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Broadening of the Definition of "Small Business" in U.S. Leads to More Benefits for Some

June 24, 2013

Last week, the U.S. Small Business Administration announced changes to its definition of "small business" to incorporate businesses previously too large or profitable to qualify. These revisions are the first of their kind since the 1970s, and are based on market shifts (such as average company size) within 70 industries over several decades. The changes also follow public comments on proposed modifications to the SBA's sizing standards, The Washington Post reported, and they are slated to take effect July 22.

"Companies that have outgrown their size standard might qualify for being small again, and the companies that are still small will have more room to grow and still qualify as small," Khem Sharma, chief of the SBA's division of size and standards, told Inc.

In general, the SBA defines a small business as having fewer than 500 employees and revenues under $7 million. However, with the new rules, four industry categories within the North American Industry Classification System−including agriculture and forestry, finance and management, arts and entertainment, and recreation − will see changes. The average annual revenue size standard will increase to $35.5 million from $7 million for 25 industries, notes USA Today. For example, according to Inc., the revenue size standard has increased to $35 million for clubs and sports teams, $19 million for theater companies, and $500 million for banks (up from $175 million).

Consequently, more than 17,000 firms previously ineligible now will qualify for SBA loans and involvement in SBA-run programs, including research grants and small business investment opportunities. It also means larger companies can now be added to the SBA's database of firms that qualify for government contracts, noted USA Today.

"Government agencies will have a larger pool of businesses to choose from, and this will hopefully give them better competition and prices," Sharma said, as reported in Inc.

Federal agencies aim to award at least 23 percent of government contracts to small businesses. Last year, they granted small businesses about $100 billion in government contracts, noted Inc. Federal agencies can use the database to locate small businesses, particularly when looking for ones that meet specific criteria.

"If you're looking for woman-owned businesses in different industries, you can do a search for those particular businesses," Tiffani Clements, SBA spokeswoman, told USA Today.

The revised standards have pros and cons, Sharma said. Small businesses, for instance, may be able to expand without worrying they'll outgrow the opportunity to compete for government contracts. On the other hand, small companies may now have greater competition for contracts and could lose potential work to larger rivals. Over the next year, the SBA will review and revise small business size standards based on number of employees. This process will be continued for the next several years as required by the Small Business Jobs Act of 2010.

According to The Washington Post, public input about the rules is welcome at www.regulations.gov.


Compiled by Doresa Banning

Sources:

"Big or Small, This SBA Definition Tweak Affects You," inc.com, June 21, 2013, Jeremy Quittner

"SBA revises small business size standards," usatoday.com, June 21, 2013, Jack Fitzpatrick

"'Small business' gets bigger, by new SBA standards," washingtonpost.com, June 20, 2013, Mohana Ravindranath

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