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SBA Proposes Increase in Small Business Size Standards For Certain Service Industries

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On November 27, 2020, the Small Business Administration (SBA) published a Proposed Rule to revise the small business size standards for businesses in five North American Industrial Classification System (NAICS) sectors in an effort to increase small business eligibility for SBA’s loan and contracting programs.  The revisions, if adopted, would increase the size standards for 70 service industries in the following sectors: 61- Education Services; 62 – Health Care and Social Assistance; 71 – Arts, Entertainment and Recreation; 72 – Accommodation and Food Services; and 81 – Other Services.

To determine eligibility for Federal small business assistance programs, the SBA establishes small business size definitions (size standards) for private sector industries in the United States. In general, the SBA uses 2 primary measures of business size to determine the size standards: (1) average annual receipts and (2) average number of employees.  The SBA uses additional measures for the financial and petroleum refining industries and can use alternative size standards for its Small Business Investment Company (SBIC), Certified Development Company (504), and 7 (a) Loan Programs.  The SBA is required by the Small Business Jobs Act of 2010 (Pub. L. 111-240, 124 Stat. 2504, September 27, 2010) to review and make necessary adjustments to all size standards to reflect industry and market conditions every five years.  The SBA also adjusts its monetary-based size standards for inflation at least once every five years and also updates its size standards every five years to adopt the Office of Management and Budget’s (OMB) NAICS revisions to its table of small business size standards.

As part of its ongoing review, the SBA reviewed a total of 145 industries and is proposing significant size standards increases in 70 of those industries, while also maintaining current size standards for the remaining industries where data suggested that the size standards should be lowered. According to the SBA, these revisions reflect changes in industry and federal marketplace conditions and SBA’s policy position on current economic conditions due to the COVID-19 pandemic.  The proposed size standards revisions by NAICS code may be found here.

These size adjustments will have significant impacts on small businesses in these industries.   Many of the size standards increases are significant and the SBA estimates that approximately 4,700 additional businesses in these sectors will become eligible for SBA’s programs under the revised size standards.  In addition, many larger small businesses that have exceeded their size standards may once again qualify as small businesses under these increased size standards.  Given these proposed changes, small businesses may want to reconsider their plans for the coming year.  Comments on the proposed rule must be submitted to the SBA on or before January 26, 2021.  Comments may be submitted by mail or online.

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