Trying To Escape The Credit Crunch

Helping entrepreneurs like Diane Dobry is one reason the Fed cut interest rates today. The credit crunch has stalled the sale of her home, which she had been counting on to fund a new business importing wine.

"It's my major resource," she says. "It's the thing that over the last 28 years that I lived there, I've been able to refinance as the rates went down to get a lot more money to fix it or to pay for my kids to go to college."

That's how trouble in the housing market has threatened the rest of the economy, Americans have used home equity loans to fund college, pay credit cards and finance new business.

"Home equity loans, home equity borrowing was a real big part of the boom and if suddenly they lose their ability to do that, because they no longer can borrow against their home, it's a very big hit to the economy," says economist Dean Baker.

And the tightening credit crunch has consumer confidence at it's lowest in two years. Translation: businesses are suffering, reports CBS News correspondent Michelle Miller.

According to a survey of a thousand small business owners conducted by discover business card, one in three said the housing meltdown has had a significant impact on their bottom line.

"Businesses are now being forced to cut back on plans they had to expand, plans to hire more people, plans to hire more products because they just aren't able to get their hands on the capital that they need to do that," says John Arensmeyer.

That's exactly what happened to a Dallas-based cleaning company. Sparkling Image just this month lost several franchise purchases after banks tightened lending requirements.

"It can also affect someone psychologically. The safety net that they thought was there in their home in this equity may or may not be there in six months," says Sparkling Image CEO Laurence Casby.

Dobry says she hopes the Fed's rate cut will make loans more affordable so she can sell her home and launch her business