SBA to redefine ‘small business’

The U.S. Small Business Administration published, in the Federal Register, a final rule to modify its method for calculating annual revenues used to prescribe size standards for small businesses. The SBA changed its regulations from a three-year averaging period to a five-year averaging period, with the exception of the SBA’s Business Loan and Disaster Loan Programs.

This long-awaited change will have far-reaching impacts for government contractors. The final rule is effective Jan. 6, 2020 and may result in firms regaining or retaining their small business status.

 The SBA’s table of small business size standards helps small businesses assess their business size to determine if they qualify as a small business for government contracting purposes and compete for contracts reserved or set aside for small businesses. To assist small businesses with the change, the SBA will provide a two-year transition period during which firms may choose a three-year or a five-year averaging period.

After Jan. 6, 2022, all companies must use the five-year measurement under a receipts-based calculation.

“This shift from using a three-year to a five-year period calculation will affect all of SBA’s receipts-based size standards, though the change in calculation does not apply to the SBA Business Loan and Disaster Loan Programs,” said Acting SBA Mid-Atlantic Regional Administrator Steve Bulger.

This final rule implements the Small Business Runway Extension Act of 2018, Public Law No.115-324, which changed the requirements for proposed size standards prescribed by an agency without separate statutory authority to issue size standards. The intent of the law was to allow small business government contractors more time to prepare for the transition to the full and open market after they exceed the size standard.

 While the law changed the averaging period for calculating annual revenues of businesses in services industries from three years to five years, the law did not address the averaging period for calculating the size of other businesses. To promote consistency, the SBA is adopting a five-year averaging period for all SBA and other agency revenue-based size standards, regardless of industry. The SBA will seek comment, through a separate rulemaking, on the appropriate averaging period for the SBA Business Loan and Disaster Loan Programs. For more information, visit www.sba.gov/size.