The Small Business Administration (SBA), as well as certain banks and U.S. lawmakers, have independently expanded their definitions of what constitutes a “small business” to include tens of thousands of new companies. The SBA has been making periodic upward revisions in various industry to enlarge its parameters over the past year, and the JOBS Act passed last month by Congress substantially raises the amount of investors a small private company may have (from 500 to 2,000) before they are required to register with the Securities and Exchange Commission (SEC). Banks are also reshuffling their small business categories, creating “small business groups” that includes everything from startups to firms with annual revenue of up to $5 million. For some small businesses, the result of all this is that the competition just got much bigger.

The SBA’s revisions are aimed at making long overdue adjustments on definitions that hadn’t been updated since the 1980s, despite inflation and other influencing factors. The most recent industry to be redefined by the SBA is architectural firms, with “small business” firms now making less than $7 million in revenue (up from $4.5 million). Standards for engineering firms were likewise increased: from $4.5 million to $14 million. Over the past year, the SBA has expanded 130 industries overall, with at least 27,400 companies now fitting into the category of small business. Other industries the SBA has targeted for updates include waste management, information, real estate, and rental and leasing.

The SBA size standards directly impact the small business world in multiple ways—primarily because it is the SBA’s definition that determines a company’s eligibility for federal set asides and contracts. With more companies qualifying, there is more competition, and smaller companies find themselves competing with much larger enterprises. Considering that small businesses are given preference for 23 percent of federal contracts, the SBA definition of what constitutes a small business can make a huge difference across most industries.

References

Loten, Angus. “Re-Sizing Small Business: SBA, Others Ready New Yardsticks for Defining Which Companies Fit the Term.” The Wall Street Journal. 4/4/12. (4/5/12.) http://online.wsj.com/article/SB10001424052702303299604577323813599585358.html.

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