New Size Limits Shrink and Enrich 8,000 Firms

Under the revised Small Business Administration standards, newly defined small businesses will get an added $15 million to $20 million in federal l...
Marielle SegarraMarch 9, 2012

More than 8,000 businesses will make the transition from “other than small” to “small” on Monday, thanks to new Small Business Administration size limits for the Professional, Technical, and Scientific Services sector.

The consequences? Under the revised standards for the sector, newly defined small businesses would get an added $15 million to $20 million in federal loans through the 7(a) and 504 loan programs. Within the sector, the SBA increased the revenue-based size standards in 37 industries and retained current standards in 11 others.

Since its last review, the SBA has adjusted its revenue-based standards for inflation, and on an ad hoc basis. In the current review, the agency is considering factors such as industry structure and distribution, average firm size, and federal contracting trends, and looking at more than 1,000 industries included in the government’s North American Industry Classification System.

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The SBA received about 1,400 comments on its original proposals. Of those comment letters, 30% supported the proposed standards, 53% opposed them, and 12% recommended smaller increases, according to the SBA.

Some businesses expressed the concern that increasing the standards to include more businesses would render the “small business” designation meaningless. Current SBA definitions for certain industries already include most companies, wrote one business owner. “It’s like saying all people less than 7 [feet] tall are ‘short,’” she wrote. “How can you claim to serve small business when you include 99.9% of all businesses, and want to increase that to 99.95%?” she added.

To be sure, some newly defined small businesses may seem big compared with microbusinesses. But they themselves are “very small” compared with the largest companies in their industries, the SBA says. Under the revised size standards, the companies defined as “small” receive a small percentage of total receipts and federal contracts awards in most industries, according to the agency.

This disparity between the largest companies and everyone else is part of the reason for raising the size limits, says Khem Sharma, the SBA size-standards chief. Under previous limits, companies that grew out of the “small” category would face a significant competitive disadvantage compared with these much larger firms, he says.

“If we didn’t increase the size standards, once the small businesses reached the limit, they would be forced to compete with much, much larger firms” without the benefit of SBA assistance, says Sharma. Raising the size limit will allow these businesses more time to grow before they are pushed out of the SBA nest and into the marketplace, he adds.