Because of the gradual tightening of the global credit market, more and more companies are getting squeezed and taking the obvious route to survival — trimming payroll.

At the end of August, for example, Overland Storage, a San Diego maker of data backup systems, laid off 53 employees after reporting a net loss of $24.6 million for the fiscal year ending June 30.

Publicly traded Overland says it’s been looking for $10 million in financing, but in recent months, the prospects for finding it have declined.

“There has certainly been a notable change,” said Kurt Kalbfleisch, Overland’s chief financial officer. “The (lenders) we’ve contacted have either stopped lending, stopped investing, or have shut down because of things that have taken place.”

What’s taken place is that money is scarce. Banks and other financiers are holding back more of their cash to boost sagging capital levels because of losses caused by increased problem loans or by marking down the value of securities and other assets they own.

“Banks are now cautious about even lending to each other,” said David Ely, professor of finance at San Diego State University.

Slow Retreat

The spate of failures of the major investment banks, such as Lehman Bros. and Bear Stearns, retail banks, including Washington Mutual and Wachovia, and the bailout of other financing entities, including Fannie Mae, Freddie Mac, and worldwide insurer AIG, has caused an increasing number of banks to bolster their cash reserves and pull back from lending.

That retreat has slowed lending and investment of second-tier players such as private equity funds, hedge funds and asset-based finance companies, all of which depend on larger institutions for their funding, says Charlene Davidson, an investment banker with McGladrey Capital in Costa Mesa.

“Over the last six months, I’ve been seeing lots of private equity funds walk away from deals because the banks have pulled their financing,” Davidson said. Things have gotten so bad that banks are reluctant to lend to each other, she says.

Construction and development companies were among the first industries to be affected by the financing crisis.

In August 2007, Bank of America stopped providing credit for two home projects by Carlsbad-based Barratt American. By effectively eliminating those projects’ collateral from the portfolio, it increased Barratt’s loan-to-value ratio, and allowed BofA to stop providing financing, says Mick Pattinson, Barratt’s chief executive.

“Despite the fact that we were profitable, and perfectly solvent, BofA’s decision to get out of residential lending forced us to greatly reduce the size of our company, and we had to lay off more than 100 employees,” Pattinson said.