LOS ANGELES – Federally backed loans to small businesses are increasing as more banks participate in federal lending programs — at least for now.

The stepped-up lending through the Small Business Administration comes at a time when thousands of small businesses say they are choking from a lack of funds; many have gone out of business because they don’t have the money to purchase inventory or equipment.

“The market has changed,” said Gary Youmans, senior vice president of Pacific Alliance Bank in Rosemead, Calif., which recently stepped up its SBA lending. “They’ve made it more attractive for both sides — the lenders and the borrowers.”

The SBA supports bank lending in a variety of ways, including guaranteeing a portion of the loan amount and requiring lower down payments on some commercial real estate loans.

With cash from one of Youmans’ loans, businessman Steve Williamson has been able to buy and begin reconstruction of a Robeks juice franchise in Fullerton, Calif. Williamson came to Pacific Alliance Bank after his regular lender stopped making loans through the federal program.

More than 1,350 banks have returned to the main SBA lending program after dropping out, the SBA said. According to its data, financial institutions have made about 46,000 SBA loans so far this year, 30 percent more than at the same time last year.

SBA loans make up a small portion of total lending to small companies, but the SBA numbers are viewed as a good indicator of the financial health of small business.

Still, the credit crunch for small businesses is far from over, and many bankers say they’re still not ready to trust the federal program. That’s bad news for small companies that have been hurt in the economic downturn, because many no longer have the pristine credit required for regular bank loans.

About two weeks ago, longtime Southern California retailer Ken Crane’s Home Entertainment began liquidation sales, in part because of difficulty in obtaining credit to buy merchandise to sell. The television and electronics chain is expected to close within weeks.

And Maurice Stein, owner of make-up supply house Cinema Secrets in Burbank, Calif., said his company was teetering because it couldn’t get loans to pay for the cosmetics, wigs and costumes that it sells.

“Not one lending institution has come through,” said Stein, who said he had applied for loans at more than seven banks. “It’s horrible. … I don’t know how much longer we’re going to last.”

Bank of America Corp., which was among those rejoining the ranks of lenders in one of the SBA’s key programs, estimated that it would make only 500 new loans in that program nationwide this year and may reduce its participation going forward.

The American Bankers Association, the industry trade group in Washington, also greeted the federal loan numbers cautiously, saying that while many of its members are again testing the waters, the industry has not fully embraced federal small business lending programs.

“Some of those that are back in are not dramatically back in,” said James Ballentine, the group’s senior vice president. The thaw in small business lending is still a slow melt, he said.

“It is a recovery that is going to take longer than anybody could have anticipated,” Ballentine said.