Congressional overseers questioned the effectiveness of the Small Business Administration's guaranteed loan program at a hearing Thursday, but panelists stopped short of proposing elimination of the agency, as advocacy groups had suggested they might.

Controversy over the Senate Homeland Security and Governmental Affairs Subcommittee on Federal Financial Management hearing erupted last week, with a small business advocacy group upset by the scheduled appearance of Veronique de Rugy, a resident fellow at the right-leaning American Enterprise Institute who has advocated for elimination of the SBA and small business set-asides. Sen. Tom Coburn, R-Okla., chairman of the subcommittee, in turn accused the group of circulating misleading information and SBA officials of inappropriately lobbying against the hearing.

In her oral testimony, however, De Rugy stopped short of recommending that SBA or its main lending program be scrapped, though she argued that the program is not helping small businesses and might be harming them. She cited statistics showing that only about 3 percent of small businesses obtain credit through the program, arguing that the success of the other 97 percent in meeting their credit needs in other ways shows that the federal program is unnecessary.

De Rugy's written testimony, submitted for the record, pursued this argument to conclude that the SBA loan guarantee programs should be terminated. Reached by phone, De Rugy said she had not completed formal research on whether the agency itself should be eliminated, but suspected that when she fully researched the question, she would arrive at that conclusion.

Coburn questioned whether entities other than small businesses benefit from the program. He asked David Bartram, chairman of the National Association of Government Guaranteed Lenders, how profitable the loans are for the private banks that finance them, and was told they are comparable to conventional loans. "It is important that SBA be about helping small businesses, not about helping the people who help small businesses," Coburn said.

He also questioned SBA Administrator Hector Barreto about small business set-asides in government contracting, noting that Northrop Grumman, Hewlett-Packard, General Dynamics and Oracle were among the large businesses that received millions in set-aside contracts in 2002.

Barreto said small companies often win contracts and then outgrow their size status or get purchased by large firms, and that he believed circumstances like those mostly explained the large companies on the record.

But Coburn criticized this arrangement, saying when a large company buys a small one, "they're buying an advantaged position in government contracting."