Size matters. So says the SBA in its proposed rule to bring small-business size standards into the 21st century. The standards say whether an entrepreneur qualifies for SBA programs and are most important with respect to eligibility for 7(a) loans and small-business set-aside contracts offered by other federal agencies.
Now the agency has 30 size standards based on annual receipts, five on number of employees and two on other measures. The agency wants to eliminate almost all the annual receipts categories and establish 10 employee size categories, an increase from the current five. Thirty-one industries, including construction and engineering, would also have to meet size standards based on average receipts. Says SBA administrator Hector V. Barreto, "Small-business owners have told us that the current system is difficult for [them] to understand."
In the new system, a company would use its North American Industry Classification System number to find the maximum number of employees it could have and still qualify for SBA programs. Gary Jackson, assistant SBA administrator for size standards, says all companies with fewer than 50 employees would be eligible for all SBA programs. But even if a company had more employees than it was allowed under the size standards, it could still qualify for some SBA programs, primarily the Small Business Investment Companies (SBIC) and 504 loan programs. There, a bank might use secondary standards-for example, the net worth of a company owner-to allow an otherwise too-big company into either of those two programs. The SBIC "alternate" size standard is less than $18 million in net worth and less than $6 million in net income.
Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.