It's official: The credit crunch is smashing small business.

With banks reigning in lending, entrepreneurs are having a harder time than ever to find needed capital. As a result, more are putting off expansion and just scraping by.

The federal Small Business Administration, which guarantees bank loans to entrepreneurs, reported Thursday its steepest ever decline in activity.

In the SBA's South Florida district, the drop is even worse: The 2,786 loans worth $735.5 million for small businesses guaranteed by the SBA for the year ended Sept. 30 is down 40 percent in volume and 16 percent in dollar terms versus last year.

Entrepreneurs such as Gabriel Fraga, who recently opened a plumbing company in Miami, are getting turned away by banks even if they have good credit. ''I have absolutely no financing from outside sources,'' said Fraga, who was denied loans by five banks before he gave up.

Fraga's company, WM Plumbing, services the septic tanks and grease traps in restaurants. With many of his customers late on payments, he wanted a loan to buy inventory and have a cash cushion. But without one, he's now late on his payments to vendors. ''I'm using one hand to pay the other,'' he said.

Miami-Dade and Broward counties were particularly hard hit. Loan volume in Broward dropped 43 percent over the last year, from 818 to 470 loans. In Miami-Dade, loan volume dropped 40 percent, from 1,513 loans to 901.

''It's not good, it's awful, said SBA South Florida District Director Francisco ``Pancho'' Marrero. ``I've been here 32 years, and by far this has been the biggest, most dramatic drop in our lending program that I've seen.''

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