful not to put yourself in a risky financial situation. Even if you don’t need it, hang on to your home equity credit line, if you have one. The bank has probably reduced your maximum because of depreciated home values, but that cushion could be mighty handy if you need it when other credit is tight. What’s more, canceling a loan with a good credit history can actually hurt your credit rating.
4. Don’t max out your credit line or your credit cards. It makes you look desperate—or careless—and now is not the time to have money people questioning your ability to pay
5. Keep your borrowings on lines of credit and credit cards at less than half of the available credit.
6. Don’t borrow short term for long term purposes.

If what you do will work at home, make sure you have a home to work from. Telecommuting, home based jobs, and home based business opportunities all depend on space in your house, after all.

A second, far larger wave of mortgage defaults is building acccording to The International Herald Tribune.

One in every 171 households was in some stage of the foreclosure process, an increase of 121 percent from a year earlier, RealtyTrac Inc., a real estate database firm, said last week in a statement.

After two years of upward spiraling defaults, the problems with mortgages made to people with weak, or subprime, credit are showing the first, tentative signs of leveling off.

But with the U.S. economy struggling, homeowners with better credit are now falling behind on their payments in growing numbers. The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A, or alt-A, mortgages, quadrupled to 12% in April from a year earlier.

Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7% in that time.

Nouriel Roubini, professor of economics at New York University, on CNBC said he sees a severe recession that on the economic horizon that might last until the middle of next year, with the total losses becoming as much as $2 - $3 trillion.