SBA Finalizes New Business Size Standards

Beginning in February, the federal definition of what qualifies as a small business will change, the Small Business Administration announced on Thursday.

Two final rules were published this week in the Federal Register for measuring the number of employees, along with final approval for an earlier rule addressing monetary worth of for-profit entities to determine eligibility for small business loans and federal contract set-asides.

As part of its comprehensive size standards review required by the 2010 Small Business Jobs Act, SBA evaluated employee-based size standards for 364 industries in three manufacturing sectors of the North American Industry Classification System, along with 57 wholesale and retail trade industries not in the classification system.

“The new size standards will enable nearly 1,650 more businesses in those industries to obtain or retain small business status; will give federal agencies a larger pool of small businesses from which to choose for their procurement programs; and will make more small businesses eligible for SBA’s loan programs,” SBA said in a release.

In the first final rule, SBA increased size standards for 209 industries, raising, for example, the refining capacity component of the Petroleum Refiners size standard to 200,000 barrels per calendar day total capacity for businesses that are primarily engaged in petroleum refining. 

In the second final rule, SBA increased the employee-based size standards for 30 industries and three exceptions and decreased them for three industries that are not in the classification system. In one area that prompted controversy during the comment period, SBA added a requirement that the supply (i.e., computer hardware and software) component of small business set-aside Information Technology Value Added Resellers contracts comply with the nonmanufacturing performance requirements. Abandoning a proposal to eliminate an exception for such groups, the final rule maintains the previous 150-employee size standard for such resellers to qualify as small businesses.

On the monetary side, the new rules finalized an interim rule in effect since June 2014 that adjusted for inflation (set at 8.73 percent) the monetary criteria gauging a business’s size based on receipts, assets, net worth and income.

 “SBA estimates that more than 8,400 additional businesses will gain small business status under the adjusted size standards and become eligible for SBA’s financial and federal government procurement programs,” the agency said. “These changes can possibly lead to $150 million to $200 million in additional federal contracts and 80 additional loans, totaling about $30 million, to small businesses.”

It advised businesses whose status may have changed to recertify themselves on the System for Award Management (SAM).

The Small Business Act, the agency explained on its website, “states that unless specifically authorized by statute, no other federal department or agency may prescribe a size standard for categorizing a business concern as a small business concern, unless such proposed size standard meets certain criteria and is approved by the administrator of SBA.”