SBA Proposes Changes to Benefit Over 110,000 Businesses

The U.S. Small Business Administration (SBA) is proposing an overhaul of business size standards, a move that could enable more than 110,000 enterprises to be categorized as small businesses.

The proposal seeks to modernize the government’s definition and classification of small businesses, the SBA said in an Aug. 20 statement.

One of the proposed changes involves updating the North American Industry Classification System (NAICS) standard, according to an Aug. 20 notice published in the Federal Register.

NAICS is used to classify business establishments and assigns a six-digit code to businesses. The first two digits indicate the business sector; the third, the subsector; the fourth, the industry group; the fifth, the NAICS industry; and the sixth, the national industry.

The new proposal seeks to simplify the six-digit NAICS code to a combination of four-and five-digit codes, which is expected to reduce the more than 1,000 business categories to 338.

According to the SBA, this proposed change will remove regulatory complexities for business owners and simplify the process by which companies determine their small business status.

Another proposal is to adopt an employee-based standard to determine whether certain enterprises qualify as small businesses, moving away from the current revenue-receipt-based size threshold, according to the notice.

“This will reduce the number of firms fluctuating between small and other than small business status, due to business volatility, inflation, and productivity growth,” the notice said.

A third suggested overhaul is to take into account regional market considerations to ensure that business size standards accurately reflect economic competition in local markets, SBA said in the recent statement.

The proposed updates are aimed at rewarding small businesses that achieve growth rather than forcing them out of small-business eligibility as they grow, especially companies operating in industries critical to the United States.

For instance, adopting the employee-based standard for determining whether a business qualifies as a small business allows semiconductor manufacturers to have up to 2,800 employees, up from the previous limit of 1,250. Ship-building employee count will rise from 1,300 to 2,300 workers. For the oil drilling sector, the limit will jump from 1,000 to 2,650 employees.

Moreover, the revisions will allow more businesses to compete for federal contracts and access SBA loans, the agency said. The updates are expected to add over 110,000 companies to the pool of 36 million small businesses operating in the United States.

“Thanks to President Trump and America First policies, small businesses are starting and growing at record rates, which is why the SBA is proposing modernized size standards that acknowledge their growth and empower them to compete against large corporations,” SBA Administrator Kelly Loeffler said in the statement.

In an Aug. 21 blog post at law firm Potomac Law, attorney Danielle Dietrich said that the SBA’s proposed revisions could increase competition with the increase in the number of enterprises qualified to be small businesses.

Some businesses in such industries could find themselves bidding for federal contracts against competitors with larger staffing levels and other advantages.

Meanwhile, the SBA has taken several other actions aimed at strengthening America’s small business sector.

In an Aug. 5 statement, the SBA announced it is awarding $50 million in grants to 11 organizations to provide technical assistance and training to support small manufacturers.

The funding is expected to build technical proficiency of small manufacturers, eventually ensuring that such businesses in critical industries contribute to strengthening the United States’ industrial dominance, the agency said.

Last month, a new policy took effect that allows businesses to obtain larger loans from two separate loan programs.

The 7(a) loan program provides financial assistance of up to $5 million, while the 504 loan program offers funding of up to $5.5 million. Previously, a small business could only borrow $5 million cumulatively from the two programs. 

But the policy update doubled the threshold to $10 million, ensuring greater access to capital for small businesses.