Every time in the last six months I have met someone new who

a) Reads a newspaper, and
b) Knows I own my own business,

I am asked a version of the same question, namely “How does the housing slump and mortgage-lending fallout of 2007 affect your business?”

The answer for Cedarcrest, of course, is “it depends.”

But, if my querying acquaintance has time, and if you the reader have patience, I’ll take a stab at the specific ways in which it depends.

The interactions between the slump in real estate, lending restrictions due to bank losses on sub-prime mortgages, and small business finance are varied, nuanced, and sometimes surprising.

Overall, most of us entrepreneurs should not feel the direct effect as a hit to our business but we should still be paying attention.

Will the rash of foreclosures on sub-prime home loans be followed by a rash of small-business closings? Not really. The financial linkage is not that direct. The businesses most directly hurt have been big and highly leveraged, such as Merrill Lynch, Citigroup, and nearly every sub-prime mortgage lender.

Most small business entrepreneurs are not sub-prime borrowers who have fallen behind on their mortgages. The overlap between borrowers caught up in the sub-prime trap, and small business owners who would otherwise be successful, is small.

If you believe that 20% of mortgages issued since 2004 have been subprime, and 10% of these mortgages will default, you are looking at a maximum of 2% home defaults for the entire population, and a much smaller amount than that among small business owners.

But the simplest reason for my statement is that, crisis or no crisis, borrowing at 14% for 30 years (or 8% for two years as a teaser only to be bumped up to 14%) means you weren’t going to make it as a small business owner anyway.

I understand of course that half of American households carry a credit card balance on a monthly basis, and therefore half of American households effectively borrow at between 12 and 25% interest all the time. But, most of these households are not running a small business.

I do believe the current housing and mortgage crisis is extremely important for small businesses, but I happen to think its more of an opportunity than a risk for anyone who runs a small business or dreams of starting their small business.

In the next three postings I’ll describe the links, risks, and opportunities for small businesses in the housing and mortgage crisis.

Let’s take the issues one at a time.

1. The Link between Home Ownership and Entrepreneurship
2. Ways Your Small Business Can Get Hurt in the Slump
3. Ways You can Profit in the Slump

NEXT: Home Ownership and Entrepreneurship