SBA Proposes Doubling Small Business Size Limits

The U.S. Small Business Administration is proposing significant changes to its definition of a small business. The new rules would more than double the size limits in several industries, potentially allowing thousands more firms to compete for lucrative federal contracts.

The SBA sets the standards that determine eligibility for federal aid and contracts. Approximately a quarter of all federal contracts are reserved for businesses classified as small. Richard Prisinzano, director of policy analysis at The Budget Lab at Yale University, noted the importance of this designation. "There's a lot of money, and the government is a very good payer," he said.

The Growth Dilemma

The current system can create a perverse incentive for business owners. A company might deliberately avoid hiring additional staff or increasing revenue if doing so would push it over the SBA's size threshold, causing it to lose its small business status. Prisinzano illustrated this point, suggesting an owner might forgo hiring three extra employees simply to stay within the employee count limit.

This proposed overhaul aims to adjust those thresholds to better match modern market conditions. The SBA stated the new size standards will "better reflect the nature of the markets in which small businesses compete."

Major Increases Proposed

The most dramatic changes are in professional service industries. For sectors like architectural services and custom computer programming services, the size limit would increase more than tenfold. This means a firm with significantly higher revenue or many more employees could still be considered a small business and retain access to set-aside contracts.

While the changes could open doors for mid-sized firms, some experts warn they might disadvantage the very smallest companies. Tom Schryver, a visiting lecturer at Cornell's SC Johnson College of Business, expressed concern about leveling the playing field. He questioned how a two-person startup could fairly compete against a consulting firm with 1,000 employees if both are classified as small businesses.

Schryver also argued that supporting the smallest firms has an outsized positive impact on job creation and the broader economy. The proposal is now under consideration, and its final form will shape how billions of dollars in federal contracting money is distributed among American businesses.