The SBA May Be Changing What It Means to Be a Small Business

Most business owners probably have a pretty straightforward idea of what a “small business” is.

But when you start selling to the federal government, “small” has a much more specific meaning.

The U.S. Small Business Administration, better known as the SBA, establishes size standards that determine whether a company qualifies as a small business for federal contracting programs. Those standards can affect whether a company is eligible to compete for small-business set-aside contracts and participate in certain federal programs.

Now, the SBA is proposing a major overhaul of how those standards work.

And if your company currently competes as a small business, this is something worth paying attention to.

Interested in Government Contracting?

What Is a Small Business Size Standard?

There isn’t one universal number that determines whether every company is considered small.

Instead, the SBA sets different limits depending on the industry your business operates in.

Those industries are identified using North American Industry Classification System codes, commonly called NAICS codes.

Depending on the industry, the SBA may determine whether a business is small based primarily on its average annual revenue or its number of employees.

That means a company with hundreds of employees could still technically qualify as a small business under one NAICS code, while a much smaller company in another industry could face a completely different standard.

Why does that matter?

Because small-business status can determine which federal contracting opportunities you’re eligible to pursue.

Most businesses won’t be ready for what’s coming. Make sure yours is.

Check Eligibility

The SBA Wants to Simplify the System

Right now, the SBA’s size-standard system is incredibly detailed.

There are nearly 1,000 individual size standards tied largely to six-digit NAICS industries, along with additional exceptions for certain types of federal contracting.

Under the SBA’s proposed approach, that could be reduced to 338 individual size standards by grouping more businesses into broader industry classifications.

In plain English, the SBA wants to simplify the system.

Instead of having businesses in closely related industries operating under several different definitions of “small,” more of those industries could share a common standard.

For contractors, that could make it easier to understand which size standard applies to their business.

But simplifying the system also means some businesses could find themselves operating under a different standard than they do today.

Revenue May No Longer Be the Main Measure for Some Businesses

This is another potentially significant change.

Today, many industries use average annual receipts to determine whether a company qualifies as small.

The SBA is proposing changes that could shift how size is measured for certain industries, including greater use of employee-based size standards.

The agency’s reasoning is fairly practical.

Revenue can fluctuate considerably from year to year. A company could have an unusually strong period, cross a size threshold and find its small-business status affected even though the underlying size of the organization hasn’t dramatically changed.

Employee counts tend to be more stable.

For federal contractors trying to plan several years ahead, changes to how their size is calculated could matter.

More Businesses Could Qualify as Small

Here’s where the proposal gets particularly interesting for contractors.

According to the SBA’s announcement, the proposed changes could result in more than 110,000 additional employer businesses being classified as small.

That doesn’t mean those companies suddenly receive government contracts.

It means more businesses could potentially qualify for programs and contracting opportunities where small-business status matters.

And that can work both ways for existing contractors.

If your business becomes newly classified as small, additional opportunities could become available to you.

If you’re already small and more companies enter your category, you could potentially find yourself competing against a larger pool of eligible businesses.

Either way, it’s a good reason to understand where your company falls.

Your NAICS Codes Matter More Than You Might Think

This is also a good reminder of something we talk about frequently at Government Services Exchange: your NAICS codes aren’t just boxes you check when you register your business.

They tell government buyers what industries your company operates in.

And because SBA size standards are tied to NAICS classifications, those codes can also play a role in determining whether your company qualifies as small for a particular federal procurement.

That’s why businesses should periodically review the NAICS codes associated with their company.

Do they accurately describe what you sell?
Is your primary NAICS code still the best representation of your business?
Have your products or services changed since you originally registered?
Are you pursuing opportunities under codes that actually make sense for your capabilities?

Those questions become especially important when the rules surrounding size standards themselves are changing.

What Does This Mean for Certifications?

Small-business status can also matter for federal contracting programs aimed at specific groups of businesses.

Programs such as the Women-Owned Small Business (WOSB) Federal Contract Program, Service-Disabled Veteran-Owned Small Business (SDVOSB) Program, HUBZone Program and 8(a) Business Development Program have their own eligibility requirements, but qualifying as a small business under the applicable SBA size standard is an important part of participation.

So if the SBA changes how businesses are classified, contractors participating in or considering these programs should understand whether the new standards could affect them.

If you’re considering one of these programs, Government Services Exchange provides certification support for businesses pursuing programs including WOSB, veteran-owned, HUBZone and 8(a) certification.

Again, none of this means businesses should panic or immediately change their registrations.

These rules are still proposed.

But it does mean companies should be paying attention.

Don’t Make Changes Based on a Proposal

This part is important.

The SBA’s proposed overhaul is not a final rule.

The agency published the changes for public review and comment, meaning the proposal can still change before anything becomes final.

Businesses shouldn’t start changing their federal contracting strategy based on rules that haven’t taken effect.

But they should understand what’s being discussed.

Contractors who want to dig into the details can review the SBA’s full proposed rule.

If the rules eventually become final, you’ll want to know whether your industry’s standard changed and what that means for your business before you’re looking at an opportunity with a deadline attached to it.

What We’d Be Checking Right Now

For most contractors, this is a good opportunity to take a look at the foundation of their federal contracting profile.

Start with your NAICS codes.

Make sure they accurately represent the work your company actually performs.

Then look at the current SBA size standards associated with your primary industry and the other industries where you regularly pursue contracts.

Know how your business is currently classified.

If you are close to the existing threshold, proposed changes to the size standards may be particularly important to follow.

Businesses should also make sure the information in their System for Award Management, commonly known as SAM, registration is accurate and current.

If your SAM registration needs attention, GSE provides SAM registration and renewal support.

You don’t need to predict exactly what the SBA will ultimately decide.

You just don’t want to discover that something affecting your eligibility changed after you’ve already found the contract you wanted to pursue.

The Bottom Line

The SBA’s proposal sounds technical.

For government contractors, the question behind it is actually pretty simple:

Who gets to be considered a small business when competing for federal opportunities?

The SBA is proposing significant changes to the way it answers that question.

The new approach could simplify hundreds of industry-specific standards, change how size is measured in certain industries and ultimately increase the number of companies classified as small.

For some businesses, that could open doors.

For others, it could change the competitive landscape.

And because small-business status connects directly to federal contracting eligibility, set-aside opportunities and certain certification programs, this isn’t the kind of regulatory change contractors should ignore.

At Government Services Exchange, we help businesses understand where they fit in the federal marketplace and make sure the foundation behind their contracting strategy is in place, from SAM registration and renewal and NAICS codes to small-business certifications, capability statements and overall procurement positioning.

The rules aren’t final yet.

But knowing how your business could be affected before they become final puts you in a much better position than trying to figure it out afterward.

Let’s Get Started…

Your time is valuable.

Your opportunity is real.

Let us help you make both count.

Talk With a Specialist

Get Started:

Federal Certifications:

State Certifications

Government Marketing

Articles: