WHEN ENTREPRENEURS CAN'T get conventional loans, they traditionally turn to loans backed by the Small Business Administration. But in recent months -- as many banks turned away businesses and slashed credit lines -- SBA lending also has dried up substantially. The retrenchment has become especially pronounced in the past couple of weeks.

The big decline in SBA lending is fueling new criticism that the federal government isn't doing enough to help businesses when they are in most dire need of cash.

"SBA volume is significantly down, and one might argue that [it's happening] at a time when small business needs access to capital more than ever," says Chris Reilly, president of CIT Small Business Lending Corp. of Livingston, N.J., which ranks among the top SBA lenders nationwide.

The SBA reported last week that loan volumes made under its flagship 7(a) loan program fell 30% in the fiscal year ended Sept. 30. And in October, overall SBA loan volumes were 50% lower than in October 2007, due mainly to sharp drops in the SBA Express loan program that makes smaller loans, says Eric Zarnikow, head of the SBA's Office of Capital Access.

SBA lenders as well as officials including Mr. Zarnikow blame the decline on a number of converging factors, including lower demand for loans overall, tightened lending standards and declining creditworthiness among applicants. Some lenders say they're pulling back to avoid increased losses in their SBA portfolio. Others are warier of making loans because of declining collateral value -- particularly the value of homes in regions like California, where prices have fallen sharply.

In recent weeks, however, lenders are reporting yet another problem with their SBA lending programs. Banks and lenders can't sell SBA-backed loans to other institutions on the secondary market, which many lenders rely on to free up capital to issue new loans.

The reason: Returns on SBA-backed loans are pegged to the prime lending rate, which has fallen in line with Federal Reserve cuts in key interest-rate targets. Yet for most potential investors, the cost of obtaining capital to buy those loans -- determined by the London interbank offered rate, or Libor -- has soared as the Wall Street financial crisis hit credit markets. That has made the SBA loans a much less attractive investment for buyers.

The two rates recently began reverting to normal spreads. But it's unclear how long it will take for SBA lending to recover.

Meantime, many SBA lenders are upset with the SBA for not taking more action to improve the situation. Tony Wilkinson, president of the National Association of Government Guaranteed Lenders in Stillwater, Okla., says problems selling the SBA loans on the secondary market are prompting some lenders to eliminate or shrink their loan-origination side of the business, waiting until the business model works again.

"We're getting frequent announcements from our members that they are exiting the program or significantly cutting staff back," he says. Last week, the group held its annual convention in Palm Springs, Calif., where many members expressed anger with the SBA for not doing more to make its lending program more appealing to lenders and accessible to borrowers.

"I left there believing that we are in a crisis situation," Mr. Wilkinson says, "that we're going to have more lenders closing up shop if we don't address these issues quickly."

Other critics of the SBA say the administration hasn't done enough to ensure that business owners who sorely need access to credit right now can get it and are urging for some quick changes.

Sens. John Kerry (D., Mass.) and Charles Schumer (D., N.Y.) sent a letter Monday to Sandy Baruah, the SBA's acting administrator, urging the agency to make a raft of changes to its lending programs to give temporary relief to small businesses seeking financing right now. Among the changes they recommend: granting bridge loans to small businesses through the SBA's disaster-loan program and readjusting the rate cap on 7(a) loans to make them more financially appealing to lenders.

They argue that the bailout package passed by Congress will take too long to trickle down to small companies. "Small businesses can't wait any longer for a lifeboat to arrive," Sen. Kerry says in a statement. "They need help now and the SBA has the power."

Mr. Zarnikow, responding to the criticism, says the SBA has taken some steps to remedy the slowdown in SBA lending, such as proposing a rule to the Office of Management and Budget that would allow lenders to peg SBA loans to Libor instead of the prime rate. It also is encouraging its lenders to continue lending through the SBA program and pointing borrowers to tools that can help them. But by the same token, he says it's natural that SBA lending would fall as demand and creditworthiness decline.

"We're not trying to replace conventional lending," he says. "We're trying to make loans to creditworthy borrowers, not to lose money on the programs."

Some small-business owners feel the SBA's loan programs have become no more accessible to them than conventional loans.

In the past four months, Patrick McNaught, president of Greystone Financial Group LLC in Henderson, Nev., says he has talked to about four banks locally to get a $250,000 to $375,000 SBA loan for his 45-employee mortgage-financing company. He's been denied every time.

"It's frustrating because a lot of these guys two years ago would have given me a half a million dollars on a handshake because of my longtime relationship with them," Mr. McNaught says, "Now, the market is such that these guys can't make those calls."

Write to Kelly K. Spors at kelly.spors@wsj.com, Raymund Flandez at raymund.flandez@wsj.com and Phred Dvorak at phred.dvorak@wsj.com