Credit Crunch Could Be Strangling Small Businesses

When Diane Dobry incorporated Kristof Wines in May 2006 to import brands from Hungary, she did what many first-time entrepreneurs do — she scrounged for capital wherever she could find it, including in her home's equity. She took a $10,000 personal loan, got $13,000 from micro-lender Acción International and tapped a relative for $10,000. But she counted on getting the biggest chunk — $50,000 — from selling the Bethpage, N.Y. house she had bought for $43,000 in 1980.

In July she had a buyer, for more than $400,000, and was making plans to use the money to rev up the business this fall. But before they could close the deal, the mortgage market tightened and the buyers, who were pre-approved, are still waiting for a written commitment.

Dobry, 50, the great-granddaughter of Hungarian immigrants, sees her dream evaporating. "If I don't get it soon I don't know how I'm going to finance my business," says Dobry. "Now's time to order wines for the holiday season. This is when wine stores and restaurants buy."

Dobry is one of an uncounted mass of small-business owners and business launchers who are caught — directly or indirectly — in the collapse of the subprime mortgage market. While overextended home buyers with subprime mortgages have dominated news coverage, thousands of business owners who counted on mortgage financing — many of them young and minority entrepreneurs — suddenly have no place to turn for capital.

Read the full Fortune Small Business story here.