Times are tight for small-business owners. Not immune to the sub-prime mortgage collapse, many are finding their best sources of capital — home equity financing and credit card debt — have dried up.

Most recently, small-business financial allies like Wells Fargo, Citibank and American Express have joined the swelling ranks of banks and credit card companies that are reportedly enforcing stricter standards, lending smaller amounts and reigning in credit lines. Already, acquiring financing and maintaining adequate cash flow are perennial challenges for even the most astute small-business owners. Severe cuts in SBA loans over the past five years haven't helped.

In fact, some 42 percent of small-business owners reported having cash flow issues in the three months prior to December, says the December 2007 Discover Small Business Watch. A slowing economy could make a tough situation worse.

Financial advisors can help clients by showing them how to run a tight ship and identify alternative sources of capital.

  1. ENCOURAGE BOOTSTRAPPING

    Bootstrapping is a popular buzzword among budget-conscious entrepreneurs who use money prudently to launch start-ups and raise capital without the help of others.

    The name of the game is maximizing current earnings and assets to fuel growth. Staying balanced on the debt-to-equity ratio tightrope can help secure financial footing and make the small business a more desirable applicant for future financing from lenders and investors.

    Some classic bootstrapping techniques include billing promptly, offering discounts to customers for quick payment, bartering for goods and services, property and equipment leasing in lieu of purchasing, and trimming inventory, which ties up cash, consumes expensive real estate and raises insurance costs.

  2. TAP TRADE CREDIT SOURCES

    Requesting or renegotiating trade credit is also good business. Normally, a supplier will extend credit to a well-established customer for 30, 60, 90 days or more, without charging interest. Establishing pay terms without incurring interest or late penalty charges can free up capital for other short-term needs. Some suppliers may even be willing to invest cash in a good customer. They may, however, request a long-term supply agreement.

  3. BORROW AGAINST A WHOLE-LIFE POLICY

    Borrowing against a whole-life insurance policy is another strategy with appeal. Many insurers allow policyholders to borrow a substantial portion of the cash value at interest rates that are lower than credit cards, and are comparable to home equity loans without associated fees and closing costs. For many, it's a quick way to generate working capital or fund buy-sell agreements for partnerships when one owner dies or wants out. The policy stays intact as long as the policyholder meets premium obligations.

  4. CONSIDER FACTORING

    For years, factoring has been the lifeblood of the garment industry, but it's becoming fashionable for other businesses as well. Accounts receivables are sold by an established business to a buyer, such as a commercial finance company, to raise capital. A “factor” typically takes 1 to 5 percent of the value as a commission, and handles all the paperwork. When considering the costs of maintaining accounts receivables such as bookkeeping, collections and credit checks, and comparing those expenses to the factor rate, some find that this method pays. It is especially appealing to businesses that sell to slow-paying customers that tie up accounts receivables, such as the government.

There's no doubt that factoring is more expensive than a bank line of credit. But if used wisely, this asset-based financing tool can provide the capital a small business needs until it qualifies for a bank line or an SBA loan.

These are just a few strategies you can use to get small-business clients back on track. If you help them achieve liquidity and profitability, they may well turn into big accounts who will then be more receptive to discuss 401 (k) programs, estate planning, and other financial strategies. And that's good for both you and them.