WASHINGTON – A key Republican senator on Thursday accused the Bush administration's small business agency of illegally lobbying special interest groups to sway the outcome of a congressional inquiry into the agency's missteps.

Sen. Tom Coburn, R-Okla., chairman of a Senate Homeland Security subcommittee, said he found it unacceptable that Small Business Administration officials tried to stop lawmakers from holding a hearing examining the agency's problems and improving its performance.

"I have seen e-mails from SBA employees to organizations sent seemingly for the purpose of undermining our hearing before it even began. This type of illegal lobbying is unacceptable and will be dealt with accordingly," Coburn said in remarks prepared the hearing.

Federal law prohibits agencies from using tax dollars to lobby Congress, either directly or indirectly. Officials who violate the law can be fined as much as $100,000.

The SBA said it did not engage in illegal lobbying and that officials welcome the opportunity to inform lawmakers about their accomplishments.

SBA chief Hector Barreto said his agency had increased its loan guarantees to struggling small business from $14 billion to more than $19 billion in the last four years even as its budget shrank.

The agency also pointed to a Government Accountability Office report that found with a few exceptions, such as its slow response to last year's Gulf Coast hurricanes, the SBA is gradually improving some operations

Coburn was overseeing a hearing Thursday examining SBA's response to the hurricanes, its contracts that benefit big businesses and its awarding of Sept. 11 recovery loans to small firms that claimed they weren't hurt by the terrorist attacks.

He made clear he isn't satisfied with SBA's performance, urging the agency to stop cheerleading its successes and to look more closely at its problems.

"If SBA is broken, it's certainly not the small business sector that benefits from maintaining the status quo at the agency, but rather the bankers and big corporations who are currently profiting from SBA," Coburn said.

"Congressional hearings should not be pep rallies for business-as-usual. Small businesses deserve better," he said.

The agency acts as the lender of last resort for struggling companies among the nation's 24 million small businesses. It has come under withering bipartisan criticism on Capitol Hill for its recent missteps.

Coburn's hearing gave agency critics a forum to air their concerns,

"Honest business owners ... and hard-working taxpayers pay the price for SBA corruption and for its general ineffectiveness as an advocate for small business," Jonathan Bean, a Southern Illinois University professor who explored a series of SBA scandals in a 2001 book, said in prepared testimony.

Veronique de Rugy, an American Enterprise Institute scholar, advocated doing away with the agency, saying its loan programs "are simply a wasteful, politically motivated subsidy."

Lloyd Chapman, head of the Petaluma, Calif.-based American Small Business League, has criticized the agency for failing to prevent large companies from winning government contracts earmarked for small businesses. But he said he also is worried that programs which actually help small firms might be eliminated because of the political backlash.