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New SBA Small-Business Definition Hurts Actual Small Businesses

Posted by Carol Tice | October 13, 2010
URL: http://www.entrepreneur.com/blog/218921
What is a small business, anyway? How big can it be before it's not a small business anymore? The Small Business Administration has been mulling these questions and now, for the first time in decades, has redefined how large a company can be and still qualify for SBA assistance.

In some industries, small businesses can now be a lot bigger. Which seems like a big step in the wrong direction.

The SBA sets its cutoffs based on either the number of employees or average annual receipts. Previously, $7 million in annual revenue was the cutoff for most industries.

But in the review, the SBA boosted that cutoff to more than $35 million for some business types. The result is that 18,000 more businesses now can seek help from SBA in obtaining federal contracts and loans.

Industries that now have bigger small businesses in the SBA's eyes include hospitality, restaurant and hotel. In particular, new-car dealerships saw their rules change radically, to allow dealers to have up to 200 employees. Translation: About 90 percent of all car dealerships are now small businesses.

Say what? 

The government is having a tough enough time supporting the smaller small businesses. Adding more and bigger businesses to their plate will only further disadvantage the really small businesses the SBA was created to foster -- because small businesses are such an important factor in job creation and driving our economy.

But you can see why SBA made this move. To sum up, it's easier to help bigger, more established businesses. It's also easier to fulfill government quotas for helping small businesses if you include bigger businesses in your definition.

For instance, the federal government continues to struggle to meet its goal for including small businesses in government-contract assignments. In August, the SBA said small businesses got just under 22 percent of the total. The goal was 23 percent.

Now that $35 million-a-year businesses can be counted in this pot, I'd bet it'll be a snap to close that 1 percent gap. I can't wait to see the analysis of federal contract awards a year from now, to see how many of these bigger "small" businesses are now winning contracts, while struggling small businesses are turned away.

Then there's the SBA loan mess. Despite enhanced support from SBA since the downturn, banks have been reticent to loan freely. But put thousands of bigger businesses into the SBA pot, and just watch bank lending to "small business" rise again. 

In essence, the redefinition creates a PR victory, without the government's having to make any real headway in helping small businesses grow. 

Soon, the government will be able to trumpet its success getting "small businesses" the capital they need. Meanwhile, the same small businesses that have been struggling all along may keep right on floundering. It's just that now, the statistics will mask the problem.

What do you think? Should SBA funding only go to very small businesses, or should these more medium-sized businesses receive assistance, too? Leave a comment and let us know your view.