LOS ANGELES - Government-backed loans to the nation's small businesses dropped sharply last month after a key federal program ran out of money.

The reduction in lending comes as officials are scrambling to find a way to stimulate the small-business sector. On Monday, Federal Reserve Chairman Ben S. Bernanke said loosening credit to small businesses should be a priority for banks and policymakers.

"Making credit accessible to sound small businesses is crucial to our economic recovery, and so should be front and center among our current policy challenges," Bernanke said at a meeting on small-business financing in Washington.

The chill in lending couldn't come at a worse time for the nation's small businesses, owners of which say they are withering because of a lack of funds for inventory, equipment and expansion. Legislation to renew the program — which makes small-business loans less risky for banks and also eliminates costly fees — has passed the House but stalled in the Senate.
 

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