US May Increase Definition of Small Business Three
Fold to Qualify for Subsidy
Higher revenue and employee limits for small
businesses that get federal contracts and loans could disadvantage the smallest
companies, their owners say.
·
The U.S. Small Business Administration (SBA)
has proposed dramatically raising the size limits for companies to qualify as
“small businesses” and access federal contracts, SBA-backed loans and other
assistance.
·
The proposal would allow significantly larger firms
to retain small-business status as they grow, representing what a former SBA
policy director called the largest size-standard changes in the agency’s
history.
·
Current limits for many industries are around $47
million in annual revenue or 1,500 employees. Under the proposal, some
thresholds would rise to hundreds of millions of dollars or even $1 billion
in revenue.
·
Examples:
o
Engineering services: $252
million, up from $25.5 million.
o
Casinos: $744 million, up from $34
million.
o
Freight brokerage: $259
million, up from $20 million.
o
Financial investment services: up to $1
billion in revenue or more than 3,000 employees.
·
The SBA estimates the changes would add about 114,500
businesses to the pool eligible for small-business programs.
·
The change is particularly significant for federal
procurement. By law, 23% of federal contracting dollars are targeted
at small businesses. The government awarded nearly $273 billion to
qualifying small businesses last year.
·
Critics argue that allowing much larger companies
to compete as “small businesses” could crowd out genuinely small firms,
reducing their access to federal contracts and subcontracting opportunities.
·
The SBA says the changes would encourage
business growth, strengthen domestic manufacturing and supply chains, and
support U.S. industrial and national-security objectives.
·
Supporters of the proposal say existing thresholds
create a “growth cliff”: companies can lose eligibility for government
support once they cross a relatively low revenue or employee threshold.
·
For example, Infinity Systems Engineering,
with about $60 million in annual revenue, has already outgrown its
small-business status in engineering. The proposed $252 million threshold would
allow it to regain eligibility and pursue more federal contracts.
·
Opponents argue that the proposal could make it
harder for genuinely small and newly established companies to enter federal
procurement. One freight brokerage with only $3 million in annual revenue
fears it would face competition from companies with revenues as high as $259
million.
·
The proposal could also encourage mergers and
acquisitions, as companies seek greater scale to compete for government
business.
·
The SBA is accepting public comments until
September 21, 2026, after which it will consider the feedback before
issuing a final rule.
Key takeaway: The
proposal would shift the SBA's focus from supporting only relatively small
enterprises toward supporting a much broader group of small-to-midsize
government contractors. While it could help growing companies avoid losing
government support, the major concern is that larger newly eligible firms
could capture contracts and loans intended for truly small businesses.
The
Small Business Administration is seeking to vastly expand the definition of small
businesses, aiming to give much larger companies access to government contracts,
loans and other assistance.
The
proposal, which the Trump administration says would allow businesses to continue
to benefit from the agency’s programs as they grow, amounts to a sweeping overhaul
of standards that have changed little in decades.
Many
business owners support some increase in the limits on revenue and employees that
determine what qualifies as a small business. But the scale of the proposed increase
would also place small businesses in direct competition with significantly larger
rivals for contracts and loans, raising alarms that the agency could hamstring the
very businesses it was created to help.
In
some industries, such as financial investment services, companies could earn up
to $1 billion or employ more than 3,000 people, more than some publicly traded corporations.
The highest current cap for most industries is annual revenue of up to $47 million
or fewer than 1,500 employees.
“I
don’t feel like this change was made with small business in mind,” said Angela Dingle,
the president and chief executive of Women Impacting Public Policy, a group that
promotes women entrepreneurs.
Caitlin
O’Dea, a spokeswoman for the Small Business Administration, said the changes “would
reward growth, strengthen domestic production and rebuild key supply chains — which
is essential to restoring American industrial dominance and national security.”
The
agency is soliciting public comments through Sept. 21, which Ms. O’Dea said it would
review before issuing a final rule.
By
law, 23 percent of federal contracting dollars are supposed to go to business designated
as “small.” The measure differs by industry. Last year, the federal government exceeded
that goal, awarding nearly $273 billion to qualifying businesses.
Under
the proposed rule, which was released on Thursday, the administration is aiming
to substantially increase the revenue and employees that companies can have while
retaining small-business status.
For
example, the revenue limit for a business in the engineering services industry would
increase to $252 million a year, from $25.5 million. Casinos could earn as much
as $744 million, more than 20 times the current cap of $34 million.
“These
are the biggest size standard changes in history, no question in my mind about that,”
said Sam Le, who was the director of policy, planning and liaison at the Small Business
Administration from 2020 to 2025.
He
said smaller businesses would have more competition for federal contracts and have
fewer opportunities for subcontracts. Larger companies that would have had to share
some of the work with smaller competitors would qualify as small businesses to take
on the work alone.
The
agency said in its proposal that the modified size standards would increase the
number of businesses classified as small by roughly 114,500. According to the Census
Bureau, nearly 90 percent of American businesses have fewer than 20 employees.
Nearly
a third of those newly eligible companies already accounted for federal contracts
worth $71 billion in the 2025 fiscal year, according to the Small Business Administration.
Senator Edward Markey of Massachusetts, the ranking Democrat on the Small Business
Committee, said the change would “decimate opportunities for actual small businesses.”
Madison
Services Group, a lobbying firm that represents contractors in industries such as
construction and information technology, has been pushing for a substantial increase
in the size standards for several years, because as federal contract awards have
grown, it has become harder to win bids while staying under the limits.
But
for some categories, the proposal is much higher than what they had asked for.
“People
are trying to figure out what’s the right number to comment on that would allow
for growth, but not put them into a category where they can no longer compete,”
said Elizabeth Sullivan, president of Madison Services Group.
The
changes are part of a broader push by the S.B.A. to serve businesses on the larger
size of small.
The
Biden administration had loosened underwriting requirements for loans to the smallest
businesses, which the Trump administration quickly reversed. The agency also recently
raised the total amount that businesses can borrow through lending programs backed
by the Small Business Administration to $10 million from $5 million.
The
agency has been required to review the size standards every five years since Congress
passed the Small Business Jobs Act in 2010. But previous changes have been modest,
mostly to adjust for inflation.
Many
business owners and representatives for smaller businesses have long argued that
companies that had grown beyond their small-business status needed more government
support. There have also been concerns that the size standards effectively created
a cliff after which growing companies were no longer eligible for federal assistance.
The
new standards move that cliff much farther out, drawing some plaudits from supporters
of midsize businesses.
“There
are businesses that are losing out on their small-business eligibility because they
are growing,” said Imani Augustus, the director of the Center
for Entrepreneurial Opportunity at Third Way, a moderate Democratic think tank.
“We don’t want to penalize these businesses for doing a good job.”
Brad
Michelson, the contracts director at Infinity Systems Engineering, which provides
aerospace and defense services to the government, said
he appreciated the new size standards.
With
roughly $60 million in annual revenue, the 30-year-old company in Colorado Springs
has outgrown its small-business designation in engineering services. The higher
revenue cap would mean he could once again seek out government contracts without
worrying about losing his status by growing too big.
“This
will put us in a place where, in most cases, we would go from a large business to
a small business, and that would be a great place for us to grow and innovate and
stay in business for the government,” he said.
Dane
Stangler, a fellow with the Bipartisan Policy Center,
said the rule could spur competition in parts of the government contracting market
long dominated by a handful of smaller but well-established players.
That’s
especially true in the information technology sector, where a lot of money is at
stake.
But
he said the changes did nothing to foster smaller companies that might be just getting
started with federal contracting. “I would hope that, in the spirit of what they
say they’re trying to do, we might see changes on these other dimensions, too,”
Mr. Stangler said.
The
rules could also encourage more mergers and acquisitions among companies hoping
to compete with larger enterprises. Heightened competition from big players could
also discourage newer companies from participating in the federal marketplace at
all.
Adam
Hay, the founder and chief executive of Valley High Logistics, a freight brokerage
in Fort Thomas, Ky., is among the business owners who oppose the changes.
Mr.
Hay, a veteran, said his company, which brings in about $3 million a year in revenue,
had not won any federal contracts. He worried that the proposed changes, which would
blow out the threshold for his industry to $259 million from $20 million, would
make it even harder for his business. The Small Business Administration said its
changes would add 835 companies to his industry’s pool.
“What
is expanding this ceiling going to do?” he said. “It’s going to make the problem
worse.”