Mister, can you spare a latté?

SAN DIEGO and NEW YORK-When Think Coffee on Mercer Street in Manhattan opens at 7 a.m., there are usually people waiting outside to duck in and stake their claim. As the day wears on, freshmen and teachers, hipsters and nerds pack the place-buried in books, guzzling Fair Trade coffee, eating vegan brownies. Political art covers the walls. Eclectic coffeehouse furniture fills every nook where eclectic coffeehouse furniture will fit. Turn around, and your elbow will likely bump someone's psychology textbook. Or you'll fight a grad student for an outlet to plug in your laptop.

Jason Scherr hopes it will stay that way. With a stake in four New York concerns, Scherr is one of millions of small business owners keeping a wary eye on the U.S. economy: Stormy equities markets, spiraling energy costs, tightened lending, the mortgage crisis, and sluggish consumer spending have combined to sink some small businesses, while others have steamed ahead.

In the world of business, small is a relative term. The Small Business Administration (SBA) defines it as a firm with 500 or fewer employees. But when measured by sheer number of establishments, 90 percent of all U.S. businesses are the kind you see along Main Street-gift nooks and beauty parlors, watch repair shops and stores selling used books. They are typically retail and service establishments, "mom-and-pops" putting bread on the table for fewer than 20 workers.

"These are owner-operated businesses, where the owner is not chairman of the board, dealing with strategic issues, but actively engaged on a daily basis in all aspects of the business," said Allan Adams, state director for the Small Business Development Center at the University of Georgia in Athens. "These are people who often have their personal assets somewhat entwined in the business-their homes leveraged, for example-so that if the business goes under, so does much of their net worth."

Among such folks WORLD spoke with about the state of the economy, two words popped up again and again: caution and optimism.

Scherr, for example, is cautiously optimistic about the long-term viability of the three-dollar latté. He even theorizes that the flagging economy will boost business: "I think you can possibly get a lot for your three-dollar latté if you come here and hang out for 45 minutes or an hour," said Scherr, who owns a second Think Coffee location in East Village, as well as slices of a cheese shop and a café in a pricier part of Brooklyn. "It's actually fairly inexpensive entertainment."

Still, bitter economic trends have dripped down to his businesses. The surge in wheat prices sent up the price of baked goods 25 percent to 30 percent, he calculates. And all his suppliers have added fuel surcharges of $10 to $20 per delivery, which adds up for a merchant receiving six to seven deliveries a day.

"My margins shrunk and I was like, all right, I have to raise prices," Scherr said.

The credit crunch also hit Scherr when he attempted to expand his business last year. He signed the lease for Think Coffee three years ago and opened his doors six months later. But in 2007, while negotiating financing to open the location in East Village on Bleecker Street, the available loan size dwindled as the months wore on, cutting into his ability to capitalize and improve the new shop.

Stung by the mortgage crisis, stingy lenders have indeed tightened purse strings, even on loans guaranteed by the SBA. The agency's New York district office backed $622 million in loans in fiscal year 2007, but only $560 million in fiscal year 2008, which ended Sept. 30.

Out west, the San Diego district office saw a sharp drop in the total number of loans, from 1,702 last year to 1,026 in 2008. "We had been on a steady year over year increase since 2005," said district director Ruben Garcia. "To see it drop off so dramatically, I think our numbers are beginning to reflect what's happening in the economy."

The 40 percent slide in San Diego was greater than the lending drop-off in SBA Region IX, which includes all of California, Arizona, Nevada, Hawaii, and Guam.

Larger banks tightened restrictions more than smaller ones, such as community institutions that were not exposed to the mortgage crisis. But Michael J. Pappas, SBA Region II director, said tight-fisted lenders may not account for all such declines. In some instances, small business owners may simply be choosing not to seek a loan: "It could be the questions in their own mind and the uncertainty of the future. It could be that they're not certain whether the product they produce or the service they provide will be in the same degree of demand."

To get commercial money flowing again, regulators are seeking ways to loosen lending. In an emergency move on Oct. 8, the Federal Reserve cut a key interest rate by half a percent. The institution is also considering extending business loans to mom-and-pops, and not just large corporations. Still, banks are operating cautiously: By Oct. 14, the gap between the rate of interbank lending and the rate of banks' buying U.S. government debt remained near a 25-year high, a sign banks are minimizing risk in their own portfolios.

In Georgia, risk-chopping lenders put at least one business under, said SBDC's Allan Adams. In August, the owner of a small gift shop outside Atlanta told Adams her bank, without warning, called due a $150,000 credit line, forcing her to liquidate her store in order to pay the debt.

"I had never missed a payment," she said.

In September, an SBDC director called Allan and said, "I've got a guy sitting here with a 750 credit score and he can't get a loan."

Credit strictures, Allan said, are often particularly difficult for mom-and-pops. Small concerns often depend heavily on a steady cash-flow cycle: Sell goods, cover overhead, buy inventory, sell more goods. Such firms often use credit lines to cover costs when business is slow or receivables go past due.

"Right now, businesses without deep cash reserves don't want to have a whole lot of receivables," Adams said. "If buyers keep extending the time they take to pay and merchants have to keep using credit to bridge that gap, they can find themselves in real trouble."

Credit trouble hasn't migrated to William Sharer's doorstep in Farmington, N.M., a sandy, scrubby small town in San Juan County. Sharer, a New Mexico state senator, owns the Credit Bureau of Farmington. He and his 17 employees sell credit reports to both businesses and individuals and also collect bad debts, mostly for medical facilities and utility companies.

Sharer is optimistic about the economy: "It is certainly possible that because I don't watch television, I don't know that the world is about to die," he said. "But it could also be that San Juan County's economy is strong while the rest of the world is f-alling apart. But certainly here, things are moving along."

Sharer said the economic downturn hasn't affected his bill-collecting so far. When gas was $4 a gallon, he felt the pinch, but now collections have stabilized again.

Chattanooga printing company proprietor John Dawson says his business is down-but still up. The 49-year-old father of six owns Diversified Companies, a printing, direct-mail, and marketing firm. He opened in 1992 as a mom-and-pop, with one employee who worked 12 to 16 hours a day. Year to year, Dawson said, his business grew 25 percent to 45 percent. But between 2007 and 2008, Diversified's balance sheet grew by just 20 percent- down, but still up.

What does he make of his double-digit growth in lean times?

"The Lord has really blessed us," he said. While printing orders from his biggest client, General Electric, dropped 40 percent, orders for marketing, promotional items (such as custom hats and T-shirts), and digital printing increased.

Still, from his facility in an industrial section of the city off Highway 153, Dawson keeps a close eye on Wall Street. In early October, the Dow Jones Industrial Average seesawed and news anchors tossed around the word crash. "That was a scary week," Dawson said. "If the market crashed, how many people would I have to send home? It hurts when you have people you employ whose families depend on you and you have to say, 'We just don't have the work for you.'"

Dawson's 40 employees are safe for now. But uncertain economic times have Diversified on full alert, Dawson said. Fuel costs have spiked 80 percent since 2006 and the rising price of paper, Diversified's largest manufacturing cost, has socked Dawson six different times over the past two years.

SBA research shows that energy costs hit small businesses harder than larger ones because they don't by on a large scale or have as much to invest in new technologies. Electricity prices are up to 30 percent higher for small businesses. And while energy costs are only a small percentage of a larger business' expenses, small businesses spend more on energy per dollar of sales-more than twice as much in the food sector, for example.

Accumulated overhead increases are forcing Dawson to approach maintenance and expansion differently. "We're scrutinizing every purchase," he said. "Where in the past we might have gone out and bought a new delivery vehicle to replace an aging one, now we're more likely to try to maintain the ones we have. And if a certain area of our business grows, we won't necessarily go out and hire a new employee."

In some regions, such trends are beginning to show up in employment numbers. In San Diego County, for example, employment declined in four of the six months measured between February and July, with year over year drops in each of the last three months, according to figures released by county researchers and the Chamber of Commerce.

For the past several months, Jack Johnson's job was on the bubble. The silver-haired, "semi-retired" barber works five days a week at Dominic's 2nd Street Barber Shop in El Cajon, Calif. It's a stepping-stone gig until he can cut back to three days and spend more time on his true calling as a "luthier," building stringed musical instruments.

Dominic's itself, a three-chair establishment that opened in 1963, is a manly affair. Marching high across one wall, dozens of law enforcement uniform patches: U.S. Border Patrol, California Highway Patrol, Burbank Police, and the like. Under that, a row of framed 8-by-10s, all of NASCAR champion driver Jimmie Johnson, who used to get his hair cut here before he made it big and moved away.

Shop owner Dominic Roccoforte had himself been looking to move away for over a year. Business had slowed, especially walk-in traffic, and Roccoforte, 41, had been looking to sell.

"Plenty of people wanted to buy the shop," said Johnson, 61, who calls himself "an old Michigan farm boy" and plies his trade wearing blue jeans, cowboy boots, and a leather vest. "But the new owners of the mall wanted to raise the rent from $600 a month to $1,240."

Johnson lifts his clippers from a customer's beard and levels a gesture of incredulity at the perimeter of the tiny shop. "With what little space we have, that equates to $5.22 per square foot!"

A king's ransom in a mall in need of a facelift, and an amount that torpedoed every deal to sell the shop Roccoforte tried to make. Adding to his troubles: Business sales in California have plummeted in 2008, according to data compiled by county recorders. During the first nine months of the year, 16,342 firms sold, a decline of 19 percent from 2007. In September, the month that marked the Lehman Brothers collapse and federal bailouts of Fannie Mae, Freddie Mac, and insurer AIG, the news was even worse: 39 percent fewer businesses changed hands than in the same month last year.

All that news combined to force Roccoforte to drop his asking price to $8,500-$5,500 less than what he paid for the business two years ago. But on Oct. 14, just when he was losing hope, he found a taker: another retired barber who wanted to own a shop, but not run it. The buyer not only agreed to the new leasing terms, but threw in an extra $1,600 to sweeten the deal.

Which is good news for Jack Johnson. "I've been hanging in here for months waiting to find out whether I'd still have a job," he says, whisking his customer's shoulders with a brush made of Arabian horse hair (the same thing used to make violin bows, he confides).

And there's more good news: While people had grown a little more frugal and were waiting longer between trims, Johnson sees that trend reversing. "I think we've bottomed out in this area," he said. "I'm starting to get more walk-ins again. I think we're stabilizing, starting to bounce back."