The SBA’s new rule which becomes effective July 22 affects some 70 industries and determines which businesses are small enough to qualify for aid. The SBA also says that 17,000 more firms that were previously not qualified to receive SBA benefits will become eligible under the new rule. In fact, some 25 industries will now be eligible with the average annual revenue size standard increased from $7 million to $35.5 million.
Two key benefits to qualifying as a small business will also be in place, says Khem Sharma, chief of the SBA’s division of size and standards. Businesses now become eligible for SBA-guaranteed loans and will now be added to the SBA’s database of firms eligible for government contracts.
The Small Business Act defines a business as one organized for profit, which has a place of business within the United States, and that either operates primarily within the U.S. or makes a significant contribution to the U.S. economy, either through tax payments or use of American products, materials, or labor. The business must also be independently owned and operated and is not dominant in its field nationally. These businesses may be a sole proprietorship, partnership, corporation, or any other legal form of business.
The SBA defines small business size standards for all for-profit industries and represents the largest size that a business may be to continue to maintain classification as a small business concern—this includes the business’s subsidiaries and affiliates. How a business is defined is dependent on industry differences; the size standards are used to determine eligibility for SBA’s financial assistance and other programs, including Federal government procurement programs for small businesses. Only the SBA is able to define size standards for small business concerns, according to the Small Business Act, unless another federal department or agency is specifically authorized by statute, meets specific criteria, and is approved by the SBA Administrator.
Sharma explains that federal agencies are to endow no less than 23 percent of government-awarded contracts to small businesses. Being included in the database will ease the process under which agencies locate small businesses. The database will also ease the process under which potential contractors are searched, based on unique criteria. SBA spokeswoman, Tiffani Clements, explains that, for example, “If you’re looking for woman-owned businesses in different industries, you can do a search for those particular businesses.” The database helps to better equalize a small business’s chances when faced with larger business competition. Also, says Sharma, some small businesses will be able to expand without losing their government contract eligibility.
According to the SBA, it will be looking at the awarding of federal contracts to determine if adding more companies to its database offers benefits. Sharma notes that the change may lead to some smaller companies losing contracts to the new, so-called “larger small businesses.” Should the SBA determine the change to be harmful, that will affect the next size standard revisions round, Sharma says. The SBA usually reviews size standards every five years, a schedule partly in place to adjust for inflation. The current review was made based on market shifts, such as average company size in 70 industries.
More rule changes are expected over the next few years with implementation of the 2010 Small Business Jobs Act, according to the SBA.
Fitzpatrick, Jack. “Small Business Association Revises Small Business Size Standards.” USA Today; June 21, 2013.
SBA.gov. “ Small Business Standards.”