The disastrous weekend and the tumultuous last couple of days have corporate finance reeling.

"Between the bankruptcy filing of Lehman Brothers — once the country's fourth-largest brokerage firm — and the announcement that Merrill Lynch, the world's largest brokerage firm, was being sold to Bank of America, Wall Street recruiters this year expect to see tens of thousands of new job losses in the financial sector and cuts in compensation," according to an ABC News report.

The Lehman Brothers Holdings bankruptcy filing, Merrill Lynch & Co.'s sale and now American International Group's plea for survival funds will not only affect large corporations, as these turbulent events will trickle down to small businesses as well.

Basically, everyone will be affected.

"Three phenomena would cause significant disruptions to small business: diminished liquidity, risk repricing and corporate earnings contractions," finance expert Glenn Okun tells Forbes.

Diminished liquidity could limit the supply of risk capital, which is where small businesses source money for expansion. Risk capital could demand a higher cost given the lack of return. This could constrain financing activities which would also hamper business expansion.

Corporate earnings disappointments would indirectly impact small businesses in that companies catering to investment firms, banks and even consumer-related industries would experience declining demand.

"Any combination of these forces, should they occur, would alter the debt and equity markets," Okun adds. "It would usher in a return to constrained resources, increased costs and reduced consumer demands."

It will be more costly to do business, and acquiring the money to do business would be more difficult. Though small companies would not have checking or operating accounts with Lehman Brothers, its failure "will be felt as a result of the dealings that other banks have with Lehman," business lawyer Robert Bovarnick tells Forbes.

Approximately 65 percent of domestic banks say they've tightened their lending standards for commercial and industrial loans, according to the most recent Senior Loan Officer Opinion Survey of Bank Lending Practices released by the Federal Reserve System in August (via CNNMoney.com).

"Most banks are safe and sound, but these unprecedented times are affecting everything that has to do with banking," Maria Coyne, executive vice president of community banking for KeyBank, tells CNNMoney.com. "Stock prices have depressed, capital costs have increased, and regulators are more focused on capital adequacy ratios — even for banks that didn't do sub prime mortgage lending."

Banks still want new clients, but they are being extra cautious to avoid the risky gambles that have demolished Wall Street, Coyne adds.

Despite all the reports of the credit crisis and the financial structure crumbling, as recently as last week the National Federation of Independent Businesses (NFIB) remained positive and continues to claim that the credit crunch is a "Wall Street-only issue," Bill Dunkelberg, chief economist for the NFIB, says. "There's no seizing up of markets — nothing is frozen on Main Street."

Most others seem to be singing a different tune.

Along with banking worries, Bovarnick claims that if AIG failed, it would dwarf all the banking troubles because many small businesses insure through AIG Small Business. Hopefully, with the Federal Reserve Board announcing last night that it will lend as much as $85 billion to rescue AIG, that would give the insurance giant's 74 million clients one less thing to worry about.

Resources

How Will Wall Street's Meltdown Affect Small Biz?
Forbes, Sept. 16, 2008

Credit Crunch Hits Small Businesses
by Emily Maltby
CNNMoney.com, Sept. 15, 2008

The July 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices
Federal Reserve Board, Aug. 11, 2008

Fed in AIG Rescue — $85B Loan
by Tami Luhby
CNNMoney.com, Sept. 17, 2008

Wall Street Braces for Huge Job Losses
by Alice Gomstyn
ABC News, Sept. 16, 2008