The credit crunch helps explain why small businesses are seeking forms of investment other than bank loans. Deb Weidenhamer, owner of a Phoenix company called Auction Systems, which sells a variety of items from real estate to property seized by police forces, said she was looking at 23 companies that fit her business as potential acquisitions. The $70 million a year company was trying to raise $15 million to fund the acquisitions, but bank financing was not available. “Banks are not comfortable with acquisition financing right now,” she says.

Weidenhamer is in something of a quandary about whether to accept equity financing, giving up part of her cherished company to outside investors. “If it’s just equity then that’s OK,” she says. “But if the investors want control as well, that is not so likely.” It is a common refrain heard from small business.

Steven Pinsky, CEO of Babette, an Oakland, California-based producer of women’s clothing and a retailer with five stores nationwide, said he was searching for $2 million in financing to fund the opening of 10 more stores, but has struck out so far. “Banks don’t lend that kind of money without sufficient collateral, and they have tightened collateral requirements in recent years,” Pinksy said. He added that he expected it to take at least a year to find the right equity investors willing to take 20 percent of the company’s stock in exchange for the $2 million financing.

Ian Blount, COO of Columbus, Ohio-based Coalescence, an intermediary food processor that was founded in 2005, said that he was looking to raise $4.5 million to expand the business. “I can’t say constraints aren’t there, but if you meet the numbers you present it shouldn’t be impossible,” he says. He and his wife, Angela Cauley, who is the CEO of the firm, say they are willing to sell a noncontrolling equity stake in the firm, which had revenues of $2.5 million in 2008, to raise the necessary capital. “It’s a trade-off,” says Blount.

The credit crunch has also increased pressure on the sources of small-business funding. “There are fewer players who are willing to invest in small to midsize private equity funds,” says Kelvin Walker, who works for private equity firm 21st Century Group, which has $161 million in committed capital. Investors such as pension funds and insurance companies “are very focused on lowering their risk profiles and view us through a tighter lens,” he said.

Investors at the New York event say it’s likely that only 1 to 2 percent of firms will find investors to finance their expansion plans. Since small business is the prime creator of new jobs in the country, the difficulty raising funds could mean that unemployment will remain stubbornly higher than many expect.

That may be one reason behind the decision by Goldman Sachs, which benefited from taxpayer bailout money and went on to earn record profits, to give $500 million to small business, $200 million in management education at community colleges and $300 million in grants and loans.