By Andrew Miller
The Small Business Administration wants to redefine the size of a small business.
On August 20, the SBA published two proposals to change nearly 1,000 size standards across a variety of industries.
The new rules, if finalized, would mark the most significant restructuring of small business size standards in decades. The changes would newly classify about 114,541 existing businesses as small firms.
The first proposal brings fundamental changes to how the SBA calculates and assigns size standards. NAICS levels would be reduced from six digits to four- and five-digit codes.
There would also be a simplified three-factor formula that considers national industry size, number of geographic markets, and a net imports adjustment. Combined, these figures would create an average market size metric.
The second proposal applies that formula, collapsing those standards down to 338 categories and raising the thresholds across most of them.
Some industries would also shift from a revenue-based standard to an employee-count standard, a change the SBA says better reflects how those markets actually operate.
That distinction isn’t cosmetic.
Whether a business counts as “small” under its NAICS code determines eligibility for SBA-backed loans, set-aside federal contracts, and a range of programs built specifically for smaller firms. A business that outgrew those thresholds before may still qualify under the new ones.
The rule also cuts the number of standards a business has to check.
Right now, a company can fall under a different size threshold for nearly every six-digit NAICS code it operates in. Consolidating to 338 categories at the four- and five-digit level means fewer separate thresholds to track. That also means fewer disputes over which one applies.
Nothing has been set in stone yet. The Small Business Administration is accepting public comments on both rules through September 21. Given the scope of their proposals, they should receive plenty of feedback.
P.S. Evolving standards aren’t the only thing that determines what funding you qualify for. If you’re exploring options, Signet can walk you through what’s on the table. Let’s talk.