SBE Council Comments on SBA’s Proposed Small Business Size Standards

By SBE Council at 21 September, 2026, 8:18 pm

The Honorable Kelly Loeffler
Administrator
U.S. Small Business Administration
409 Third Street, SW
Washington, DC 20416

RE: Small Business Size Standards, RIN 3245-AI67

Dear Administrator Loeffler:

On behalf of the Small Business & Entrepreneurship Council (SBE Council), I am pleased to submit comments on the U.S. Small Business Administration’s (SBA) proposed rule, Small Business Size Standards.

SBE Council is an advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For more than 30 years, SBE Council has worked with entrepreneurs, elected officials, and policymakers to advance policies and initiatives that encourage business formation, small business growth, innovation and economic growth.

SBE Council appreciates SBA’s work to modernize small business size standards and agrees with several objectives underlying the proposed rule. Size standards must keep pace with economic conditions. They should not punish firms for becoming more productive, adopting technology, hiring workers or successfully scaling. Nor should outdated thresholds create artificial incentives for entrepreneurs to limit growth simply to retain their small business status.

At the same time, size standards perform an important function across federal policy. They determine which firms can compete for small business contracting opportunities, qualify for SBA lending and other programs, and receive accommodations provided to small entities under federal regulatory policy. Therefore, standards must continue to distinguish meaningfully between genuinely small enterprises and substantially larger businesses.

SBE Council believes SBA can accomplish both objectives: give small businesses greater room to grow while preserving the integrity and purpose of the small business designation. For the reasons outlined below, we urge SBA to retain several positive features of the proposal while reconsidering aspects of the methodology that could unintentionally disadvantage the very firms SBA exists to serve.

Modernization is Necessary and Several Elements of the Proposal Represent Progress

SBE Council agrees with SBA that size standards must evolve along with the economy. Inflation, productivity improvements, technology adoption, changing business models, supply chains and the changing structure of markets can make an old size threshold increasingly disconnected from economic reality.

We therefore support SBA’s decision not to automatically reduce existing size standards where the proposed methodology would otherwise produce a lower threshold. Businesses make multiyear decisions about employees, equipment, capital investment and federal contracting. Abruptly changing their eligibility because of a methodological revision can disrupt those investments and create precisely the wrong incentive for growing businesses.

SBE Council has long been concerned about government-created “graduation cliffs.” Public policy should encourage entrepreneurs to start, grow and scale businesses. A business owner should not face an incentive to turn down a contract, defer hiring, avoid an acquisition or restrain growth because crossing an arbitrary threshold could abruptly eliminate access to programs that helped the business compete.

We also support SBA’s recognition of productivity growth when adjusting monetary standards. Productivity gains can increase the output and receipts of a small firm without fundamentally changing its competitive position within an industry. This consideration is particularly important in today’s economy. Entrepreneurs and small business owners are rapidly adopting artificial intelligence, automation, cloud services and other digital tools that enable relatively small teams to serve more customers and generate greater output. Federal policy must be designed to encourage this productivity revolution, not penalize it.

Similarly, SBE Council supports SBA’s objective of making size standards easier for entrepreneurs to understand and reducing unnecessary complexity. Nearly 1,000 separate standards and exceptions can create compliance costs and uncertainty for business owners, lenders, contracting officers and agencies. Simplification is a worthwhile objective, yet it must be balanced against another important objective: economic accuracy.

Simplification Should Not Come at the Expense of Meaningful Industry Distinctions

One of SBE Council’s principal concerns is SBA’s proposal relates to the move from size standards generally calculated at the six-digit NAICS level to a combination of four- and five-digit classifications and to eliminate existing size-standard exceptions. The proposal would reduce nearly 1,000 individual size standards to 338.

There are clear administrative advantages to such consolidation. But America’s small business economy is extraordinarily diverse. Businesses operating within a broad industry grouping may have substantially different capital requirements, labor needs, revenue models, competitive conditions, geographic markets and economies of scale.

A technology-enabled professional services firm, manufacturer, contractor, wholesaler or other business can have an economic profile dramatically different from another firm that falls within the same broader industry grouping. Size standards should reflect those differences where they are economically meaningful.

SBE Council therefore urges SBA not to establish aggregation itself as a measure of success. Appropriate distinctions are necessary to accurately identify businesses that face the competitive disadvantages associated with being small.

Where businesses within a four-digit NAICS grouping have sufficiently similar economic characteristics, consolidation makes sense. Where significant differences exist, SBA may wish to retain more detailed five- or six-digit standards or appropriate exceptions.

Reconsider Eliminating Upper Boundaries on Size Standards

SBE Council is also concerned about the potential scale of some proposed thresholds. Under the proposal, SBA would eliminate the existing maximum thresholds and allow its new methodology to produce significantly higher standards in individual industries.

Some of the results are quite striking.

SBA has highlighted examples in which the employee-based standard for semiconductor manufacturing would increase from 1,250 employees to 2,800 employees; shipbuilding from 1,300 to 2,300 employees; and oil drilling from 1,000 to 2,650 employees. The receipts-based standard for support activities for animal production would increase from $11 million to $71 million.

We recognize SBA’s rationale. In industries dominated by extremely large corporations, a business employing more than 1,000 people may still be relatively small compared with its principal competitors. Relative size, however, cannot be the only consideration.

A company employing 2,500 people may be smaller than the dominant companies in its industry, but it is also dramatically larger than the overwhelming majority of America’s small businesses. That distinction becomes particularly important when companies classified as small are competing against one another for certain set-asides or other finite opportunities.

SBE Council is not suggesting that the current maximum thresholds are necessarily correct for every industry or that SBA should never exceed them. We do believe, however, that exceptionally large increases require additional justification and analysis.

SBA can consider whether guardrails, caps, transition mechanisms or additional criteria are appropriate when the methodology generates a threshold far beyond traditional small business parameters. The fact that a company is “not dominant” in a particular industry does not, standing alone, necessarily establish that it should be treated identically to a genuinely small enterprise for every federal policy purpose.

The Competitive Impact on Existing Small Businesses Requires Greater Analysis

Another important issue SBA should examine before finalizing the rule is the effect on businesses that already qualify as small.

SBA estimates that the proposal would increase the number of eligible employer small businesses from approximately 6.345 million to 6.460 million, adding an estimated 114,541 firms to the small business category.

More consequential for federal contracting, SBA estimates that approximately 37,002 firms already participating in the federal marketplace would become newly eligible small businesses. Those firms held more than 105,000 federal contracts worth approximately $71 billion in fiscal year 2025. Those numbers deserve careful consideration.

A firm that currently competes successfully for federal contracts as an “other than small” business may, following this rule, suddenly become eligible to compete for contracts reserved for small businesses. At the same time, contracts awarded to these newly classified firms may count toward federal agency small business contracting goals.

That may help agencies meet their numerical goals. It does not necessarily mean that federal contracting opportunities have expanded for existing small businesses. Indeed, SBA itself recognizes that increased competition may reduce profits and that growing small businesses near existing size thresholds are likely to face the greatest competition from newly eligible firms.

SBE Council believes SBA’s final analysis should go deeper. Before finalizing these standards, SBA may consider conducting and publishing a distributional analysis examining how the proposal is likely to affect different segments of the small business population, including:

● microbusinesses and very small firms;

● existing small federal contractors;

● newer entrants into federal contracting;

● firms near existing size thresholds;

● women-owned, veteran-owned and disadvantaged small businesses;

● rural businesses; and

● businesses that would become newly eligible under substantially higher thresholds.

A net increase in the number of businesses designated as small does not, by itself, demonstrate a net increase in opportunity for existing small businesses. That distinction should be central to SBA’s analysis.

Federal Contracting Goals Must Continue to Measure Genuine Small Business Participation

The proposal raises an important question about the integrity of federal small business contracting goals. If tens of thousands of businesses currently classified as other than small become small overnight, agencies may receive substantially greater credit toward their small business contracting goals without making any corresponding change in procurement practices. Indeed, SBA estimates that 37,002 firms with existing FY2025 federal contracts totaling more than $71 billion would become newly classified as small.

SBE Council believes SBA should analyze how much of the apparent increase in federal small business contracting that would result from this proposal represents actual new contracting opportunities for small businesses versus the statistical reclassification of contracts already being performed by larger firms. This distinction matters for policymakers, taxpayers and entrepreneurs.

Small business contracting goals are intended to promote meaningful participation by small firms in the federal marketplace. Their value should not be diluted by a methodological change that allows agencies to report improved performance without actually opening additional opportunities to small businesses.

At a minimum, SBA should establish transparent reporting that distinguishes between contracts awarded to firms that qualified as small under the previous standards and contracts awarded to firms that become newly eligible because of the rule.

SBA Should Avoid a Blanket Preference for Employee-Based Standards

SBE Council understands SBA’s rationale for greater use of employee-based standards. Revenue can fluctuate, inflation can push nominal receipts higher, and businesses can move above and below receipts-based thresholds without experiencing a corresponding change in their underlying competitive position. These are legitimate concerns. However, employee counts can create distortions of their own.

Modern technology allows businesses to generate substantially greater revenue with relatively small teams. Capital-intensive and highly automated businesses can produce enormous output with fewer employees. Conversely, labor-intensive businesses may employ many workers while generating comparatively modest revenue. This dynamic will become increasingly important as artificial intelligence and automation more fully diffuse throughout the small business economy.

SBE Council therefore urges SBA not to presume that employee-based standards are inherently superior whenever the agency has discretion. The appropriate metric should be determined based on the economic characteristics of the relevant industry. In some industries, employees may be the best measure. In others, receipts may more accurately capture the scale and competitive position of the business.

The Graduation Problem Should Be Addressed Directly

One of SBA’s strongest arguments for higher standards is that businesses should be able to continue growing without prematurely losing their small business status. SBE Council strongly agrees with the objective.

We encourage SBA to distinguish between two different policy questions:

1.) Is a particular size standard economically outdated and therefore too low?

2.) Is losing small business status itself unnecessarily disruptive for growing firms?

The solution to the second problem should not always be to redefine larger businesses as small.

Federal policy should instead seek to create a smoother continuum that allows businesses to start, grow, scale and ultimately graduate from small business programs without encountering an artificial cliff. Moreover, efforts must focus on creating a more accessible, less complex federal procurement system, which would make the government contracting space more appealing for small businesses.

SBA and Congress should examine mechanisms that provide reasonable transition periods, improve opportunities for businesses graduating from set-aside programs, encourage teaming and mentor relationships, and address other barriers confronting firms as they move from the small business marketplace into full and open competition.

Success should be celebrated. The policy goal should be to make graduation from small business status a milestone rather than a penalty.

SBE Council Recommendations

SBE Council respectfully recommends that SBA retain the strongest elements of the proposed reform while recalibrating those provisions that could undermine opportunities for genuinely small firms. Specifically, SBA should:

Retain appropriate inflation and productivity adjustments. Size standards should reflect the modern economy and should not punish firms simply because nominal revenues or productivity have increased.

Avoid unnecessary reductions in existing size standards. Abrupt reductions can disrupt businesses that made investment and contracting decisions based on existing rules.

Preserve meaningful industry distinctions. Consolidate NAICS categories where the economic characteristics of businesses genuinely support consolidation, but retain more detailed standards and exceptions where warranted.

Reconsider eliminating upper guardrails altogether. Exceptional thresholds should receive additional analysis and justification before businesses of substantially greater scale are classified as small.

Conduct a distributional competitive-impact analysis. SBA should evaluate not merely how many firms gain eligibility, but how newly eligible firms will affect existing small businesses competing for finite contracting, lending and program opportunities.

Protect the integrity of federal small business contracting goals. SBA should distinguish between actual expansion of small business contracting and increases produced solely through reclassification of existing federal contractors.

Determine the appropriate size measure industry by industry. Employee-based standards should not automatically replace receipts-based standards where revenue more accurately reflects economic scale.

Consider transition mechanisms. Where very large changes in standards are justified, SBA should examine whether phased implementation would reduce market disruption.

Address the graduation cliff directly. SBA and Congress should consider policies that help successful small businesses transition into full and open competition rather than continually expanding the definition of small to postpone graduation.

Commit to frequent, transparent and data-driven review. Regular updates can prevent standards from becoming so outdated that dramatic revisions become necessary.

Conclusion: Modernize and Preserve the Meaning of “Small”

SBE Council applauds SBA for undertaking a serious review of size standards and agrees that the existing system needs modernization. Entrepreneurs should have room to grow. Size standards should account for inflation, productivity and changing markets. Government should not impose unnecessary complexity or create artificial barriers that discourage investment, hiring and expansion.

At the same time, the purpose of small business policy must remain firmly in view. The overwhelming majority of America’s businesses are small. Many are extraordinarily small. They compete every day against firms with greater financial resources, larger workforces, greater purchasing power and more substantial capacity to navigate government procurement and regulatory systems.

Federal small business programs exist in recognition of those competitive realities. Expanding the definition of small too broadly risks creating a new problem while attempting to solve an old one: genuinely small businesses could find themselves competing for “small business” opportunities against enterprises many times their size.

We appreciate SBA’s willingness to solicit the views of the small business community and its consideration of these comments. SBE Council looks forward to working with the Administration, SBA and Congress on policies that encourage America’s entrepreneurs to launch businesses, grow, innovate and compete.

Sincerely,

Karen Kerrigan, President & CEO