SBA Completes Required Review of Small Business Size Standards

This month, the U.S. Small Business Administration (SBA) completed its second required five-year review of its small business size standards. Briefly, these size standards determine a business’s eligibility for all SBA small business loan programs. In order to qualify for loans, companies must satisfy the agency’s definition of a “small business concern.” In May 2023, the Biden Administration and the SBA announced program improvements to provide easier access to SBA loans for small businesses. These improvements included centralizing and simplifying eligibility determination for loans.

Overview of Small Business Size Standards

The SBA is a federal agency that provides counseling, capital, and contracting expertise to small businesses within the United States. Loan programs under the SBA are reserved for small businesses that qualify as a “small business concern,” according to the SBA. In other words, they must be independently owned and operated and not dominant in their field of operation. Overall, they must operate within small business size standards. Other general criteria include that a small business is:

• Organized for profit
• Operating in the U.S.

Size standards are usually stated as the average number of employees or average annual receipts. The SBA counts all individuals employed full-time, part-time, or otherwise. These standards represent the largest size a business concern may be to still qualify as a small business under the SBA. Furthermore, small business size standards vary by industry. The Electronic Code of Federal Regulations provides a table to help determine size standards.

SBA Review of Small Business Size Standards

Under the Small Business Jobs Act of 2010 (Jobs Act), the SBA must conduct a review of small business size standards at least once every five years. Upon review, the SBA must make appropriate adjustments to reflect market conditions. The review was based on the U.S. Census Bureau’s 2017 North American Industry Classification System (NAICS) reference file. In sum, the SBA reviewed 1,037 size standards and revised 436. Additionally, the SBA submitted its report on the factors for reviewing size standards and the criteria for adjusting them. The report includes the following information:

• an overview of the SBA’s “Size Standards Methodology,” which includes industry and federal contracting factors along with other data sources;
• the order in which the SBA reviewed size standards in NAICS sectors;
• how many size standards were reviewed and revised in each sector;
• size standards of significant public interest; and
• the impact of size standard revisions.

Revisions to Size Standards

Last year, the SBA changed the methodology by which they calculate the number of employees under size standards. The SBA’s announced a final rule adopting a 24-month average when calculating a business concern’s number of employees under SBA size standards. These changes to the averaging period allowed larger small businesses to retain their small business status even longer. At the same time, mid-sized businesses were able to regain their small business status. Along with the financial aspect of operating a small business, employers of all sizes must remember their obligations under general employment law. One of these obligations is to display labor law posters conspicuously within the place of business. Next, the SBA will compile and launch a third five-year review of size standards.