The travails of corporate giants such as AIG and GM make lots of headlines, but most troubled firms fly under the radar. Clients who own small businesses are likely to face problems in this uncertain economy, and financial planners can help address at least some of their issues. Business owners who once thought they had their capitalization and cash-flow needs under control may now be facing yawning gaps. Company valuations have fallen, which can wreak havoc with succession and estate plans. Advisors may be able to help clients gain access to capital, as well as funding for business continuity and succession plans. Moreover, they can perform more orthodox tasks, such as helping clients review their retirement and estate plans. Here are some ways to help.

LOAN ARRANGERS

For many small companies, capital traditionally comes from a bank, in the form of a loan or line of credit. Even during the current credit crunch, that may still be the case. "There are thousands of banks in the United States," says Bob Seiwert, a senior vice president with the American Bankers Association (ABA). "Many are willing and able to lend money to small businesses."

That doesn't mean, though, that any business owner can drive down to the local bank and get a pocketful of cash. "In most cases, a bank will want to see three years' financial statements before lending to a small company," says Seiwert, who heads the ABA's Center for Commercial Lending in Business Banking in Washington. Companies that have been creditworthy in the past and can show adequate cash flow still have a good chance of getting a loan or line of credit.

Loans may now come with more stringent terms. "The current economic climate has affected banks' lending capability, while the credit risk of applicants has increased," Seiwert explains. "A loan that might have been unsecured a couple of years ago may have to be secured now. Lenders often look for a secondary source of repayment besides the company's operations, such as collateral or a personal guarantee."

Especially in these times, business owners need to develop a full-service relationship with their banker, Seiwert says. "Communication is the key. Bankers don't like surprises. Tell them the bad news as well as the good news. If receivables are slowing up, for example, a banker might suggest ways to deal with the problem, such as offering a discount for prompt payment."

Many companies, of course, work with a line of credit from their bank. "In this environment, business owners should ask their banker if their line will be cut back or eliminated," Seiwert continues. "If that's the case, the owner can start looking for a replacement." A financial planner might add value by networking and providing leads to banks that are still lending to small businesses.

Planners can also help by emphasizing the need for personal financial discipline. "If a personal guarantee is required, the banker will check the applicant's credit score for signs of personal credit problems," Seiwert says. "It pays for a business owner to keep his or her credit score as high as possible by making payments on time and by regularly checking credit reports and cleaning up any errors."

CALLING ALL ANGELS

While it's generally believed that established small companies might be able to get bank financing, that's not always the case. Young companies and startups, in particular, may have a difficult time borrowing money in today's economy. Typically, seed money for small companies comes from the founder, family and friends. Venture capital and angel financing may be available, too, for business owners willing to give up some equity in their enterprise.

"Angels are still investing," says Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire. "Our latest database, which covers 2008, indicates that over 55,000 ventures received angel funding last year, for a total of more than $19 billion."

The number of deals in 2008 was down only 3% from 2007, but the amount of dollars invested was off by 26%. According to Sohl, the data also indicates that whereas angels have not significantly decreased their investment activity, they are committing less dollars per deal, as a result of lower valuations and a more cautious approach to investing. Only 10% of companies presenting to angel groups received funding in 2008, down sharply from 23% in 2005.

Although the pattern is not perfect, angels (wealthy individuals) generally provide funds to embryonic companies with perceived growth potential; venture capital (from investor groups) might become available if a promising company needs more money than angels can provide.