SBA to Stretch Definition Of “Small” Business

The Small Business Administration will redefine what “small” means for firms in hundreds of industriesby revamping size standards over the next two years. The result: More businesses will qualify for all types of SBA financial aid, such as the flagship 7(a) loan guarantee program.

The SBA hasn’t taken a hard look at its size standards for more than 25 years, although it periodically makes inflation adjustments, as it did last year. There’s no doubt that in the last quarter-century, changes in industry structure, market conditions and business models have changed the definition of “small” for all sorts of businesses. The SBA’s effort will involve reviewing the standards for businesses in about 900 industries and adjusting them upward -- or, in a few cases, downward -- as needed.

There is no “one size fits all” benchmark to determine whether a business qualifies for SBA assistance. The agency has three general “anchor” standards: 500 or fewer employees for manufacturers; 100 or fewer employees for wholesalers; and $7 million or less in annual receipts for most other types of businesses. But each industry has its own standards because what may be “small” for, say, a garden center could be huge for a jewelry store.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

In the first round of this size standard revamp, SBA is looking at 138 industries and proposing to change the standards for 71 of them. For example, SBA wants to raise the cap on annual receipts for jewelry stores from $7 million to $25 million, which would allow a lot more stores to qualify for aid. The cap for nurseries and garden centers is proposed go from $27 million to $30 million.

In evaluating a given industry’s standard, SBA is looking primarily at the average size and startup costs for a business in that industry, along with what the competition is like and what the barriers to entry are. It also takes into account how any changes to the standard would affect rules intended to set aside a portion of federal contracts for small businesses.