Small Business Size Standards:
A Historical Analysis of Contemporary Issues
Robert Jay Dilger
Senior Specialist in American National Government
February 2, 2015
Congressional Research Service
7-5700
www.crs.gov
R40860
Small Business Size Standards: A Historical Analysis of Contemporary Issues
Summary
Small business size standards are of congressional interest because the standards determine
eligibility for receiving Small Business Administration (SBA) assistance as well as federal
contracting and tax preferences. Although there is bipartisan agreement that the nation’s small
businesses play an important role in the American economy, there are differences of opinion
concerning how to define them. The Small Business Act of 1953 (P.L. 83-163, as amended)
authorized the SBA to establish size standards for determining eligibility for federal small
business assistance. The SBA currently uses two types of size standards to determine SBA
program eligibility: industry-specific size standards and alternative size standards based on the
applicant’s maximum tangible net worth and average net income after federal taxes.
The SBA’s industry-specific size standards determine program eligibility for firms in 1,047
industrial classifications in 18 sub-industry activities described in the North American Industry
Classification System (NAICS). The size standards are based on one of four measures: (1)
number of employees, (2) average annual receipts in the previous three years, (3) average asset
size as reported in the firm’s four quarterly financial statements for the preceding year, or (4) a
combination of number of employees and barrel per day refining capacity. Overall, the SBA
currently classifies about 97% of all employer firms as small. These firms represent about 30% of
industry receipts.
The SBA has always based its size standards on economic analysis of each industry’s overall
competitiveness and the competitiveness of firms within each industry. However, in the absence
of precise statutory guidance and consensus on how to define small, the SBA’s size standards
have often been challenged, typically by industry representatives seeking to increase the number
of firms eligible for assistance and by Members concerned that the size standards may not
adequately target assistance to firms that they consider to be truly small.
A Historical Analysis of Contemporary Issues
January 27, 2016
(R40860)
Jump to Main Text of Report
Summary
Small business size standards are of congressional interest because the standards determine eligibility for receiving Small Business Administration (SBA) assistance as well as federal contracting and tax preferences. Although there is bipartisan agreement that the nation's small businesses play an important role in the American economy, there are differences of opinion concerning how to define them. The Small Business Act of 1953 (P.L. 83-163, as amended) authorized the SBA to establish size standards for determining eligibility for federal small business assistance. The SBA currently uses two types of size standards to determine SBA program eligibility: industry-specific size standards and alternative size standards based on the applicant's maximum tangible net worth and average net income after federal taxes.
The SBA's industry-specific size standards determine program eligibility for firms in 1,047 industrial classifications in 18 sub-industry activities described in the North American Industry Classification System (NAICS). The size standards are based on one of four measures: (1) number of employees, (2) average annual receipts in the previous three years, (3) average asset size as reported in the firm's four quarterly financial statements for the preceding year, or (4) a combination of number of employees and barrel per day refining capacity. Overall, the SBA currently classifies about 97% of all employer firms as small. These firms represent about 30% of industry receipts.
The SBA has always based its size standards on economic analysis of each industry's overall competitiveness and the competitiveness of firms within each industry. However, in the absence of precise statutory guidance and consensus on how to define small, the SBA's size standards have often been challenged, typically by industry representatives seeking to increase the number of firms eligible for assistance and by Members concerned that the size standards may not adequately target assistance to firms that they consider to be truly small.
During the 111th Congress, P.L. 111-240, the Small Business Jobs Act of 2010
, :authorized the
SBA to establish an alternative size standard using maximum tangible net worth and average net
income after federal taxes for both the 7(a) and 504/CDC loan guaranty programs
. It also
;
established, until the SBA acted, an interim alternative size standard for the 7(a) and 504/CDC
programs of not more than $15 million in tangible net worth and not more than $5 million in
average net income after federal taxes (excluding any carry-over losses) for the two full fiscal
years before the date of the application
. It ; and
required the SBA to conduct a detailed review of not
less than one-third of the SBA
’'s industry size standards every 18 months
.
beginning on the new law's date of enactment (September 27, 2010).This report provides a historical examination of the SBA
’'s size standards and assesses competing
views concerning how to define a small business. It also discusses
H.R. 527, the Small Business
Regulatory Flexibility Improvements Act of 2015, which would authorize the SBA’s Office of
Chief Counsel for Advocacy to approve or disapprove a size standard requested by a federal
agency for purposes other than the Small Business Act or the Small Business Investment Act of
1958. The SBA’s Administrator currently has that authority. This report also discusses P.L.
112239112-239, the National Defense Authorization Act for Fiscal Year 2013, which requires the SBA to
make available a justification when establishing or approving a size standard that the size
standard is appropriate for each individual industry classification. It addresses the SBA
’'s recent
practice of combining size standards within industrial groups as a means to reduce the complexity
of its size standards and to provide greater consistency for industrial classifications that have
similar economic characteristics.
Congressional Research Service
Small Business Size Standards: A Historical Analysis of Contemporary Issues
Contents
What Is a Small Business? ............................................................................................................... 1
How Big Is Small? ........................................................................................................................... 3
Who Makes the Call?....................................................................................................................... 5
Early Definitions of Small Business Vary in Approach and Criteria ............................................... 5
The Small Business Act of 1953’s Definition of Small Provides Room for Interpretation ............. 8
Industry Challenges the SBA’s Initial Size Standards, Claiming They Are Too Restrictive ........... 9
GAO and Several Members of Congress Challenge the SBA’s Size Standards, Claiming
They Are Too Broad ................................................................................................................... 11
SBA Proposes More Restrictive Size Standards Based on Industry Competitiveness .................. 13
SBA Proposes to Streamline its Size Standards ............................................................................. 17
SBA Adopts a More Incremental, Targeted Approach ................................................................... 19
Congress Requires Periodic Size Standard Reviews ..................................................................... 24
SBA’s Definitions for Small Business ........................................................................................... 29
Alternative Size Standards....................................................................................................... 30
Industry Size Standards ........................................................................................................... 31
Other Federal Agency Size Standards ..................................................................................... 35
Congressional Policy Options ........................................................................................................ 37
Tables
Table 1. Number of Employer Firms, Employer Firm Employment, and Employer Firm
Annual Payroll, by Employer Firm Employment Size, 2012 ....................................................... 4
Table 2. Industry Size Standards Being Applied During the SBA’s Ongoing Review of its
Small Business Size Standards ................................................................................................... 22
Table 3. Status of SBA Size Standard Reviews, 2010-2014 .......................................................... 25
Contacts
Author Contact Information........................................................................................................... 39
Congressional Research Service
Small Business Size Standards: A Historical Analysis of Contemporary Issues
What Is a Small Business?
There is bipartisan agreement that small businesses play an important role in the American
economy.1 However, there are differences of opinion concerning how to define them. This issue is
of congressional interest because the definition used determines business eligibility for Small
Business Administration (SBA) assistance as well as federal contracting and tax preferences.
The Small Business Act of 1953 (P.L. 83-163, as amended) authorized the SBA and justified the
agency’s existence on the grounds that small businesses are essential to the maintenance of the
free enterprise system.2 In economic terms, the congressional intent was to use the SBA to deter
the formation of monopolies and the market failures monopolies cause by eliminating
competition in the marketplace.
The Small Business Act of 1953 provides the SBA authority to establish size standards for
determining eligibility for federal small business assistance. The SBA currently uses two types of
size standards to determine SBA program eligibility: (1) industry-specific size standards and (2)
alternative size standards based on the applicant’s maximum tangible net worth and average net
income after federal taxes. The SBA’s industry-specific size standards are also used to determine
eligibility for federal small business contracting purposes.
The SBA’s industry-specific size standards determine program eligibility for firms in 1,047
industrial classifications (hereinafter industries) in 18 sub-industry activities described in the
North American Industry Classification System (NAICS). Given its mandate to promote
competition in the marketplace, the SBA has based its size standards on an economic analysis of
each industry’s overall competitiveness and the competitiveness of firms within the industry.3 The
size standards are based on four measures: (1) number of employees, (2) average annual receipts
in the previous three years, (3) average asset size as reported in the firm’s four quarterly financial
statements for the preceding year, or (4) a combination of number of employees and barrel per
day refining capacity. Overall, the SBA currently classifies about 97% of all employer firms as
small.4 These firms represent about 30% of industry receipts.
1
Senate Democratic Policy Committee, “Senate Democrats Are Committed to America’s Small Businesses,”
Washington, DC: Senate Democratic Policy Committee, May 18, 2009, at http://sbc.senate.gov/
DPC_small_biz_doc.pdf; Senate Republican Policy Committee, “Taxing Success: President Obama’s Tax Increases on
Small Businesses are Bad for Job Creation,” Washington, DC: Senate Republican Policy Committee, March 17, 2009,
at http://rpc.senate.gov/public/_files/031709TaxingSuccess.pdf; and President Barack Obama, “Remarks by the
President to Small Business Owners, Community Lenders and Members of Congress,” press release, Office of the
Press Secretary, March 16, 2009, at http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-smallbusiness-owners/. For further analysis of the role of small businesses in job creation, see CRS Report R41392, Small
Business and the Expiration of the 2001 Tax Rate Reductions: Economic Issues, by Jane G. Gravelle and Sean Lowry.
2
P.L. 83-163, the Small Business Act of 1953, §202.
3
U.S. Small Business Administration (SBA), Office of Government Contracting and Business Development, “SBA
Size Standards Methodology,” April 2009, p. 1, at http://www.sba.gov/sites/default/files/
size_standards_methodology.pdf.
4
SBA, “SBA’s Size Standards Analysis: An Overview on Methodology and Comprehensive Size Standards Review,”
power point presentation, Khem R. Sharma, SBA Office of Size Standards, July 13, 2011, p. 4, at
http://www.actgov.org/sigcom/SIGs/SIGs/SBSIG/Documents/2011%20-%20Documents%20and%20Presentations/
Size%20Stds%20Presentation_SIG%20Meeting.pdf.
Congressional Research Service
1
Small Business Size Standards: A Historical Analysis of Contemporary Issues
As will be discussed, the SBA began a comprehensive size standards review in 2008. At that time,
the SBA used 41 different size standards: 7 employee based size standards, 31 receipts based size
standards (based on average annual receipts over the previous three years), 1 asset based size
standard, 1 megawatt hours size standard (based on electrical output over the preceding fiscal
year), and 1 size standard based on a combination of the number of employees and barrel per day
refining capacity. The SBA also had 11 other size standards for its financial and assistance
programs.
From April 2009 through September 2014, the SBA applied eight receipts based size standards
and eight employee based size standards when establishing new, or reviewing existing, size
standards. The SBA argued that reducing the number of receipts based size standards from 31 to 8
would simplify the management and use of size standards and provide “greater consistency in
size standards among industries that are similar in their economic characteristics.”5
Because SBA size standards remain in force until after they are reviewed, the number of SBA size
standards did not immediately drop from 41 to 8 in 2009. Instead, the number of size standards
began to decline gradually as new size standard final rules were issued. As of February 2, 2015,
there were 28 SBA industry size standards in effect (17 receipts based size standards, 9 employee
based sized standards, 1 asset based size standard, and 1 size standard based on a combination of
the number of employees and barrel per day refining capacity). That number typically declines
each time a new small business size standard final rule is issued.6
On September 10, 2014, the SBA applied a new employee based size standard (1,250 or fewer
employees) and the 1,500 employee based size standard, which the SBA had stopped using in
April 2009 when establishing new or reviewing existing size standards, in its proposed size
standard rule for the Manufacturing sector (NAICS Sector 31-33). The new 1,250 or fewer
employee based size standard will go into effect if it is included in the final rule for the
Manufacturing sector, which is expected to be issued in 2015.7
In the absence of precise statutory guidance and consensus on how to define small, the SBA’s size
standards have often been challenged, typically by industry representatives seeking to increase
the number of firms eligible for assistance. The size standards have also been challenged by
Members of Congress concerned that the size standards may not adequately target federal
assistance to firms that they consider to be truly small.
During the 111th Congress, P.L. 111-240, the Small Business Jobs Act of 2010, authorized the
SBA to establish an alternative size standard using maximum tangible net worth and average net
income after federal taxes for both the 7(a) and 504/CDC loan guaranty programs. It also
established, until the SBA acted, an interim alternative size standard for the 7(a) and 504/CDC
programs of not more than $15 million in tangible net worth and not more than $5 million in
average net income after federal taxes (excluding any carry-over losses) for the two full fiscal
years before the date of the application.8 The bill required the SBA to conduct a detailed review
5
SBA, Office of Government Contracting and Business Development, “SBA Size Standards Methodology,” April
2009, p. 22, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
6
U.S. Small Business Administration, “Small Business Size Standards for Manufacturing,” 79 Federal Register 54150,
September 10, 2014
7
SBA, “Small Business Size Standards: Industries With Employee Based Size Standards Not Part of Manufacturing,
Wholesale Trade, or Retail Trade,” 79 Federal Register 53647, September 10, 2014.
8
On December 20, 2010, the SBA announced that it planned to issue a notice of proposed rulemaking concerning the
(continued...)
Congressional Research Service
2
Small Business Size Standards: A Historical Analysis of Contemporary Issues
of not less than one-third of the SBA’s industry size standards every 18 months beginning on the
date of enactment of the new law (September 27, 2010).
This report provides a historical examination of the SBA’s size standards and assesses competing
views concerning how to define a small business. It also discusses H.R. 527, the Small Business
Regulatory Flexibility Improvements Act of 2015, which would authorize the SBA’s Office of
Chief Counsel for Advocacy to approve or disapprove a size standard requested by a federal
agency for purposes other than the Small Business Act or the Small Business Investment Act of
1958. The SBA’s Administrator currently has that authority. Under current practice, the SBA’s
Administrator, through the SBA’s Office of Size Standards, consults with the SBA’s Office of
Advocacy prior to making a final decision on such requests.
This report also discusses P.L. 112-239, the National Defense Authorization Act for Fiscal Year
2013, which became law on January 2, 2013. It requires the SBA when establishing or approving
a size standard to make available a justification that the size standard is appropriate for each
individual industry classification within a grouping of four-digit NAICS codes. It addresses the
SBA’s recent practice of combining size standards within industrial groups to provide greater
consistency for industries that have similar economic characteristics.9
How Big Is Small?
In 2012, there were an estimated 28.4 million businesses in the United States, including about 5.7
million employer firms and 22.7 million nonemployer firms.10 Nonemployer firms have no paid
employees, annual business receipts of $1,000 or more ($1 or more in the construction
industries), and are subject to federal income tax.11 Most nonemployers are self-employed
individuals operating very small unincorporated businesses, which may or may not be the
owner’s principal source of income. These firms are excluded from most business statistics.12
As Table 1 indicates, in 2012 (the latest available data) there were 5,726,160 employer firms in
the United States employing 115,938,468 people and providing total payroll of $5.41 trillion.
(...continued)
new alternative size standard in February 2011. It did not do so. On January 8, 2013, the SBA announced that it would
issue an interim final rule, to be effective when published, establishing an alternative size standard for the 7(a) and
504/CDC programs by October 2013. See SBA, “Small Business Jobs Act: Small Business Size Standards; Alternative
Size Standard for 7(a) and 504 Business Loan Programs,” 75 Federal Register 79868, December 20, 2010 and SBA,
“Small Business Jobs Act: Small Business Size Standards; Alternative Size Standard for 7(a) and 504 Business Loan
Programs,” 78 Federal Register 1638, January 8, 2013. The SBA also indicated in its notice of proposed rulemaking on
January 8, 2013, that “the amendments will increase the current alternative standard for applicants for 504 loans.”
9
SBA, “Small Business Size Standards: Professional, Scientific and Technical Services,” 76 Federal Register 14327,
March 16, 2011.
10
U.S. Census Bureau, “Statistics of U.S. Businesses: U.S. & States, totals,” at http://www.census.gov/econ/susb/
index.html; and U.S. Census Bureau, “Nonemployer Statistics,” at http://censtats.census.gov/cgi-bin/nonemployer/
nonsect.pl.
11
U.S. Census Bureau, “Nonemployer Statistics: Definitions,” at http://www.census.gov/econ/nonemployer/
definitions.htm.
12
U.S. Census Bureau, “Nonemployer Statistics,” at http://www.census.gov/econ/nonemployer/index.html.
Nonemployer firms account for less than 4% of business annual sales or receipts.
Congressional Research Service
3
Small Business Size Standards: A Historical Analysis of Contemporary Issues
Most employer firms (61.9%) had 4 or fewer employees, 89.6% had fewer than 20 employees,
98.2% had fewer than 100 employees, and 99.7% had fewer than 500 employees in 2012. The
table also provides data concerning three possible economic factors that might be used to define a
small business: an employer firm’s number of employees as a share (cumulative percentage) of
the total number of employer firms, as a share of employer firm total employment, and as a share
of employer firm total annual payroll.
Table 1. Number of Employer Firms, Employer Firm Employment, and Employer
Firm Annual Payroll, by Employer Firm Employment Size, 2012
Number
of
Employees
Number of
Employer
Firms
Cumulative
Percentage
of Total
Number of
Employer
Firms
Employment
Cumulative
Percentage
of Employer
Firm Total
Employment
Employer
Firm Annual
Payroll
($1,000)
Cumulative
Percentage
of Employer
Firm Total
Annual
Payroll
0-4a
3,543,991
61.9%
5,906,506
5.1%
$237,897,059
4.4%
5-9
992,716
79.2%
6,527,943
10.7%
$224,438,258
8.5%
10-19
593,641
89.6%
7,974,340
17.6%
$290,990,699
13.9%
20-99
494,170
98.2%
19,387,249
34.3%
$783,571,581
28.4%
100-499
83,423
99.7%
16,266,855
48.4%
$730,638,284
41.9%
500-999
9,061
99.9%
6,266,639
53.7%
$296,704,647
47.4%
1,000-1,999
4,487
99.9%
6,250,411
59.2%
$320,262,489
53.3%
2,000-4,999
2,762
99.9%
8,480,051
66.5%
$459,411,305
61.8%
5,000+
1,909
100.0%
38,878,474
100.0%
$2,070,341,673
100.0%
Total
5,726,160
115,938,468
$5,414,255,995
Source: U.S. Census Bureau, “Statistics of U.S. Businesses: U.S. & States, totals,” at http://www.census.gov/econ/
susb/index.html; and U.S. Census Bureau, “Statistics of U.S. Businesses: U.S., NAICS sectors, large employment
sizes,” at http://www.census.gov/econ/susb/index.html.
a.
Employment is measured in March, thus some employer firms (start-ups after March, closures before
March, and seasonal firms) will have zero employment and some annual payroll.
As will be discussed, the SBA has traditionally applied economic factors to specific industries,
not to cumulative statistics for all employer firms, to determine which firms are small businesses.
Nonetheless, the data in Table 1 illustrate how the selection of economic factors used to define
small business affects the definition’s outcome. For example, for illustrative purposes only, if the
mid-point (50%) for these three economic factors was used to define what is a small business,
three different employee firm sizes would be used to designate firms as small:
•
Businesses would be required to have less than 5 employees to be defined as
small if the definition for small used the mid-point (50%) share of the total
number of employer firms (employer firms with four or fewer employees
accounted for 61.9% of the total number of employer firms in 2012).
•
Businesses would be required to have less than 1,000 employees to be defined as
small if the definition for small used the mid-point (50%) share of employer firm
total employment (employer firms with less than 1,000 employees accounted for
53.7% of employer firm total employment in 2012).
Congressional Research Service
4
Small Business Size Standards: A Historical Analysis of Contemporary Issues
•
Businesses would be required to have less than 2,000 employees to be defined as
small if the definition for small used the mid-point (50%) share of employer firm
total annual payroll (employer firms with less than 2,000 employees accounted
for 53.3% of employer firm total annual payroll in 2012).
Other economic factors that might be used to define a small business include the value of the
employer firm’s assets or its market share, expressed as a firm’s sales revenue from that market
divided by the total sales revenue available in that market or as a firm’s unit sales volume in that
market divided by the total volume of units sold in that market.
Who Makes the Call?
The Small Business Act of 1953 (P.L. 83-163, as amended) authorized the SBA to establish size
standards for determining eligibility for small business assistance. More than 57 years have
passed since the SBA established its initial small business size standards on January 1, 1957.13
Yet, decisions made then concerning the rationale and criteria used to define small businesses
established precedents that continue to shape current policy. Moreover, as mentioned previously,
since its beginnings the SBA has based its size standards on economic analysis of each industry’s
overall competitiveness and the competitiveness of firms within each industry. However, in the
absence of precise statutory guidance and consensus on how to define small, the SBA’s size
standards have often been challenged, typically by industry representatives seeking to increase
the number of firms eligible for assistance and by Members of Congress concerned that the size
standards do not adequately target the SBA’s assistance to firms that they consider to be truly
small.
Over the years, the SBA typically reviewed its size standards piecemeal, reviewing specific
industries when the SBA determined that an industry’s market conditions had changed or the SBA
was asked to undertake a review by an industry claiming that its market conditions had changed.
On five occasions, in 1980, 1982, 1992, 2004, and 2008, the SBA proposed a comprehensive
revision of its size standards. The SBA did not fully implement any of these proposals, but the
arguments presented, both for and against the proposals, provide a context for understanding the
SBA’s current size standards, and the rationale and criteria that have been presented to retain and
similar economic characteristics.
H.R. 527, the Small Business Regulatory Flexibility Improvements Act of 2015, which would authorize the SBA's Office of Chief Counsel for Advocacy to approve or disapprove a size standard requested by a federal agency for purposes other than the Small Business Act or the Small Business Investment Act of 1958. The SBA's Administrator currently has that authority.
H.R. 4341, the Defending America's Small Contractors Act of 2016, which would authorize the SBA to establish size standards for agricultural enterprises not later than 18 months after the date of enactment (currently set in statute as having annual receipts not in excess of $750,000) and, when establishing size standards, limit an industry category to a greater extent than provided under the North American Industry Classification codes for small business procurement purposes if further segmentation of the industry category is warranted.
Small Business Size Standards: A Historical Analysis of Contemporary Issues
What Is a Small Business?
There is bipartisan agreement that small businesses play an important role in the American economy.1 However, there are differences of opinion concerning how to define them. This issue is of congressional interest because the definition used determines business eligibility for Small Business Administration (SBA) assistance as well as federal contracting and tax preferences.
The Small Business Act of 1953 (P.L. 83-163, as amended) authorized the SBA and justified the agency's existence on the grounds that small businesses are essential to the maintenance of the free enterprise system.2 In economic terms, the congressional intent was to use the SBA to deter monopoly and oligarchy formation within all industries and the market failures they cause by eliminating competition in the marketplace.
The Small Business Act of 1953 provides the SBA authority to establish size standards for determining eligibility for federal small business assistance. The SBA currently uses two types of size standards to determine SBA program eligibility: (1) industry-specific size standards and (2) alternative size standards based on the applicant's maximum tangible net worth and average net income after federal taxes. The SBA's industry-specific size standards are also used to determine eligibility for federal small business contracting purposes.
The SBA's industry-specific size standards determine program eligibility for firms in 1,047 industrial classifications (hereinafter industries) in 18 sub-industry activities described in the North American Industry Classification System (NAICS). Given its mandate to promote competition in the marketplace, the SBA has based its size standards on an economic analysis of each industry's overall competitiveness and the competitiveness of firms within the industry.3 The size standards are based on four measures: (1) number of employees, (2) average annual receipts in the previous three years, (3) average asset size as reported in the firm's four quarterly financial statements for the preceding year, or (4) a combination of number of employees and barrel per day refining capacity. Overall, the SBA currently classifies about 97% of all employer firms as small.4 These firms represent about 30% of industry receipts.
As will be discussed, the SBA began a comprehensive size standards review in 2008. At that time, the SBA used 41 different size standards: 7 employee based size standards, 31 receipts based size standards (based on average annual receipts over the previous three years), 1 asset based size standard, 1 megawatt hours size standard (based on electrical output over the preceding fiscal year), and 1 size standard based on a combination of the number of employees and barrel per day refining capacity. The SBA also had 11 other size standards for its financial and assistance programs.
From April 2009 through September 2014, the SBA applied eight receipts based size standards and eight employee based size standards when establishing new, or reviewing existing, size standards. The SBA argued that reducing the number of receipts based size standards from 31 to 8 would simplify the management and use of size standards and provide "greater consistency in size standards among industries that are similar in their economic characteristics."5
Because SBA size standards remain in force until after they are reviewed, the number of SBA size standards did not immediately drop from 41 to 8 in 2009. Instead, the number of size standards began to decline gradually as new size standard final rules were issued. As of January 21, 2016, there were 28 SBA industry size standards in effect (17 receipts based size standards, 9 employee based sized standards, 1 asset based size standard, and 1 size standard based on a combination of the number of employees and barrel per day refining capacity). That number typically declines each time a new small business size standard final rule is issued.
On September 10, 2014, the SBA applied a new employee based size standard (1,250 or fewer employees) and the 1,500 employee based size standard, which the SBA had stopped using in April 2009 when establishing new or reviewing existing size standards, in its proposed size standard rule for the Manufacturing sector (NAICS Sector 31-33). The new 1,250 or fewer employee based size standard was included in the final rule for the Manufacturing sector, which was issued on January 26, 2016 (effective as of February 26, 2016). The final rule also increased the number of manufacturing industries with a size standard of 1,500 or fewer employees from 3 to 26.6
In the absence of precise statutory guidance and consensus on how to define small, the SBA's size standards have often been challenged, typically by industry representatives seeking to increase the number of firms eligible for assistance. The size standards have also been challenged by Members of Congress concerned that the size standards may not adequately target federal assistance to firms that they consider to be truly small.
During the 111th Congress, P.L. 111-240, the Small Business Jobs Act of 2010:
authorized the SBA to establish an alternative size standard using maximum tangible net worth and average net income after federal taxes for both the 7(a) and 504/CDC loan guaranty programs;
established, until the SBA acted, an interim alternative size standard for the 7(a) and 504/CDC programs of not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes (excluding any carry-over losses) for the two full fiscal years before the date of the application;7 and
required the SBA to conduct a detailed review of not less than one-third of the SBA's industry size standards every 18 months beginning on the new law's date of enactment (September 27, 2010).
This report provides a historical examination of the SBA's size standards and assesses competing views concerning how to define a small business. It also discusses
P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, which requires the SBA to make available a justification when establishing or approving a size standard that the size standard is appropriate for each individual industry classification. It addresses the SBA's recent practice of combining size standards within industrial groups as a means to reduce the complexity of its size standards and to provide greater consistency for industrial classifications that have similar economic characteristics.8
H.R. 527, the Small Business Regulatory Flexibility Improvements Act of 2015, which would authorize the SBA's Office of Chief Counsel for Advocacy to approve or disapprove a size standard requested by a federal agency for purposes other than the Small Business Act or the Small Business Investment Act of 1958. The SBA's Administrator currently has that authority. Under current practice, the SBA's Administrator, through the SBA's Office of Size Standards, consults with the SBA's Office of Advocacy prior to making a final decision on such requests.
- H.R. 4341, the Defending America's Small Contractors Act of 2016, which would authorize the SBA to establish size standards for agricultural enterprises not later than 18 months after the date of enactment (currently set in statute as having annual receipts not in excess of $750,000) and, when establishing size standards, limit an industry category to a greater extent than provided under the North American Industry Classification codes for small business procurement purposes if further segmentation of the industry category is warranted.
How Big Is Small?
In 2012, there were an estimated 28.4 million businesses in the United States, including about 5.7 million employer firms and 22.7 million nonemployer firms.9 Nonemployer firms have no paid employees, annual business receipts of $1,000 or more ($1 or more in the construction industries), and are subject to federal income tax.10 Most nonemployers are self-employed individuals operating very small unincorporated businesses, which may or may not be the owner's principal source of income. These firms are excluded from most business statistics.11
As Table 1 indicates, in 2012 (the latest available data) there were 5,726,160 employer firms in the United States employing 115,938,468 people and providing total payroll of $5.41 trillion.
Most employer firms (61.9%) had 4 or fewer employees, 89.6% had fewer than 20 employees, 98.2% had fewer than 100 employees, and 99.7% had fewer than 500 employees in 2012. The table also provides data concerning three possible economic factors that might be used to define a small business: an employer firm's number of employees as a share (cumulative percentage) of the total number of employer firms, as a share of employer firm total employment, and as a share of employer firm total annual payroll.
Table 1. Number of Employer Firms, Employer Firm Employment, and Employer Firm Annual Payroll, by Employer Firm Employment Size, 2012
|
Number of Employees
|
Number of Employer Firms
|
Cumulative Percentage of Total Number of Employer Firms
|
Employment
|
Cumulative Percentage of Employer Firm Total Employment
|
Employer Firm Annual Payroll ($1,000)
|
Cumulative Percentage of Employer Firm Total Annual Payroll
|
0-4a
3,543,991
|
61.9%
|
5,906,506
|
5.1%
|
$237,897,059
|
5-9
|
992,716
|
79.2%
|
6,527,943
|
10.7%
|
$224,438,258
|
10-19
|
593,641
|
89.6%
|
7,974,340
|
17.6%
|
$290,990,699
|
20-99
|
494,170
|
98.2%
|
19,387,249
|
34.3%
|
$783,571,581
|
100-499
|
83,423
|
99.7%
|
16,266,855
|
48.4%
|
$730,638,284
|
500-999
|
9,061
|
99.9%
|
6,266,639
|
53.7%
|
$296,704,647
|
1,000-1,999
|
4,487
|
99.9%
|
6,250,411
|
59.2%
|
$320,262,489
|
2,000-4,999
|
2,762
|
99.9%
|
8,480,051
|
66.5%
|
$459,411,305
|
5,000+
|
1,909
|
100.0%
|
38,878,474
|
100.0%
|
$2,070,341,673
|
Total
|
5,726,160
|
115,938,468
|
$5,414,255,995
|
Source: U.S. Census Bureau, "Statistics of U.S. Businesses: U.S. & States, totals," at http://www.census.gov/econ/susb/index.html; and U.S. Census Bureau, "Statistics of U.S. Businesses: U.S., NAICS sectors, large employment sizes," at http://www.census.gov/econ/susb/index.html.
a.
Employment is measured in March, thus some employer firms (start-ups after March, closures before March, and seasonal firms) will have zero employment and some annual payroll.
As will be discussed, the SBA has traditionally applied economic factors to specific industries, not to cumulative statistics for all employer firms, to determine which firms are small businesses. Nonetheless, the data in Table 1 illustrate how the selection of economic factors used to define small business affects the definition's outcome. For example, for illustrative purposes only, if the mid-point (50%) for these three economic factors was used to define what is a small business, three different employee firm sizes would be used to designate firms as small:- Businesses would be required to have fewer than 5 employees to be defined as small if the definition for small used the mid-point (50%) share of the total number of employer firms (employer firms with four or fewer employees accounted for 61.9% of the total number of employer firms in 2012).
- Businesses would be required to have fewer than 1,000 employees to be defined as small if the definition for small used the mid-point (50%) share of employer firm total employment (employer firms with fewer than 1,000 employees accounted for 53.7% of employer firm total employment in 2012).
- Businesses would be required to have fewer than 2,000 employees to be defined as small if the definition for small used the mid-point (50%) share of employer firm total annual payroll (employer firms with fewer than 2,000 employees accounted for 53.3% of employer firm total annual payroll in 2012).
Other economic factors that might be used to define a small business include the value of the employer firm's assets or its market share, expressed as a firm's sales revenue from that market divided by the total sales revenue available in that market or as a firm's unit sales volume in that market divided by the total volume of units sold in that market.
Who Makes the Call?
The Small Business Act of 1953 (P.L. 83-163, as amended) authorized the SBA to establish size standards for determining eligibility for small business assistance. More than 57 years have passed since the SBA established its initial small business size standards on January 1, 1957.12 Yet, decisions made then concerning the rationale and criteria used to define small businesses established precedents that continue to shape current policy. Moreover, as mentioned previously, since its beginnings the SBA has based its size standards on economic analysis of each industry's overall competitiveness and the competitiveness of firms within each industry. However, in the absence of precise statutory guidance and consensus on how to define small, the SBA's size standards have often been challenged, typically by industry representatives seeking to increase the number of firms eligible for assistance and by Members of Congress concerned that the size standards do not adequately target the SBA's assistance to firms that they consider to be truly small.
Over the years, the SBA typically reviewed its size standards piecemeal, reviewing specific industries when the SBA determined that an industry's market conditions had changed or the SBA was asked to undertake a review by an industry claiming that its market conditions had changed. On five occasions, in 1980, 1982, 1992, 2004, and 2008, the SBA proposed a comprehensive revision of its size standards. The SBA did not fully implement any of these proposals, but the arguments presented, both for and against the proposals, provide a context for understanding the SBA's current size standards, and the rationale and criteria that have been presented to retain and replace them. In addition, as mentioned previously, P.L. 111-240 requires the SBA to conduct a
detailed review of not less than one-third of the SBA
’'s industry size standards during the
18month18-month period beginning on the date of enactment (September 27, 2010) and during every
18month18-month period thereafter.
14
13
Early Definitions of Small Business Vary in
Approach and Criteria
There is no uniform or accepted definition for a small business. Instead, several criteria are used
to determine eligibility for small business spending and tax programs.
15 This was also the case
13
SBA, “Part 103 - Small Business Size Standards,” 21 Federal Register 9709-9714, December 7, 1956.
P.L. 111-240, the Small Business Act of 2010, §1344. Updated Size Standards.
15
According to one source, the Internal Revenue Code contains at least 24 different definitions of a small business. See
(continued...)
14
Congressional Research Service
5
Small Business Size Standards: A Historical Analysis of Contemporary Issues
14 This was also the case when Congress considered establishing the SBA during the early 1950s. For example, in 1952,
the House Select Committee on Small Business reviewed federal statutes, executive branch
directives, and the academic literature to serve as a guide for determining how to define small
businesses.
The Select Committee began its review by asserting that the need to define the concept of small
business was based on a general consensus that assisting small business was necessary to enhance
economic competition, combat monopoly formation, inhibit the concentration of economic
power, and maintain
“"the integrity of independent enterprise.
”16"15 It noted that the definition of
small businesses in federal statutes reflected this consensus by taking into consideration the firm
’s
's size relative to other firms in its field and
“"matters of independence and nondominance.
”17 For
"16 For example, the War Mobilization and Reconversion Act of 1944 defined a small business as either
“ "employing 250 wage earners or less
”" or having
“"sales volumes, quantities of materials
consumed, capital investments, or any other criteria which are reasonably attributable to small
plants rather than medium- or large-sized plants.
”18"17 The Selective Service Act of 1948 classified a
business as small for military procurement purposes if
“"(1) its position in the trade or industry of
which it is a part is not dominant, (2) the number of its employees does not exceed 500, and (3) it
is independently owned and operated.
”19
"18
The Select Committee also found that, for data-gathering purposes, the executive branch defined
small businesses in relative, as opposed to absolute, terms within specific industries. For example,
the Bureau of Labor Statistics
“"defined small business in terms of an average for each industry
based on the volume of employment or sales. All firms which fall below this average are deemed
to be small.
”20"19 The U.S. Census Bureau also used different criteria for different industries. For
example, manufacturing firms were classified as small if they had fewer than 100 employees,
wholesalers were considered small if they had annual sales below $200,000, and retailers were
considered small if they had annual sales below $50,000. According the Census Bureau, in 1952,
small businesses accounted for
“"roughly 92 percent of all business establishments, 45 percent of
all employees, and 34 percent of all dollar value of all sales.
”21
"20
The Select Committee also noted that in 1951, the National Production Authority
’'s Office of
Small Business proposed defining all manufacturing firms with
lessfewer than 50 employees as small
and any with more than 2,500 employees as large. Manufacturers employing between these
(...continued)
Douglas K. Barney, Chris Bjornson, and Steve Wells, “Just How Small Is Your Business?,” The National Public
Accountant, August 2003, pp. 4-6, at http://findarticles.com/p/articles/mi_m4325/is_2003_August/ai_n25073718/, cited
in CRS Report RL32254, Small Business Tax Benefits: Current Law and Main Arguments For and Against Them, by
Gary Guenther.
16
U.S. Congress, House Select Committee on Small Business, Review of Small Business: 82nd Congress, final report
pursuant to H.Res. 33, A Resolution Creating a Select Committee to Conduct a Study and Investigation of the Problems
of Small Business, 82nd Cong., 2nd sess., December 31, 1952 (Washington: GPO, 1952), pp. 5, 13, 14, 78, and 136.
17
Ibid., p. 3.
18
Ibid., p. 2.
19
Ibid.; and U.S. Congress, Conference Committee, Selective Service Act of 1948, conference report no. 2438, 80th
Cong., 2nd sess., June 19, 1948 (Washington: GPO, 1948), p. 24.
20
U.S. Congress, House Select Committee on Small Business, Review of Small Business: 82nd Congress, final report
pursuant to H.Res. 33, A Resolution Creating a Select Committee to Conduct a Study and Investigation of the Problems
of Small Business, 82nd Cong., 2nd sess., December 31, 1952 (Washington: GPO, 1952), p. 3.
21
Ibid.
Congressional Research Service
6
Small Business Size Standards: A Historical Analysis of Contemporary Issues
and any with more than 2,500 employees as large. Manufacturers employing between these numbers of employees would be considered large or small depending on the general structure of
the industry to which they belonged. The larger the percentage of total output produced by large
firms, the larger the number of employees a firm could have to be considered small. Using this
definition, most manufacturing firms with
lessfewer than 50 employees would be classified as small,
but others, such as an aircraft manufacturer, could have as many as 2,500 employees and still be
considered small.
22
21
For procurement purposes, the Select Committee found that executive branch agencies defined
small businesses in absolute, as opposed to relative, terms, using 500 employees as the dividing
line between large and small firms. Federal agencies defended the so-called 500 employee rule on
the grounds that it
“"had the advantage of easy administration
”" across federal agencies.
23
22
In reviewing the academic literature, the Select Committee reported that Abraham Kaplan
’s Small
's Small Business: Its Place and Problems defined small businesses as those with no more than $1 million
in annual sales, $100,000 in total assets, and no more than 250 employees. Applying this
definition would have classified about 95% of all business concerns as small, and would have
accounted for about half of all nonagricultural employees.
24
23
Based on its review of federal statutes, executive branch directives, and the academic literature,
the Select Committee decided that it would not attempt
“"to formulate a rigid definition of small
business” business" because
“"the concept of small business must remain flexible and adaptable to the
peculiar needs of each instance in which a definition may be required.
”25"24 However, it concluded
that the definition of
smallsmall should be a relative one, as opposed to an absolute one, that took into
consideration variations among economic sectors:
This committee is also convinced that whatever limits may be established to the category of
small business, they must vary from industry to industry according to the general industrial
pattern of each. Public policy may demand similar treatment for a firm of 2,500 employees
in one industry as it does for a firm of 50 employees in another industry. Each may be faced
with the same basic problems of economic survival.26
22
Ibid., p. 4.
U.S. Congress, House Select Committee on Small Business, Subcommittee No. 2, Definition of “Small Business”
Within Meaning of the Small Business Act of 1953, as Amended, hearing on H.Res. 114, 84th Cong., 2nd sess., July 5,
1956 (Washington: GPO, 1956), p. 19.
24
U.S. Congress, House Select Committee on Small Business, Review of Small Business: 82nd Congress, final report
pursuant to H. Res. 33, A Resolution Creating a Select Committee to Conduct a Study and Investigation of the
Problems of Small Business, 82nd Cong., 2nd sess., December 31, 1952 (Washington: GPO, 1952), p. 4. See Abraham
David Hannath Kaplan, Small Business: Its Place and Problems (NY: McGraw-Hill Book Co., 1948), pp. 21, 22.
25
U.S. Congress, House Select Committee on Small Business, Review of Small Business: 82nd Congress, final report
pursuant to H.Res. 33, A Resolution Creating a Select Committee to Conduct a Study and Investigation of the Problems
of Small Business, 82nd Cong., 2nd sess., December 31, 1952 (Washington: GPO, 1952), p. 4.
26
Ibid., p. 5.
23
Congressional Research Service
7
Small Business Size Standards: A Historical Analysis of Contemporary Issues
with the same basic problems of economic survival.25
The Small Business Act of 1953
’'s Definition of
Small Provides Room for Interpretation
Reflecting the view that formulating a rigid definition of small business was impractical, the
Small Business Act of 1953 provided leeway in defining small businesses. It defined a small firm
as
“"one that is independently owned and operated and which is not dominant in its field of
operation.
”27"26 The SBA was authorized to establish and subsequently alter size standards for
determining eligibility for federal programs to assist small business, some of which are
administered by the SBA.
2827 The act specifies that the size standards
“"may utilize number of
employees, dollar volume of business, net worth, net income, a combination thereof, or other
appropriate factors.
”29"28 It also notes that the concept of small is to be defined in a relative sense,
varying from industry to industry to the extent necessary to reflect
“"differing characteristics
”
" among industries.
30
29
The House Committee on Banking and Currency
’'s report accompanying H.R. 5141, the Small
Business Act of 1953, issued on May 28, 1953, provided the committee
’'s rationale for not
providing a detailed definition of small:
It would be impractical to include in the act a detailed definition of small business because of
the variation between business groups. It is for this reason that the act authorizes the
Administration to determine within any industry the concerns which are to be designated
small-business concerns for the purposes of the act.
31
30
The report did not provide specific guidance concerning what the committee might consider to be
small, but it did indicate that data on industry employment, as of March 31, 1948,
“"reveals that on
the basis of employment, small business truly is small in size. Of the approximately 4 million
business concerns, 87.4% had
underfewer than 8 employees and 95.2% of the total number of concerns,
employed
less than 20 people.”32
27
15 U.S.C. §632(a)(1).
Initially, the SBA size standards applied only to its own programs. Other federal agencies used the SBA size
standards for procurement purposes on a voluntary basis. The Regulatory Flexibility Act of 1980 directed federal
agencies to use SBA size standards or establish their own definitions after conferring directly with the SBA’s Bureau
(now Office) for Advocacy. U.S. Congress, Senate Committee on Small Business, Small Business Administration’s
Size Standards, hearing, 97th Cong., 1st sess., May 5, 1981 (Washington: GPO, 1981), p. 18. Also, see 5 U.S.C.
§601(3).
29
15 U.S.C. §632(a)(2).
30
15 U.S.C. §632(a)(3).
31
U.S. Congress, House Committee on Banking and Currency, Small Business Act of 1953, report to accompany H.R.
5141, 83rd Cong., 1st sess., May 28, 1953, H.Rept. 83-494 (Washington: GPO, 1953), p. 3.
32
Ibid., p. 4.
28
Congressional Research Service
8
Small Business Size Standards: A Historical Analysis of Contemporary Issues
fewer than 20 people."31
Industry Challenges the SBA
’'s Initial Size
Standards, Claiming They Are Too Restrictive
Initially, the SBA created two sets of size standards, one for federal procurement preference and
set-aside programs and another for the SBA
’'s loan and management training services. At the
request of federal agencies, the SBA adopted the then-prevailing small business size standard
used by federal agencies for procurement, which was 500 or fewer employees. The SBA retained
the right to make exceptions to the 500 or fewer employee procurement size standard if the SBA
determined that a firm having more than 500 employees was not dominant in its industry.
For the SBA
’'s loan and management training services, the SBA
’'s staff reviewed economic data
provided by the Census Bureau to arrive at what Wendell Barnes, SBA
’'s administrator, described
at a congressional hearing in 1956 as
“"a fairly accurate conclusion as to what comprises small
business in each industry.
”33"32 Jules Abels, SBA
’'s economic advisor to the administrator, explained
at that congressional hearing how the SBA
’'s staff determined what constituted a small business:
There are various techniques for the demarcation lines, but in a study of almost any industry,
you will find a large cluster of small concerns around a certain figure.... On the other hand,
above a certain dividing line you will find relatively few and as you map out a picture of an
industry it appears that a dividing line at a certain point is fair.
34
33
On January 5, 1956, the SBA published a notice of proposed rulemaking in the Federal Register
announcing its first proposed small business size standards.
3534 During the public comment period,
representatives of several industries argued that the proposed standards were too restrictive and
excluded too many firms. In response, Mr. Abels testified that the SBA decided to adjust its
figures to make them
“"a little bit more liberal because there was some feeling on the part of
certain industries that they were too tight and that they excluded too many firms.
”36"35 The SBA
published its final rule concerning its small business size standards on December 7, 1956, and
they became effective on January 1, 1957.
37
36
The SBA decided to use number of employees as the sole criterion for determining if
manufacturing firms were small and annual sales or annual receipts as the sole criterion for all
other industries. Mr. Abels explained at the congressional hearing the SBA
’'s rationale for using
number of employees for classifying manufacturing firms as small and annual sales or annual
receipts for all other firms:
in the absence of automation which would give one firm in an industry a great advantage
over another, roughly speaking if the firms were mechanized to the same extent, a firm with
33
U.S. Congress, House Select Committee on Small Business, Subcommittee No. 2, Definition of “Small Business”
Within Meaning of the Small Business Act of 1953, as Amended, hearing on H. Res. 114, 84th Cong., 2nd sess., July 5,
1956 (Washington: GPO, 1956), p. 24.
34
Ibid., p. 39.
35
SBA, “Small Business Size Standards,” 21 Federal Register 79-80, January 5, 1956.
36
U.S. Congress, House Select Committee on Small Business, Subcommittee No. 2, Definition of “Small Business”
Within Meaning of the Small Business Act of 1953, as Amended, hearing on H. Res. 114, 84th Cong., 2nd sess., July 5,
1956 (Washington: GPO, 1956), p. 40.
37
SBA, “Part 103 - Small Business Size Standards,” 21 Federal Register 9709-9714, December 7, 1956.
Congressional Research Service
9
Small Business Size Standards: A Historical Analysis of Contemporary Issues
400 employees would have an output which would be twice as large as the output of a firm
with 200 employees.... However when you depart from the manufacturing field and go into,
say, a distributive field or trade, it then becomes necessary to discard the number of
employees, because it is a matter of judicial notice, that one man for example in the
distributive trades can sell as much as 100 men can sell. One small construction firm
possibly can do a lot more business than one with a lot more employees. A service trade
again has its volume geared to something other than the number of employees. So I think
that one can say with reasonable certainty that it is only within the manufacturing field that
the employee standard is the uniform yardstick, but that other than manufacturing the dollar
volume is the appropriate yardstick.
38
37
The SBA
’'s initial size standards defined most manufacturing firms employing 250 or fewer
employees as small. In addition, the SBA considered manufacturing firms in some industries
(e.g., metalworking and small arms) as small if they employed 500 or fewer employees, and in
some others (e.g., sugar refining and tractors) as small if they employed 1,000 or fewer
employees. To be considered small, wholesalers were required to have annual sales volume of $5
million or less; construction firms had to have average annual receipts of $5 million or less over
the preceding three years; trucking and warehousing firms had to have annual receipts of $2
million or less; taxicab companies and most firms in the service trades had to have annual receipts
of $1 million or less; and most retail firms had to have annual sales of $1 million or less.
39
38
Mr. Abels testified that the SBA experienced
“continual”"continual" protests of its size standards by firms
denied financial or support assistance because they were not considered small. He also testified
that in each case, the SBA denied the protest and determined, in his words, that the standard was
“ "valid and accurate.
”40
"39
The SBA also experienced some opposition to its decision to adopt the then-prevailing 500 or
fewer employee size standard for all industries for federal procurement preference and set-aside
programs. For example, Irvin Maness, subcommittee counsel for the Select Committee on Small
Business Subcommittee No. 2, argued during a congressional oversight hearing in 1956 that the
SBA’ SBA's use of the so-called rule of 500 employees as the size standard for procurement violated
congressional intent, which he argued was to have a definition for small business that varied
“on
"on an industry-to-industry basis.
”41"40 Several Members also objected to the possibility that some firms
could be considered small for procurement purposes, but not for the SBA
’'s loan and management
training services.
38
Ibid., p. 41.
Ibid., p. 3. In the retail sector, department and variety stores, grocery stores with fresh meats, and new and used
automobile stores were considered small if they had annual sales volume of $2 million or less. In the service trades
sector, hotels and power industry firms were considered small if they had annual receipts of $2 million or less.
40
Ibid., p. 40.
41
Ibid., pp. 33, 43.
39
Congressional Research Service
10
Small Business Size Standards: A Historical Analysis of Contemporary Issues
training services.
GAO and Several Members of Congress Challenge
the SBA
’'s Size Standards, Claiming They Are
Too Broad
Too Broad
In 1977, the U.S. General Accounting Office (GAO, now the U.S. Government Accountability
Office) was asked by the Select Committee on Small Business to review the SBA
’'s size standards.
At that time, most of the SBA
’'s size standards remained at their original 1957 levels, other than a
one-time upward adjustment for inflation in 1975 for industries using annual sales and receipts to
restore eligibility to firms that may have lost small-business status due solely to the effect of
inflation.
42
GAO’41
GAO's report, issued in 1978, noted that the SBA
’'s regulations indicated that the SBA used the
following factors in formulating its size standards:
•
because the purpose of SBA assistance is to preserve free competitive enterprise
by strengthening the competitive position of small business concerns, the size
standards should be limited to the segment of each industry that is struggling to
become or remain competitive;
•
because smaller concerns often are forced to compete with middle-sized as
compared with very large concerns, the standard for each industry should be
established as low as reasonably possible; and
•
small businesses should not rely on continuing assistance but should plan for the
day when they will be able to compete without assistance.
43
42After conducting its analysis, GAO found that the SBA
’'s size standards
“"are often high and often
are not justified by economic rationale.
”44"43 Specifically, GAO reported that
many size standards may not direct assistance to the target group described in SBA
regulations as businesses
“"struggling to become or remain competitive
”" because the loan and
procurement size standards for most industries were established 15 or more years ago and
have not been periodically reviewed; SBA records do not indicate how most standards were
developed; and the standards often define as small a very high percentage of the firms in the
industries to which they apply.45
42
U.S. Congress, House Committee on Small Business, Subcommittee on General Oversight and Minority Enterprise,
Size Standards for Small Business, hearing, 96th Cong., 1st sess., July 10, 1979 (Washington: GPO, 1979), p. 3. GAO
reported that adjustments to the size standards had been made to “only 81 of the 534 industries covered by the special
standards” from January 1, 1968 through April 25, 1978. The upward inflation adjustments for industries using annual
sales or receipts ranged from 10.3% to 92.9% depending on the date when the standards were adopted. See U.S. Small
Business Administration, “Small Business Size Standards,” 40 Federal Register 24210-24215, June 5, 1975, and U.S.
Small Business Administration, “Small Business Size Standards Regulation,” 40 Federal Register 32824-32826,
August 5, 1975.
43
U.S. General Accounting Office, What Is A Small Business? The Small Business Administration Needs To Reexamine
Its Answer, CED-78-149, August 9, 1978, pp. 1, 2, at http://www.gao.gov/assets/130/123644.pdf.
44
Ibid., p. 3.
45
Ibid.
Congressional Research Service
11
Small Business Size Standards: A Historical Analysis of Contemporary Issues
industries to which they apply.44
GAO recommended that the SBA reexamine its size standards
“"by collecting data on the size of
bidders on set-aside and unrestricted contracts, determining the size of businesses which need
setasideset-aside protection because they cannot otherwise obtain Federal contracts
”" and then consider
reducing its size standards or
“"establishing a two-tiered system for set-aside contracts, under
which certain procurements would be available for bidding only to the smaller firms and others
would be opened for bidding to all businesses considered small under present standards.
”46
"45
Citing the GAO report, several Members objected to the SBA
’'s size standards at a House
Committee on Small Business oversight hearing conducted on July 10, 1979. Representative John
J. LaFalce, chair of the House Committee on Small Business Subcommittee on General Oversight
and Minority Enterprise, stated that
“"what we have faced from 1953 to the present is virtually
nothing other than acquiescence to the demands of the special interest groups. That is how the
size standards have been set.
”47"46 Representative Tim Lee Carter, the subcommittee
’'s ranking
minority Member, stated that
“"it seems to me that we may be fast growing into just a regular bank
forum not just to small business but to all business.
”48"47 At that time, approximately 99% of all
firms with employees were classified by the SBA as a small business.
49
48
Roger Rosenberger, SBA
’'s associate administrator for policy, planning and budgeting, testified at
the hearing that the SBA would undertake a comprehensive economic analysis of industry data to
determine if its size standards should be changed. However, he also defended the validity of the
SBA’ SBA's size standards, arguing that the task of setting size standards was a complicated and
difficult one because of
“"how market structure and size distribution of firms vary from industry to
industry.
”50"49 He testified that some industries are dominated by a few large firms, some are
comprised almost entirely of small businesses, and others
“"can be referred to as a mixed
industry.
”51"50 He argued that each market structure presents unique challenges for defining small
businesses within that industry group. For example, he argued that it was debatable whether the
SBA should provide any assistance to any of the businesses within industries where
“smaller
"smaller firms are flourishing.
”52"51 He added that
We have no problem identifying either the very small firms or the large firms, in any given
industry. Our problem is with that gray area–the so-called mid-sized firm. Should the
midsizedmid-sized firm be included or excluded based on the competitive aspects of the market? Should
we assist competition in an industry by aiding the mid-sized firms, since they probably
represent the only major competitive force vis-a-vis the dominant companies given that these
firms may also compete with the very small firms?53
46
Ibid., p. 20.
U.S. Congress, House Committee on Small Business, Subcommittee on General Oversight and Minority Enterprise,
Size Standards for Small Business, hearing, 96th Cong., 1st sess., July 10, 1979 (Washington: GPO, 1979), p. 9.
48
Ibid., p. 6.
49
U.S. Congress, Senate Committee on Small Business, Small Business Administration’s Size Standards, hearing, 97th
Cong., 1st sess., May 5, 1981 (Washington: GPO, 1981), p. 14.
50
U.S. Congress, House Committee on Small Business, Subcommittee on General Oversight and Minority Enterprise,
Size Standards for Small Business, hearing, 96th Cong., 1st sess., July 10, 1979 (Washington: GPO, 1979), p. 17.
51
Ibid.
52
Ibid., p. 28.
53
Ibid.
47
Congressional Research Service
12
Small Business Size Standards: A Historical Analysis of Contemporary Issues
firms may also compete with the very small firms?52
SBA Proposes More Restrictive Size Standards
Based on Industry Competitiveness
On March 10, 1980, the SBA issued a notice of proposed rulemaking for
“"a substantial revision of
its size standards.
”54"53 In an effort to
“"simplify SBA programs for the small business community,
reduce administrative complexity, and increase the effectiveness of SBA programs by improved
targeting of its resources,
”" the SBA proposed to replace its two sets of size standards, one for
procurement preference and set-aside programs and another for its loan and consultative support
services, with a single set of size standards for both purposes.
55
54
The SBA also proposed to use a single factor, the firm
’'s number of employees, for definitional
purposes for nearly all industries instead of using the firm
’'s number of employees for some
industries, the firm
’'s assets for others, and the firm
’'s annual gross receipts for still others. The
SBA argued that
when size standards are denominated in dollars, i.e., annual revenues, its ability to help the
small business sector is undermined by inflation. Using employment, as opposed to dollar
sales, will provide greater stability for SBA and its clients; will remove inter-industry
distortions generated by differential inflation rates; and reduce the need for SBA to make
frequent revisions in the size standards merely to reflect price increases.
56
55
In setting its proposed new size standards for each industry (ranging from 15 or fewer employees
to 2,500 or fewer employees), the SBA first placed each industry into one of three groups:
concentrated, competitive, or mixed. Concentrated industries are
“"characterized by a highly
unequal distribution of sales among the firms in the industry, e.g., the four largest firms
accounting for more than half the industry
’'s sales.
”57"56 Competitive industries
“"display a more
equal distribution of sales, and the average firm is relatively small when measured by annual sales
or number of employees.
”58"57 In competitive industries, the four largest firms typically account for
less than 20% of industry sales. Mixed industries do not
“"meet the criteria of competitive or
concentrated industries.
”59"58 In mixed industries, the four largest firms typically account for 20% to
50% of industry sales.
60
59
The SBA determined that there were 160 concentrated industries, 317 competitive industries, and
249 mixed industries.
6160 The SBA argued that establishing a size standard for the 160 concentrated
industries was a
“straight-forward task—simply identify and exclude those few firms which
54
U.S. Congress, House Committee on Small Business, Small Business Size Standards, hearing, 96th Cong., 2nd sess.,
March 13, 1980 (Washington: GPO, 1980), p. III.
55
Ibid., p. 49.
56
Ibid., p. 50.
57
Ibid., p. 48.
58
Ibid.
59
Ibid.
60
U.S. Congress, Senate Committee on Small Business, Small Business Administration’s Size Standards, hearing, 97th
Cong., 1st sess., May 5, 1981 (Washington: GPO, 1981), p. 19.
61
U.S. Congress, House Committee on Small Business, Small Business Size Standards, hearing, 96th Cong., 2nd sess.,
March 13, 1980 (Washington: GPO, 1980), p. 48.
Congressional Research Service
13
Small Business Size Standards: A Historical Analysis of Contemporary Issues
"straight-forward task—simply identify and exclude those few firms which account for a disproportionately large share of the industry
’'s sales.
”62"61 For competitive industries,
the SBA argued that the size standard should be set
“"relatively low, so as to support entry and
moderate growth.
”63"62 The SBA argued that mixed industries require
“"relatively high size standards
... to reinforce competition and offset the pressures to increase the degree of concentration in
these industries.
”64
"63
The proposed new SBA size standards would have had the net effect of reducing the number of
firms classified as small by about 225,000.
6564 In percentage terms, the number of firms classified
as small would have been reduced from about 99% of all employer firms to 96%.
66
65
Over 86% of the more than 1,500 public comments received by the SBA concerning its proposed
new size standards criticized the proposal. Most of the criticism was from firms that would no
longer be considered small under the new size standards.
6766 In addition, several federal agencies
indicated that the proposed size standards in the services and construction industries were set too
low, reducing the number of small firms eligible to compete for procurement contracts below
levels they deemed necessary to ensure adequate competition to prevent agency costs from rising.
They also argued that the proposed size standards would reduce the number of firms eligible to
compete for procurement contracts that are
“"sufficiently large to perform the majority of
[procurement] set-aside programs.
”68"67 For example, the Department of Defense argued that
“the
"the small business firms must have the infrastructure both capitalwise and employeewise to compete
in this particular area. They cannot be
‘'Mom and Pop Shops
’' which some of the proposed size
standards [would require].
”69"68 It also argued that in the services area
“"the receipt of the very first
contract would automatically make many small business firms large business. We think that is
wrong.
”70
"69
On October 21, 1980, Congress provided additional time to consider the consequences of the
proposed changes to the size standards by adopting the Small Business Export Expansion Act of
1980 (P.L. 96-481). It prohibited
“"the SBA from promulgating any final rule or regulation
relating to small business size standards until March 31, 1981.
”71"70 In the meantime, the Reagan
Administration entered office, and, as is customary when there is a change in Administration,
replaced the SBA
’'s senior leadership.
The SBA
’'s new administrator, Michael Cardenas, praised the previous (Carter) Administration
’s
's efforts to (1) apply a comprehensive rationale (based on industry competitiveness), as opposed to
a piecemeal approach, for determining the SBA size standards; (2) adopt a single size standard as
a means to prevent the possibility of firms qualifying for procurement preferences, but not for the
SBA’ SBA's loan and consultative support services; and (3) increase the reliance on the firm
’s number
62
Ibid., p. 49.
Ibid.
64
Ibid.
65
U.S. Congress, Senate Committee on Small Business, Small Business Administration’s Size Standards, hearing, 97th
Cong., 1st sess., May 5, 1981 (Washington: GPO, 1981), p. 11.
66
Ibid., p. 25.
67
Ibid., pp. 4, 10, 16.
68
Ibid., pp. 21, 43.
69
Ibid., p. 43.
70
Ibid., p. 44.
71
Ibid., p. 5; and P.L. 96-481, the Small Business Export Expansion Act of 1980.
63
Congressional Research Service
14
Small Business Size Standards: A Historical Analysis of Contemporary Issues
's number of employees, as opposed to its annual sales and receipts, for most industries as a means to avoid
having to update the size standards to reflect inflation.
7271 However, he was sympathetic to the
concerns of federal agencies that the proposed size standards in the services and construction
industries were set too low to meet those agencies
’' procurement needs. As a result, he indicated
that the SBA would modify its size standards proposal by increasing the proposed size standards
for 51 industries, mostly in the services and construction industries. He also indicated that the
proposed size standards in 157 manufacturing industries would be lowered (typically from 2,500
or fewer employees to 500 or fewer employees) to prevent one or more of the largest producers in
those industries from being classified as small. He also increased the SBA
’'s proposed lowest size
standard from 15 or fewer employees to 25 or fewer employees. This change would have affected
93 service and trade industries. Mr. Cardenas testified on May 5, 1981, before the Senate
Committee on Small Business, that these changes
have the net effect of restoring approximately 60,000 firms to eligibility out of a total of
225,000 firms (including farms) that had been removed from eligibility in the advance
notice. Since the SBA estimates that there are at present a total of 7.3 million firms in the
United States (based on Bureau of the Census data), the proposed changes actually impact on
only a small proportion of firms in the economy.
73
72
The SBA did not formally issue a notice of proposed rulemaking concerning its new size
standards proposal. Instead, for more than a year, it met with various trade organizations and
federal agency procurement officials to discuss the proposal. As these consultations took place,
the SBA experienced turnover in its senior leadership.
The SBA, headed by the new appointee, James C. Sanders, issued a notice of proposed
rulemaking concerning its size standards on May 3, 1982. Mr. Sanders testified before the House
Committee on Small Business Subcommittee on SBA and SBIC Authority, Minority Enterprise
and General Small Business Problems, on October 20, 1983, that the SBA
’'s May 3, 1982,
proposed notice of rulemaking differed from its March 10, 1980, predecessor in three important
ways:
First, the range of size standards was narrowed to a range of 25 employees to 500 employees.
This reflected a widespread view that 15 employees was too low a cutoff while 2,500
employees was too high. Second, SBA proposed a 500-employee ceiling, focusing on
smaller firms. Third, SBA responded to sentiments within many procurement-sensitive
industries that the proposed size standards in some cases were too low to accommodate the
average procurement currently being performed by small business. Therefore, SBA proposed
higher size standards in a number of procurement-sensitive industries, while maintaining the
500-employee cap.74
72
U.S. Congress, Senate Committee on Small Business, Small Business Administration’s Size Standards, hearing, 97th
Cong., 1st sess., May 5, 1981 (Washington: GPO, 1981), p. 12.
73
Ibid., p. 11.
74
U.S. Congress, House Committee on Small Business, Subcommittee on SBA and SBIC Authority, Minority
Enterprise and General Small Business Problems, Size Standards, hearing, 98th Cong., 1st sess., October 20, 1983
(Washington: GPO, 1983), p. 17. Congress created the Small Business Investment Company (SBIC) program in 1958
to provide small businesses enhanced access to equity capital, long-term loans, and consultative management
assistance.
Congressional Research Service
15
Small Business Size Standards: A Historical Analysis of Contemporary Issues
500-employee cap.73
He also testified that the SBA received about 500 comments on the proposed rule, with about
72% of those comments opposing the rule.
75
74
Taking those comments into consideration, the SBA reexamined its size standards once again,
and, after a year of further consultation with various trade organizations and federal agency
procurement officials, issued another notice of proposed rulemaking on May 6, 1983. The 1983
proposal replaced the use of two sets of size standards, one for procurement and another for the
SBA’ SBA's loan and consultative support services, with a single set for all programs; retained most of
the size standards that were expressed in terms of average annual sales or receipts; adjusted those
size standards for inflation (an upward adjustment of 81%); retained most of the size standards
for manufacturing; and made relatively minor changes to the size standards in other industries,
with a continued emphasis on a 500-employee ceiling for most industries. The SBA received 630
comments on the proposed rule, with almost 70% supporting it.
76
75
SBA Administrator Sanders characterized the SBA
’'s revised size standard proposal as
“a finetuning"a fine-tuning of current standards which has the basic support of both the private sector and the Federal
agencies that use the basic size standards to achieve their set-aside procurement goals.
”77"76 He also
added that
“"since almost no size standard is proposed to decrease, and most will in fact increase,
very few firms will lose their small business status. We estimate that about 39,000 firms will gain
small business status.
”78"77 He testified that in percentage terms, in 1983, 97.9% of the nation
’'s 5.2
million firms with employees were classified by the SBA as small. Under the SBA
’'s proposal,
98.6% of all firms with employees would be classified as small.
7978 The final rule was published in
the Federal Register on February 9, 1984.
80
79
Representative Parren J. Mitchell, chair of the House Committee on Small Business, expressed
disappointment in the SBA
’'s final rule, stating at a congressional oversight hearing on July 30,
1985, that
“"the government and the business community are still victimized by that same ad hoc,
sporadic system that the SBA promised to fix some six years ago.
”81"80 He introduced legislation
( (H.R. 1178, a bill to amend the Small Business Act) that would have required the SBA to adjust
its size standard for an industrial classification downward by at least 20% if small business
’' share
of that market equaled or exceeded 60%, and at least 40% of the market share was achieved
through the receipt of federal procurement contracts. The bill also mandated a minimum 10%
increase in the SBA
’'s size standard for an industrial classification if small business
’' share of that
market was less than 20% and less than 10% of the market share was achieved through the receipt
75
U.S. Congress, House Committee on Small Business, Subcommittee on SBA and SBIC Authority, Minority
Enterprise and General Small Business Problems, H.R. 1178: Small Business Size Standards, hearing, 99th Cong., 1st
sess., July 30, 1985 (Washington: GPO, 1985), p. 198.
76
U.S. Congress, House Committee on Small Business, Subcommittee on SBA and SBIC Authority, Minority
Enterprise and General Small Business Problems, Size Standards, hearing, 98th Cong., 1st sess., October 20, 1983
(Washington: GPO, 1983), p. 18.
77
Ibid.
78
Ibid.
79
Ibid.
80
Ibid.
81
U.S. Congress, House Committee on Small Business, Subcommittee on SBA and SBIC Authority, Minority
Enterprise and General Small Business Problems, H.R. 1178: Small Business Size Standards, hearing, 99th Cong., 1st
sess., July 30, 1985 (Washington: GPO, 1985), p. 4.
Congressional Research Service
16
Small Business Size Standards: A Historical Analysis of Contemporary Issues
market was less than 20% and less than 10% of the market share was achieved through the receipt of federal procurement contracts.
8281 The bill was opposed by various trade associations, the SBA,
and federal agency procurement officials, and was not reported out of committee.
83
82
SBA Proposes to Streamline its Size Standards
In 1992, the SBA had 30 different industry size standards (e.g., 100 or fewer employees, 500 or
fewer employees, 1,000 or fewer employees, $5 million in average annual receipts) for
classifying firms as small. On December 31, 1992, the SBA issued a notice of proposed
rulemaking that was designed
“"to streamline its size standards by reducing the number of fixed
size standard levels to nine.
”84"83 The nine proposed size standards were 100 or fewer, 500 or fewer,
750 or fewer, 1,000 or fewer, or 1,500 or fewer employees; and no more than $5 million, $10
million, $18 million, or $24 million in annual receipts. The annual receipts levels reflected an
upward adjustment of 43% for inflation. The SBA argued that the
“"current system of 30 size
standard levels has led to confusion and has created a needless complication of the size
standards.
”85"84 The SBA claimed that proposed changes to the size standards would make them
more user-friendly for small business owners. It would also restore eligibility to nearly 20,000
firms that were no longer considered small solely because of the effects of inflation. The
proposed rule was later withdrawn as a courtesy to allow the incoming Clinton Administration
time to review the proposal.
8685 The SBA ultimately decided not to pursue this approach because it
felt that converting
“"receipts based size standards in effect at that time to one of four proposed
receipts levels created a number of unacceptable anomalies.
”87
"86
Over the subsequent decade, the SBA reviewed the size standards for some industries on a
piecemeal basis and, in 1994, adjusted for inflation its size standards based on firm
’'s annual sales
or receipts (an upward adjustment of 48.2%). The SBA estimated that the adjustment would
restore eligibility to approximately 20,000 firms that lost small-business status due solely to the
effects of inflation.
88
87
In 2002, the SBA adjusted for inflation its annual sales and receipts based size standards for the
fourth time (an upward adjustment of 15.8%). The SBA estimated that the adjustment would
restore eligibility to approximately 8,760 firms that lost small-business status due solely to the
effects of inflation. The rule also included a provision that the SBA would assess the impact of
inflation on its annual sales- and receipts based size standards at least once every five years.89
82
Ibid., pp. 237-250.
Ibid., pp. 6, 8, 53, 153, 181, 244, 245, 261.
84
SBA, “Small Business Size Standards: Fixed Size Standard Levels,” 57 Federal Register 62515, December 31, 1992.
85
Ibid.
86
U.S. Congress, House Committee on Small Business, Subcommittee on Minority Enterprise, Finance, and Urban
Development, SBA’s Efforts to Streamline Size Standards, hearing, 103rd Cong., 1st sess., May 25, 1993 (Washington:
GPO, 1993), pp. 5, 6.
87
SBA, “Small Business Size Standards: Restructuring of Size Standards,” 69 Federal Register 13130, March 19,
2004.
88
U.S. Small Business Administration, “Small Business Size Standards: Inflation Adjusted Size Standards,” 59 Federal
Register 16513-16538, April 7, 1994.
89
SBA, “Small Business Size Standards: Inflation Adjustment to Size Standards,” 67 Federal Register 65285-65290,
October 24, 2002.
83
Congressional Research Service
17
Small Business Size Standards: A Historical Analysis of Contemporary Issues
inflation on its annual sales- and receipts based size standards at least once every five years.88 Then, on March 19, 2004, the SBA, once again, issued a notice of proposed rulemaking in the
Federal Register to
streamline its size standards.
90
89
The proposed rule would have established size standards based on the firm
’'s number of
employees for all industries, avoiding the need to adjust for inflation size standards based on sales
or receipts.
9190 At that time, the SBA size standards consisted of 37 different size levels which
applied to 1,151 industries and 13 sub-industry activities in the North American Industry
Classification System. Thirty size standards were based on annual sales or receipts, five on
number of employees (both full- and part-time), one on financial assets, and one on generating
capacity. Under the proposed rule, the SBA would use 10 size standards, 5 new employee size
standards (adding 50 or fewer, 150 or fewer, 200 or fewer, 300 or fewer, and 400 or fewer
employees), and the existing 5 employee size standards (100 or fewer, 500 or fewer, 750 or fewer,
1,000 or fewer, and 1,500 or fewer employees).
92
91
The proposed rule would not have changed any of the size standards that were already based on
number of employees. It would have converted size standards based on receipts, sales, assets, or
generating capacity to an employee based size standard. The SBA argued that the use of a single
size standard would
“"help to simplify size standards
”" and
“"tends to be a more stable measure of
business size
”" than other measures.
9392 It added that the proposed rule would change 514 size
standards and that, after the proposed conversion to the use of number of employees, of the
“ "approximately 4.4 million businesses in the industries with revised size standards, 35,200
businesses could gain and 34,100 could lose small business eligibility, with the net effect of 1,100
additional businesses defined as small.
”94
"93
The SBA received more than 4,500 comments on the proposed rule, with a majority (51%)
supporting the rule, but with
“"a large number of comments opposing various aspects of SBA
’s
's approach to simplifying size standards.
”95"94 In addition, Representative Donald Manzullo, chair of
the House Committee on Small Business, and Senator Olympia Snowe, chair of the Senate
Committee on Small Business and Entrepreneurship, opposed the proposed rule.
9695 Senator John
Kerry, ranking minority Member of the Senate Committee on Small Business and
Entrepreneurship, sent a letter to the SBA requesting that it
“"rescind its proposal to restructure the
way companies are determined to be small businesses
”" because
“"small business advocates have
informed me that this proposal could threaten or eliminate over 8 million jobs
”" and
“"the proposal
would punish the 34,000 firms that are currently considered small, have been acting in good faith
90
SBA, “Small Business Size Standards: Restructuring of Size Standards,” 69 Federal Register 13129-13164, March
19, 2004.
91
Ibid.
92
Ibid., p. 13130.
93
Ibid., pp. 13131-13132.
94
Ibid., p. 13138.
95
SBA, “Small Business Size Standards: Selected Size Standards Issues,” 69 Federal Register 70197, December 3,
2004; and U.S. Small Business Administration, “Small Business Size Standards: Selected Size Standards Issues,” 70
Federal Register 2976, January 19, 2005.
96
Rep. Donald A. Manzullo and Rep. Nydia M. Velázquez, “Small Business Size Standards; Restructuring of Size
Standards, 69 Federal Register 13,130 (March 19, 2004); Letter to Gary M. Jackson, SBA Assistant Administrator for
Size Standards,” July 8, 2004, at http://democrats.smallbusiness.house.gov/
Size%20Standards%20Comment%20Letter%200704.pdf; and U.S. Newswire, “Snowe Hails SBA’s Withdrawal of
New Size Standards Proposal; Decision Spares Small Firms Costly Disruptions,” July 1, 2004, p. 1, at
http://proquest.umi.com/pqdweb?did=657675071&sid=1&Fmt=3&clientId=45714&RQT=309&VName=PQD.
Congressional Research Service
18
Small Business Size Standards: A Historical Analysis of Contemporary Issues
would punish the 34,000 firms that are currently considered small, have been acting in good faith with the Federal government, but will lose their small business status abruptly as a result of the
change.
”97"96 The SBA withdrew the proposed rule on July 1, 2004. Senator Snowe was quoted in a
press interview later that day that she supported the SBA
’'s decision to rescind the proposed rule:
At the eleventh hour, the SBA has corrected its course and averted costly disruptions for
small businesses across the country.... The SBA
’'s proposed rule would have sent a tidal
wave crashing over small business, effectively wiping out the foundation on which countless
firms currently operate. Small firms still recovering from last year
’'s slow economy are in no
shape to cope with such a sea change in the regulatory landscape.
98
97
Senator Snowe reportedly urged the SBA to proceed cautiously with any future effort to
restructure its size standards, emphasizing that any such effort should include a thorough dialogue
with business owners and Congress.
99
98
In 2005, the SBA adjusted for inflation size standards based on firms
’' annual sales or receipts (an
upward adjustment of 8.7%). The SBA estimated that the adjustment restored eligibility to
approximately 12,000 firms that lost small-business status due solely to the effects of inflation. In
2008, the SBA made another adjustment for inflation to its annual sales- and receipts based
standards (another upward adjustment of 8.7%). The SBA estimated that the adjustment restored
eligibility for approximately 10,400 firms that lost small-business status due solely to the effects
of inflation.
100
99
SBA Adopts a More Incremental,
Targeted Approach
Targeted Approach
In June 2008, the SBA announced that it would undertake a comprehensive, two-year review of
its size standards, proceeding one industrial sector at a time, starting with Retail Trade (NAICS
Sector 44-45), Accommodations and Food Services (NAICS Sector 72), and Other Services
(NAICS Sector 81).
101100 The SBA argued that it was concerned that
“"not all of its size standards
may now adequately define small businesses in the U.S. economy, which has seen industry
consolidations, technological advances, emerging new industries, shifting societal preferences,
and other significant industrial changes.
”102"101 It added that its reliance on an ad hoc approach
“to
scrutinizing the limited number of specific industries during a year, while worthwhile, leaves
97
U.S. Senate Committee on Small Business and Entrepreneurship, “Kerry Urges SBA to Withdraw Small Business
Size Standard Proposal,” press release, June 29, 2004, at http://sbc.senate.gov/press/record.cfm?id=223511.
98
U.S. Newswire, “Snowe Hails SBA’s Withdrawal of New Size Standards Proposal; Decision Spares Small Firms
Costly Disruptions,” July 1, 2004, p. 1, at http://proquest.umi.com/pqdweb?did=657675071&sid=1&Fmt=3&clientId=
45714&RQT=309&VName=PQD.
99
Ibid.
100
SBA, “Small Business Size Standards, Inflation Adjustment to Size Standards; Business Loan Program; Disaster
Assistance Loan Program,” 70 Federal Register 72577, December 6, 2005; and U.S. Small Business Administration,
“Small Business Size Standards: Inflation Adjustment to Size Standards; Business Loan Program, and Disaster
Assistance Loan Program,” 73 Federal Register 41237-41254, July 18, 2008.
101
SBA, “Small Business Size Standards: Public Meetings on a Comprehensive Review of Small Business Size
Standards,” 73 Federal Register 30440-30442, May 27, 2008. Other Services (NAICS Sector 81) include repair and
maintenance, personal and laundry services, and religious, grantmaking, civic, professional, and similar organizations.
102
SBA, “Small Business Size Standards: Public Meetings on a Comprehensive Review of Small Business Size
Standards,” 73 Federal Register 30441, May 27, 2008.
Congressional Research Service
19
Small Business Size Standards: A Historical Analysis of Contemporary Issues
"to scrutinizing the limited number of specific industries during a year, while worthwhile, leaves unexamined many deserving industries for updating and may create over time a set of illogical
size standards.
”103
"102
The SBA announced that it would begin its analysis of its size standards by assuming that
“"$6.5
million [now $7.0 million] is an appropriate size standard for those industries with receipts size
standards and 500 employees for those industries with employee size standards.
”104"103 It would then
analyze the following industry characteristics:
“"average firm size; average asset size (a proxy for
startup costs); competition, as measured by the market share of the four largest firms in the
industry; and, the distribution of market share by firm size—that is, are firms in the industry
generally very small firms, or dominated by very large firms.
”105"104 Then, before making its final
determination on the size standard, it would
“"examine the participation of small businesses in
federal contracting and SBA
’'s guaranteed loan program at the current size standard level.
Depending on the level of small business participation, additional consideration may be given to
the level of the current size standard and the analysis of industry factors.
”106
"105
The SBA later announced in its Semiannual Regulatory Agenda, published on November 24,
2008, that it planned to issue a notice of proposed rulemaking concerning size standards for Retail
Trade (NAICS Sector 44-45), Accommodations and Food Services (NAICS Sector 72), and Other
Services (NAICS Sector 81) in January 2009.
107106 The SBA issued the notices for those industries
on October 21, 2009.
108
107
In April 2009, the SBA announced that was simplifying the administration and use of its size
standards by reducing the number of receipt based size standards it used when establishing a new
size standard or reviewing an existing size standard:
For many years, SBA has been concerned about the complexity of determining small
business status caused by a large number of varying receipts based size standards (see 69 FR
13130 (March 4, 2004) and 57 FR 62515 (December 31, 1992)). At the start of current
comprehensive size standards review, there were 31 different levels of receipts based size
standards. They ranged from $0.75 million to $35.5 million, and many of them applied to
one or only a few industries. The SBA believes that to have so many different size standards
with small variations among them is unnecessary and difficult to justify analytically. To
simplify managing and using size standards, SBA proposes that there be fewer size standard
levels. This will produce more common size standards for businesses operating in related
industries. This will also result in greater consistency among the size standards for industries
that have similar economic characteristics.
Under the current comprehensive size standards review, SBA is proposing to establish eight
“ "fixed-level
” receipts based size standards: $5.0 million, $7.0 million, $10.0 million, $14.0
103
Ibid.
SBA, “Size Standards Comprehensive Review,” June 3, 2008, at http://archive.sba.gov/idc/groups/public/
documents/adacct/june_3_public_presentation_rem.pdf.
105
Ibid.
106
Ibid.
107
SBA, “Small Business Administration Semiannual Regulatory Agenda,” 73 Federal Register 71449, 71450,
November 24, 2008.
108
SBA, “Small Business Size Standards: Retail Trade,” 74 Federal Register 53924-53940, October 21, 2009; SBA,
“Small Business Size Standards: Accommodation and Food Services Industries,” 74 Federal Register 53913-53924,
October 21, 2009; and SBA, “Small Business Size Standards: Other Services Industries,” 74 Federal Register 5394153954, October 21, 2009.
104
Congressional Research Service
20
Small Business Size Standards: A Historical Analysis of Contemporary Issues
" receipts based size standards: $5.0 million, $7.0 million, $10.0 million, $14.0 million, $19.0 million, $25.5 million, $30.0 million, and $35.5 million. These levels are
established by taking into consideration the minimum, maximum and the most commonly
used current receipts based size standards.
109
108
The SBA also announced that it would use eight employee based size standards when establishing
a new size standard or reviewing an existing size standard: 50 or fewer, 100 or fewer, 150 or
fewer, 200 or fewer, 250 or fewer, 500 or fewer, 750 or fewer, and 1,000 or fewer employees.
110
109 At that time, the SBA had seven employee based size standards: 50 or fewer, 100 or fewer, 150 or
fewer, 500 or fewer, 750 or fewer, 1,000 or fewer, and 1,500 or fewer employees. The SBA
stopped using the 1,500 or fewer employee size standard when establishing a new or reviewing an
existing size standard, noting that only three manufacturing industries had a 1,500 or fewer
employee size standard at that time.
111
110
The SBA also announced that
“"to simplify size standards further
”" it
“"may propose a common size
standard for closely related industries.
”112"111 The SBA argued
although the size standard analysis may support a separate size standard for each industry,
SBA believes that establishing different size standards for closely related industries may not
always be appropriate. For example, in cases where many of the same businesses operate in
the same multiple industries, a common size standard for those industries might better reflect
the Federal marketplace. This might also make size standards among related industries more
consistent than separate size standards for each of those industries.
113
112
As mentioned previously, on September 10, 2014, the SBA applied a new employee based size
standard (1,250 or fewer employees) and the 1,500 or fewer employee based size standard, which
the SBA had stopped using in April 2009 when establishing new or reviewing existing size
standards, in its proposed size standard rule for the Manufacturing sector (NAICS Sector 31-33).
The new 1,250 or fewer employee based size standard
will go into effect if it iswas included in the
final size standard rule for the Manufacturing sector, which
is expected to be issued in 2015.114
was issued on January 26, 2016 (effective as of February 26, 2016).113 In addition, the final rule increased the number of manufacturing industries with a size standard of 1,500 or fewer employees from 3 to 26. The SBA also announced its intention to eliminate its 150 or fewer employee based size standard
in its proposed rule for industries with employee based size standards not part of the
manufacturing, wholesale trade, and retail trade industries, which was issued on September 10,
2014.115 The 150 or fewer employee size standard is currently applied to a single sub-industry and
will cease to exist if its removal is included 2014.114 However, the SBA decided to retain the 150 or fewer employee-size standard in the final size standard rule for those industries,
which is expected to be issued in 2015.
which was issued on January 26, 2016.115
Table 2 shows the 8 receipts based size standards and 10 employee based size standards that the
SBA currently applies when establishing a new size standard or reviewing an existing size
standard.
109
SBA, “Small Business Size Standards Methodology,” April 2009, pp. 21, 22, at http://www.sba.gov/sites/default/
files/size_standards_methodology.pdf.
110
Ibid., p. 23.
111
Ibid.
112
Ibid., pp. 22- 23.
113
Ibid., p. 23.
114
SBA, “Small Business Size Standards for Manufacturing,” 79 Federal Register 54150, September 10, 2014.
115
SBA, “Small Business Size Standards: Industries With Employee Based Size Standards Not Part of Manufacturing,
Wholesale Trade, or Retail Trade,” 79 Federal Register 53647, September 10, 2014.
Congressional Research Service
21
Small Business Size Standards: A Historical Analysis of Contemporary Issues
standard.
Table 2. Industry Size Standards Being Applied During the
SBA’ SBA's Ongoing Review of
its Its Small Business Size Standards
Receipts Based Levels
Employee Based Levels
$5.0 million or less
50 or fewer employees
$7.0 million or less (anchor)
100 or fewer employees (wholesale anchor)
$10.0 million or less
150 or fewer employeesa
$14.0 million or less
200 or fewer employees
$19.0 million or less
250 or fewer employees
$25.5 million or less
500 or fewer employees (manufacturing
anchor)
$30.0 million or less
750 or fewer employees
$35.5 million or less
1,000 or fewer employees
1,250 or fewer employeesb
1,500 or fewer employees
Source: U.S. Small Business Administration, “Small Business Size Standards Methodology,” April 2009, pp. 21-23,
at
|
Receipts Based Levels
|
Employee Based Levels
|
|
$5.0 million or less
|
50 or fewer employees
|
|
$7.0 million or less (anchor)
|
100 or fewer employees (wholesale anchor)
|
|
$10.0 million or less
|
150 or fewer employees
|
|
$14.0 million or less
|
200 or fewer employees
|
|
$19.0 million or less
|
250 or fewer employees
|
|
$25.5 million or less
|
500 or fewer employees (manufacturing anchor)
|
|
$30.0 million or less
|
750 or fewer employees
|
|
$35.5 million or less
|
1,000 or fewer employees
|
1,250 or fewer employees
|
1,500 or fewer employees
|
Source: U.S. Small Business Administration, "Small Business Size Standards Methodology," April 2009, pp. 21-23, at http://www.sba.gov/sites/default/files/
size_standards_methodology.pdf; and SBA, "size_standards_methodology.pdf; SBA, “Small Business Size Standards:
Industries With Employee Based Size Standards Not Part of Manufacturing, Wholesale Trade, or Retail Trade,”
79 Federal Register 53647, September 10, 2014; and SBA, “Small Business Size Standards for Manufacturing,
” 79
Federal Register 54150, September 10, 2014.
" 81 Federal Register 4469-4492, January 26, 2016.
Notes: As of
February 2, 2015January 27, 2016, the SBA had 28 industry based size standards in effect
.
a.
The SBA proposed to eliminate the 150 or fewer employee based size standard in its proposed size
standard rule for industries with employee based size standards not part of the manufacturing, wholesale
trade, and retail trade industries. The 150 or fewer employee based size standard will cease to exist if its
removal is included in the final size standard rule for these industries, which is expected to be issued in
2015. See SBA, “Small Business Size Standards: Industries With Employee Based Size Standards Not Part of
Manufacturing, Wholesale Trade, or Retail Trade,” 79 Federal Register 53647, September 10, 2014.
b.
The SBA applied the new, 1,250 or fewer employee based size standard in its proposed rule for the
Manufacturing sector. It will go into effect if it is included in the final size standard rule for the Manufacturing
sector, which is expected to be issued in 2015. See SBA, “Small Business Size Standards for Manufacturing,”
79 Federal Register 54150, September 10, 2014.
(9 employee based, 17 receipts based, and 1 asset based). The 1,250 or fewer employees' size standard will be effective as of February 26, 2016 (increasing the total number of SBA industry based size standards in effect at that time to 29).
The SBA issued the final rules for size standards for the Retail Trade (NAICS Sector 44-45),
Accommodations and Food Services (NAICS Sector 72), and Other Services (NAICS Sector 81)
industries in the Federal Register on October 6, 2010, with an effective date of November 5,
2010.
116116 The SBA increased size standards for 46 of the 76 industries in Retail Trade (NAICS
Sector 44-45), 5 of the 15 industries in Accommodations and Food Services (NAICS Sector 72),
and 18 of the 47 industries in Other Services (NAICS Sector 81).
117
117
The SBA
’'s analysis supported a decrease to the size standards for 23 industries in Retail Trade
(NAICS Sector 44-45), 7 industries in Accommodations and Food Services (NAICS Sector 72),
116
SBA, “Small Business Size Standards: Retail Trade,” 75 Federal Register 61597-61604, October 6, 2010; SBA,
“Small Business Size Standards: Accommodations and Food Service Industries,” 75 Federal Register 61604-61609,
October 6, 2010; and SBA, “Small Business Size Standards: Other Services,” 75 Federal Register 61591-61596,
October 6, 2010. The final rule for the retail trade industries also converted the measure of size for new car dealers
from annual receipts to number of employees.
117
Ibid.
Congressional Research Service
22
Small Business Size Standards: A Historical Analysis of Contemporary Issues
and 20 industries in Other Services (NAICS Sector 81). However, the SBA retained those size
standards because
“"proposing to lower small business size standards would be inconsistent with
its on-going effort to promote small business assistance under the Recovery Act.
”118"118 The SBA has
continued the practice of retaining size standards when the SBA
’'s economic analysis supports a
decrease because
“"lowering small business size standards is not in the best interest of small
businesses in the current economic environment
”" and would
“"run counter to what SBA and the
federal government are doing to help small businesses and create jobs.
”119"119 The SBA
’'s only
exception to this practice is if lowering the size standard is necessary to exclude dominant firms
from becoming eligible for SBA assistance.
On April 26, 2010, the SBA announced that it planned to issue final size standard rules for
Professional, Scientific and Technical Services (NAICS Sector 54) and Transportation and
Warehousing (NAICS Sector 48-49) in August 2010.
120120 The SBA published a notice of proposed
rulemaking in the Federal Register concerning size standards Professional, Scientific and
Technical Services (NAICS Sector 54) on March 16, 2011,
121121 and Transportation and
Warehousing (NAICS Sector 48-49) on May 13, 2011.
122122 The SBA issued the final size standard
rule for Professional, Scientific and Technical Services (NAICS Sector 54) on February 10,
2012.
123123 It issued the final size standard rule for Transportation and Warehousing (NAICS Sector
48-49) on February 24, 2012.124
118
SBA, “Small Business Size Standards: Retail Trade,” 75 Federal Register 61598, October 6, 2010; SBA, “Small
Business Size Standards: Accommodations and Food Service Industries,” 75 Federal Register 61605, October 6, 2010;
and SBA, “Small Business Size Standards: Other Services,” 75 Federal Register 61592, October 6, 2010.
119
SBA, “Small Business Size Standards: Agriculture, Forestry, Fishing, and Hunting,” 77 Federal Register 55763,
September 11, 2012.
120
SBA, “Small Business Size Standards: Retail Trade,” 75 Federal Register 21895, April 26, 2010; U.S. Small
Business Administration, “Small Business Size Standards: Accommodations and Food Service Industries,” 75 Federal
Register 21895, April 26, 2010; SBA, “Small Business Size Standards: Other Services,” 75 Federal Register 21895,
April 26, 2010; SBA, “Small Business Size Standards: Professional Scientific and Technical Services,” 75 Federal
Register 21893, April 26, 2010; and SBA, “Small Business Size Standards: Transportation and Warehousing
Industries,” 75 Federal Register 21894, April 26, 2010.
121
The proposed rule would have increased small business size standards for 35 industries and one sub-industry within
the professional, scientific and technical services industries. The SBA estimated that about 9,450 additional firms
would obtain small business status if the proposed rule became effective and the small business share of total industry
receipts in those industries would increase from about 35% under the current size standards to 41%. The number of
firms that would obtain eligibility under the proposed rule represents about 1.2% of the total number of firms in those
industries defined as small under current standards. Also, the SBA’s analysis supported a decrease in the size standards
in 14 industries and one sub-industry, but the SBA concluded that “lowering small business size standards is not in the
best interests of small businesses under current economic conditions.” See SBA, “Small Business Size Standards:
Professional, Scientific and Technical Services,” 76 Federal Register 14323-14341, March 16, 2011.
122
The proposed rule would have increased small business size standards for 22 industries within the transportation and
warehousing industries. The SBA estimated that about 1,200 additional firms would obtain small business status if the
proposed rule became effective and the small business share of total industry receipts in those industries would increase
from about 36% under the current size standards to 39%. The number of firms that would obtain eligibility under the
proposed rule represents about 0.7% of the total number of firms in those industries defined as small under current
standards. Also, the SBA’s analysis supported a decrease in the size standards in 18 industries, but the SBA concluded
that “lowering small business size standards is not in the best interests of small businesses under current economic
conditions.” See SBA, “Small Business Size Standards: Transportation and Warehousing,” 76 Federal Register 2793527952, May 13, 2011.
123
SBA, “Small Business Size Standards: Professional, Technical, and Scientific Services,” 77 Federal Register 74907515, February 10, 2012.
124
SBA, “Small Business Size Standards: Transportation and Warehousing,” 77 Federal Register 10943-10950,
February 24, 2012.
Congressional Research Service
23
Small Business Size Standards: A Historical Analysis of Contemporary Issues
48-49) on February 24, 2012.124
Congress Requires Periodic Size Standard Reviews
As mentioned previously, P.L. 111-240 requires the SBA to conduct a detailed review of not less
than one-third of the SBA
’'s industry size standards during the 18-month period beginning on the
date of enactment (September 27, 2010) and during every 18-month period thereafter.
125125 The act
directs the SBA to
“"make appropriate adjustments to the size standards
”" to reflect market
conditions, and to report to the House Committee on Small Business and the Senate Committee
on Small Business and Entrepreneurship and make publicly available
“"not later than 30 days
”
" after the completion of each review information regarding the factors evaluated as part of each
review, the criteria used for any revised size standard, and why the SBA did, or did not, adjust
each size standard that was reviewed. The act also requires the SBA to ensure that each industry
size standard is reviewed at least once every five years.
126
126
On July 7, 2011, the SBA announced as part of its
“"comprehensive review of all small business
size standards
”" that it was evaluating the size standards in six NAICS
Sectorssectors as follows:
•
Utilities (NAICS Sector 22);
•
Information (NAICS Sector 51);
•
Administrative and Support, Waste Management and Remediation Services
(NAICS Sector 56);
•
Real Estate Rental and Leasing (NAICS Sector 53);
•
Educational Services (NAICS Sector 61); and
•
Health Care and Social Assistance Services (NAICS Sector 62).
127
127 The SBA also announced that once these reviews were complete that it anticipated reviewing size
standards in the following NAICS
Sectorssectors in this sequence:
•
Arts, Entertainment, and Recreation (NAICS Sector 71);
•
Construction (NAICS Sector 23);
•
Wholesale Trade (NAICS Sector 42);
•
Finance and Insurance (NAICS Sector 52);
•
Management of Companies (NAICS Sector 55);
•
Mining (NAICS Sector 21);
•
Agriculture, Forestry, Fishing and Hunting (NAICS Sector 11); and
•
Manufacturing (NAICS Sector 31-33).128
125
P.L. 111-240, the Small Business Act of 2010, §1344. Updated Size Standards.
Ibid.
127
SBA, “Semiannual Regulatory Agenda,” 76 Federal Register 40140-40142, July 7, 2011.
128
SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” March 30, 2012.
126
Congressional Research Service
24
Small Business Size Standards: A Historical Analysis of Contemporary Issues
Manufacturing (NAICS Sector 31-33).128Table 3 provides the status of SBA industry size standard reviews since 2010. The table includes
•
the date the SBA published or anticipates to publish in the Federal Register
a a
notice of intent to review the size standard;
•
the date the SBA published or anticipates to publish in the Federal Register
a
a notice of proposed rulemaking for the size standard;
•
the recommended change proposed in the notice of proposed rulemaking;
•
the date the SBA published or anticipates to publish in the Federal Register the
final rule for the size standard; and
•
the change that took place as a result of the final rule.
Table 3. Status of SBA Size Standard Reviews, 2010-
2014
Notice of Intent
to Review the
Standard
Notice of
Proposed
Rulemaking
Recommended
Change
Final
Rule
Final
Change
Transportation and
Warehousing
(NAICS Sector 4849)
75 Federal Register
21894,
Apr. 26, 2010
76 Federal Register
27935-27952,
May 13, 2011
Would increase
size standards for
22 industries
77 Federal
Register
1094310950,
Feb. 24,
2012
(effective
Mar. 26,
2012)
Increased
size
standards
for 22
industries
Professional,
Scientific and
Technical Services
(NAICS Sector 54)
75 Federal Register
21893, 21894
Apr. 26, 2010
76 Federal Register
14323-14341,
Mar. 16, 2011
Would increase
size standards for
35 industries and 1
sub-industry
77 Federal
Register
74887515,
Feb. 10,
2012
(effective
Mar. 12,
2012)
Increased
size
standards
for 34
industries
and 3 subindustriesa
Information
(NAICS Sector 51)
76 Federal Register
40140-40142,
July 7, 2011
76 Federal Register
63216-63229,
Oct. 12, 2011
Would increase
size standards for
15 industries
77 Federal
Register
7270272709,
Dec. 6,
2012
(effective
Jan. 7,
2013)
Increased
size
standards
for 15
industries
Administrative and
Support, Waste
Management and
Remediation
Services
(NAICS Sector 56)
76 Federal Register
40140-40142,
July 7, 2011
76 Federal Register
63510-63525,
Oct. 12, 2011
Would increase
size standards for
37 industries
77 Federal
Register
7269172702,
Dec. 6,
2012
(effective
Jan. 7,
2013)
Increased
size
standards
for 37
industries
NAICS Sectors
Congressional Research Service
25
Small Business Size Standards: A Historical Analysis of Contemporary Issues
NAICS Sectors
Notice of Intent
to Review the
Standard
Notice of
Proposed
Rulemaking
Recommended
Change
Final
Rule
Final
Change
Educational
Services
(NAICS Sector 61)
76 Federal Register
40140-40142,
July 7, 2011
76 Federal Register
70667-70680,
Nov. 15, 2011
Would increase
size standards for
nine industries
77 Federal
Register
5873958747,
September
24, 2012
(effective
Oct. 24,
2012)
Increased
size
standards
for nine
industries
Real Estate, Rental
and Leasing
(NAICS Sector 53)
76 Federal Register
40140-40142,
July 7, 2011
76 Federal Register
70680-70694,
Nov.15, 2011
Would increase
size standards for
20 industries and
1 sub-industry
77 Federal
Register
5874758755,
September
24, 2012
(effective
Oct. 24,
2012)
Increased
size
standards
for 21
industries
and 1 subindustry
Health Care and
Social Assistance
Services
(NAICS Sector 62)
76 Federal Register
40140-40142,
July 7, 2011
77 Federal Register
11001-11017,
Feb. 24, 2012
Would increase
size standards for
28 industries
77 Federal
Register
5875558761,
September
24, 2012
(effective
Oct. 24,
2012)
Increased
size
standards
for 28
industries
Arts,
Entertainment, and
Recreation
(NAICS Sector 71)
77 Federal Register
8024,
February 13, 2012
77 Federal Register
42211-42225,
July 18, 2012
Would increase
size standards for
17 industries
78 Federal
Register
3741737422,
June 20,
2013
(effective
July 22,
2013)
Increased
size
standards
for 17
industries
Construction
(NAICS Sector 23)
77 Federal Register
8024,
February 13, 2012
77 Federal Register
42197-42211,
July 18, 2012
Would increase
size standards for
one industry and
one sub-industry
78 Federal
Register
7733477343,
Dec. 23,
2013
(effective
Jan. 22,
2014)
Increased
size
standards
for one
industry
and
one subindustry
Congressional Research Service
26
Small Business Size Standards: A Historical Analysis of Contemporary Issues
Notice of Intent
to Review the
Standard
Notice of
Proposed
Rulemaking
Utilities
(NAICS Sector 22)
76 Federal Register
40140-40142,
July 7, 2011
Finance and
Insurance
(NAICS Sector 52)
Management of
Companies
(NAICS Sector 55)
NAICS Sectors
Recommended
Change
Final
Rule
Final
Change
77 Federal Register
42441-42454,
July 19, 2012
Would increase
size standards for
three industries
and convert six
industries from no
more than 4
million megawatt
hours in electric
output in the
preceding fiscal
year to no more
than 500
employees
78 Federal
Register
7734377351,
Dec. 23,
2013
(effective
Jan. 22,
2014)
Increased
size
standards
for three
industries
and
converted
10
industries
from no
more than
4 million
megawatt
hours in
electric
output in
the
preceding
fiscal year
to
number of
employees
(varying
by
industry)
NA
77 Federal Register
55737-55755,
September, 11,
2012
Would increase
size standards for
37 industries and
change the
measure of size
from total assets
to annual receipts
for 1 industry
78 Federal
Register
3740937417,
June 20,
2013
(effective
July 22,
2013)
Increased
size
standards
for 36
industries,
and
changed
the
measure
of size
from total
assets to
annual
receipts
for 1
industry
NA
77 Federal Register
55737-55755,
September, 11,
2012
Would increase
size standards for
two industries
78 Federal
Register
3740937417,
June 20,
2013
(effective
July 22,
2013)
Increased
size
standards
for two
industries
Congressional Research Service
27
Small Business Size Standards: A Historical Analysis of Contemporary Issues
NAICS Sectors
Notice of Intent
to Review the
Standard
Notice of
Proposed
Rulemaking
Recommended
Change
Final
Rule
Final
Change
Agriculture,
Forestry, Fishing
and Hunting
(NAICS Sector 11)
NA
77 Federal Register
55755-55768,
September, 11,
2012
Would increase
size standards for
11 industries
78 Federal
Register
3739837404,
June 20,
2013
(effective
July 22,
2013)
Increased
size
standards
for 11
industries
Support Activities
for Mining
(within NAICS
Sector 21)
NA
77 Federal Register
72766,
December, 6,
2012
Would increase
size standards for
three industries
78 Federal
Register
3740437408,
June 20,
2013
(effective
July 22,
2013)
Increased
size
standards
for three
industries
Mining, Quarrying,
and Oil and Gas
Extraction (NAICS
Sector 21)
78 Federal Register
1639, Jan. 8, 2013
cites 77 Federal
Register 72766,
December, 6,
2012
Expected in 2014
Expected
in 2014
Expected
in 2014
Wholesale Trade
(NAICS Sector 42)
78 Federal Register
1639, Jan. 8, 2013
79 Federal Register
28631-28647, May
19, 2014
Would increase
size standards for
46 industries in
NAICS Sector 42
Expected
in 2014
Expected
in 2014
Expected
in 2014
Expected
in 2014
and
Retail Trade (two
industries with
employee based
size standards
within NAICS
Sector 44-45)
Manufacturing
(NAICS Sector 3133)
Would increase
one industry in
NAICS Sector 4445
78 Federal Register
1639, Jan. 8, 2013
79 Federal Register
54146-54177,
September 10,
2014
Would increase
size standards for
209 industries in
NAICS Sector 3133
Would also
increase the
refining capacity
component for
Petroleum
Refiners from no
more than 125,000
barrels per
calendar day to no
more than 200,000
barrels per
calendar day.
Congressional Research Service
28
Small Business Size Standards: A Historical Analysis of Contemporary Issues
NAICS Sectors
Industries with
Employee Based
Size Standards not
Part of
Manufacturing,
Wholesale Trade,
or Retail Trade
(primarily within
NAICS Sectors 51
and 54)
Notice of Intent
to Review the
Standard
Notice of
Proposed
Rulemaking
78 Federal Register
1639, Jan. 8, 2013
79 Federal Register
53646-53666,
September 10,
2014
Recommended
Change
Would increase
size standards for
30 industries and 3
sub-industries, and
decrease size
standards for 3
industries “to
exclude dominant
firms”
Final
Rule
Expected
in 2015
Final
Change
Expected
in 2015
Source: Federal Register as cited in the table.
a.
Also increased one size standard (Computer and Office Machine Repair and Maintenance) in NAICS Sector
81, Other Services, which was not reviewed during the SBA’s review of that sector in 2010.
SBA’s Definitions for Small Business
The SBA, relying on statutory language, defines a small business as a concern that is organized
for profit; has a place of business in the United States; operates primarily within the United States
or makes a significant contribution to the economy through payment of taxes or use of American
products, materials, or labor; is independently owned and operated; and is not dominant in its
field on a national basis. The business may be a sole proprietorship, partnership, corporation, or
any other legal form.129
The SBA uses two measures to determine if a business is small: industry specific size standards or
a combination of the business’s net worth and net income. For example, the SBA’s Small
Business Investment Company (SBIC) program allows businesses to qualify as small if they meet
the SBA’s size standard for the industry in which the applicant is primarily engaged, or an
alternative net worth and net income based size standard which has been established for the SBIC
program. The SBIC’s alternative size standard is currently set as a maximum net worth of not
more than $19.5 million and average after-tax net income for the preceding two years of not more
than $6.5 million.130 All of the company’s subsidiaries, parent companies, and affiliates are
considered in determining if it meets the size standard. The SBA decided to apply the net worth
and net income measures to the SBIC program “because investment companies evaluate
businesses using these measures to decide whether or not to make an investment in them.”131
129
13 C.F.R. §121.105. Affiliations between businesses, or relationships allowing one party control or the power of
control over another, generally count in size determinations. Businesses can thus be determined to be other than small
because of their involvement in joint ventures, subcontracting arrangements, or franchise or license agreements, among
other things, provided that their personnel numbers or income, plus those of their affiliate(s), are over the pertinent size
threshold. 13 C.F.R. §121.103. For further analysis, see CRS Report R40744, The “8(a) Program” for Small
Businesses Owned and Controlled by the Socially and Economically Disadvantaged: Legal Requirements and Issues,
by Kate M. Manuel.
130
13 C.F.R. §107.700; 13 C.F.R. §107.710; 13 C.F.R. §301(c)(2); and 13 C.F.R. §301(c)(1).
131
SBA, Office of Government Contracting and Business Development, “SBA Size Standards Methodology,” April
2009, p. 8, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
Congressional Research Service
29
Small Business Size Standards: A Historical Analysis of Contemporary Issues
Businesses participating in the SBA’s 504/Certified Development Company (504/CDC) loan
guaranty program are to be deemed small if they did not have a tangible net worth in excess of
$8.5 million and did not have an average net income in excess of $3 million after taxes for the
preceding two years.132 As discussed below, P.L. 111-240 increased these threshold amounts on
an interim basis to not more than $15 million in tangible net worth and not more than $5 million
in average net income after federal taxes for the two full fiscal years before the date of the
application. All of the company’s subsidiaries, parent companies, and affiliates are considered in
determining if it meets the size standard. Also, before May 5, 2009, businesses participating in the
SBA’s 7(a) loan guaranty program, including its express programs, were deemed small if they met
the SBA’s size standards for firms in the industries described in NAICS.133
Alternative Size Standards
2016
|
NAICS Sectors
|
Notice of Intent to Review the Standard
|
Notice of Proposed Rulemaking
|
Recommended Change
|
Final Rule
|
Final Change
|
Transportation and Warehousing (NAICS Sector 48-49)
|
75 Federal Register 21894,Apr. 26, 2010
76 Federal Register 27935-27952,May 13, 2011
Would increase size standards for 22 industries
|
77 Federal Register 10943-10950,Feb. 24, 2012 (effective Mar. 26, 2012)
Increased size standards for 22 industries
|
Professional, Scientific and Technical Services (NAICS Sector 54)
|
75 Federal Register 21893, 21894Apr. 26, 2010
76 Federal Register 14323-14341,Mar. 16, 2011
Would increase size standards for 35 industries and 1 sub-industry
|
77 Federal Register 7488-7515,Feb. 10, 2012 (effective Mar. 12, 2012)
Increased size standards for 34 industries and 3 sub-industriesa
Information (NAICS Sector 51)
76 Federal Register 40140-40142, July 7, 2011
76 Federal Register 63216-63229,Oct. 12, 2011
Would increase size standards for 15 industries
|
77 Federal Register 72702-72709,Dec. 6, 2012 (effective Jan. 7, 2013)
Increased size standards for 15 industries
|
Administrative and Support, Waste Management and Remediation Services (NAICS Sector 56)
76 Federal Register 40140-40142, July 7, 2011
76 Federal Register 63510-63525,Oct. 12, 2011
Would increase size standards for 37 industries
|
77 Federal Register 72691-72702,Dec. 6, 2012 (effective Jan. 7, 2013)
Increased size standards for 37 industries
|
Educational Services (NAICS Sector 61)
76 Federal Register 40140-40142,July 7, 2011
76 Federal Register 70667-70680, Nov. 15, 2011
Would increase size standards for nine industries
|
77 Federal Register 58739-58747, Sept. 24, 2012 (effective Oct. 24, 2012)
Increased size standards for 9 industries
|
Real Estate, Rental and Leasing (NAICS Sector 53)
|
76 Federal Register 40140-40142, July 7, 2011
76 Federal Register 70680-70694, Nov.15, 2011
Would increase size standards for 20 industries and 1 sub-industry
|
77 Federal Register 58747-58755, Sept. 24, 2012 (effective Oct. 24, 2012)
Increased size standards for 21 industries and 1 sub-industry
|
Health Care and Social Assistance Services (NAICS Sector 62)
76 Federal Register 40140-40142, July 7, 2011
|
77 Federal Register 11001-11017, Feb. 24, 2012
Would increase size standards for 28 industries
|
77 Federal Register 58755-58761, Sept. 24, 2012 (effective Oct. 24, 2012)
Increased size standards for 28 industries
|
Arts, Entertainment, and Recreation (NAICS Sector 71)
77 Federal Register 8024, Feb. 13, 2012
77 Federal Register 42211-42225, July 18, 2012
Would increase size standards for 17 industries
|
78 Federal Register 37417-37422, June 20, 2013 (effective July 22, 2013)
Increased size standards for 17 industries
|
Construction (NAICS Sector 23)
|
77 Federal Register 8024, Feb. 13, 2012
77 Federal Register 42197-42211, July 18, 2012
Would increase size standards for 1 industry and 1 sub-industry
|
78 Federal Register 77334-77343, Dec. 23, 2013 (effective Jan. 22, 2014)
Increased size standards for 1 industry and 1 sub-industry
|
Utilities (NAICS Sector 22)
76 Federal Register 40140-40142, July 7, 2011
77 Federal Register 42441-42454, July 19, 2012
Would increase size standards for 3 industries and convert 6 industries from no more than 4 million megawatt hours in electric output in the preceding fiscal year to no more than 500 employees
|
78 Federal Register 77343-77351, Dec. 23, 2013 (effective Jan. 22, 2014)
Increased size standards for 3 industries and converted 10 industries from no more than 4 million megawatt hours in electric output in the preceding fiscal year to number of employees (varying by industry)
|
Finance and Insurance (NAICS Sector 52)
NA
|
77 Federal Register 55737-55755,Sept. 11, 2012
Would increase size standards for 37 industries and change the measure of size from total assets to annual receipts for 1 industry
|
78 Federal Register 37409-37417, June 20, 2013 (effective July 22, 2013)
Increased size standards for 36 industries, and changed the measure of size from total assets to annual receipts for 1 industry
|
Management of Companies (NAICS Sector 55)
|
NA
|
77 Federal Register 55737-55755, Sept. 11, 2012
Would increase size standards for 2 industries
|
78 Federal Register 37409-37417, June 20, 2013 (effective July 22, 2013)
Increased size standards for 2 industries
|
Agriculture, Forestry, Fishing and Hunting (NAICS Sector 11)
|
NA
|
77 Federal Register 55755-55768, Sept. 11, 2012
Would increase size standards for 11 industries
|
78 Federal Register 37398-37404, June 20, 2013 (effective July 22, 2013)
Increased size standards for 11 industries
|
Support Activities for Mining (within NAICS Sector 21)
NA
|
77 Federal Register 72766, Dec. 6, 2012
Would increase size standards for 3 industries
|
78 Federal Register 37404-37408, June 20, 2013 (effective July 22, 2013)
Increased size standards for 3 industries
|
Mining, Quarrying, and Oil and Gas Extraction (NAICS Sector 21)
|
78 Federal Register 1639, Jan. 8, 2013
|
cites 77 Federal Register 72766, Dec. 6, 2012
Expected in 2016
|
Expected in 2016
|
Expected in 2016
|
|
Wholesale Trade (NAICS Sector 42)
and
Retail Trade (two industries with employee based size standards within NAICS Sector 44-45)
|
78 Federal Register 1639, Jan. 8, 2013
|
79 Federal Register 28631-28647, May 19, 2014
|
Would increase size standards for 46 industries in NAICS Sector 42, and 1 industry in NAICS Sector 44-45
|
81 Federal Register 3941-3949, Jan. 25, 2016 (effective Feb. 26, 2016)
|
Increased size standards for 46 industries in NAICS Sector 42, and 1 industry in NAICS Sector 44-45
|
|
Manufacturing (NAICS Sector 31-33)
|
78 Federal Register 1639, Jan. 8, 2013
|
79 Federal Register 54146-54177, Sept. 10, 2014
|
Would increase size standards for 209 industries in NAICS Sector 31-33
Would also increase the refining capacity component for Petroleum Refiners from no more than 125,000 barrels per calendar day to no more than 200,000 barrels per calendar day
|
81 Federal Register 4469-4492, Jan. 26, 2016 (effective Feb. 26, 2016)
|
Increased size standards for 209 industries in NAICS Sector 31-33, and increased the refining capacity component for Petroleum Refiners from no more than 125,000 barrels per calendar day to no more than 200,000 barrels per calendar day
|
|
Industries with Employee Based Size Standards not Part of Manufacturing, Wholesale Trade, or Retail Trade (primarily within NAICS Sectors 51 and 54)
|
78 Federal Register 1639, Jan. 8, 2013
|
79 Federal Register 53646-53666, Sept. 10, 2014
|
Would increase size standards for 30 industries and 3 sub-industries, eliminate 2 sub-industry exceptions, and decrease size standards for 3 industries "to exclude dominant firms"
|
81 Federal Register 4436-4469, Jan. 26, 2016 (effective Feb. 26, 2016)
|
Increased size standards for 30 industries and 3 sub-industries, eliminated 2 sub-industry exceptions, and decreased size standards for 3 industries to exclude dominant firms
|
Source: Federal Register as cited in the table.
a.
Also increased one size standard (Computer and Office Machine Repair and Maintenance) in NAICS Sector 81, Other Services, which was not reviewed during the SBA's review of that sector in 2010.
SBA's Definitions for Small Business
The SBA, relying on statutory language, defines a small business as a concern that is organized for profit; has a place of business in the United States; operates primarily within the United States or makes a significant contribution to the economy through payment of taxes or use of American products, materials, or labor; is independently owned and operated; and is not dominant in its field on a national basis. The business may be a sole proprietorship, partnership, corporation, or any other legal form.129
The SBA uses two measures to determine if a business is small: industry specific size standards or a combination of the business's net worth and net income. For example, the SBA's Small Business Investment Company (SBIC) program allows businesses to qualify as small if they meet the SBA's size standard for the industry in which the applicant is primarily engaged, or an alternative net worth and net income based size standard which has been established for the SBIC program. The SBIC's alternative size standard is currently set as a maximum net worth of not more than $19.5 million and average after-tax net income for the preceding two years of not more than $6.5 million.130 All of the company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard. The SBA decided to apply the net worth and net income measures to the SBIC program "because investment companies evaluate businesses using these measures to decide whether or not to make an investment in them."131
Businesses participating in the SBA's 504/Certified Development Company (504/CDC) loan guaranty program are to be deemed small if they did not have a tangible net worth in excess of $8.5 million and did not have an average net income in excess of $3 million after taxes for the preceding two years.132 As discussed below, P.L. 111-240 increased these threshold amounts on an interim basis to not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes for the two full fiscal years before the date of the application. All of the company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard. Also, before May 5, 2009, businesses participating in the SBA's 7(a) loan guaranty program, including its express programs, were deemed small if they met the SBA's size standards for firms in the industries described in NAICS.133
Alternative Size Standards
Using authority provided under P.L. 111-5, the American Recovery and Reinvestment Act of
2009, the SBA temporarily applied the 504/CDC program
’'s size standards as an alternative for
7(a) loans approved from May 5, 2009, through September 30, 2010.
134134 Firms applying for a 7(a)
loan during that time period qualified as small using either the SBA
’'s industry size standards or
the 504/CDC program
’'s size standard. The provision
’'s intent was to enhance the ability of small
businesses to access the capital necessary to create and retain jobs during the economic recovery.
P.L. 111-240 made the use of alternative size standards for the 7(a) program permanent. The act
directs the SBA to establish an alternative size standard for both the 7(a) and 504/CDC programs
that uses maximum tangible net worth and average net income as an alternative to the use of
industry standards. The act also establishes, until the date on which the alternative size standard is
established, an interim alternative size standard for the 7(a) and 504/CDC programs of not more
than $15 million in tangible net worth and not more than $5 million in average net income after
federal taxes (excluding any carry-over losses) for the two full fiscal years before the date of the
application.135
132
SBA, “SOP 50 10 5(C): Lender and Development Company Loan Programs,” (effective October 1, 2010), p. 266, at
http://www.sba.gov/sites/default/files/serv_sops_50105c_loan_0.pdf; and SBA, “SOP 50 10 5(E): Lender and
Development Company Loan Programs,” (effective June 1, 2012), p. 92, at http://www.sba.gov/sites/default/files/
SOP%2050%2010%205(E)%20(6-27-2013)%20change%20of%20ownership%20eff%20date%207-1-13%20clean.pdf.
133
13 C.F.R. §121.201.
134
SBA, “Small Business Size Standards; Temporary Alternative Size Standards for 7(a) Business Loan Program,” 74
Federal Register 20577, May 5, 2009.
135
P.L. 111-240, the Small Business Act of 2010, §1116. Alternative Size Standards. S. 3103, the Small Business Job
Creation Act of 2010, introduced by then-Senator Olympia Snowe on March 10, 2010, and referred to the Senate
Committee on Finance, and S. 2869, the Small Business Job Creation and Access to Capital Act of 2009, introduced by
Senator Mary Landrieu on December 10, 2009, and reported favorably by the Senate Committee on Small Business and
Entrepreneurship, would have authorized the SBA to establish an alternative size standard for the SBA’s 7(a) and
504/CDC loan programs. Both bills would have used maximum tangible net worth of not more than $15 million and
average net income after federal taxes of not more than $5 million for the two full fiscal years before the date of the
application as an alternative to the use of the SBA’s industry size standards. Senator Snowe stated on the Senate floor,
on December 10, 2009, that the proposed alternative size standard in S. 2869 would “help more small businesses meet
the SBA’s requirements to access SBA-backed loans.” Senator Olympia Snowe, “Statements on Introduced Bills and
Joint Resolutions,” remarks in the Senate, Congressional Record, daily edition, vol. 155, no. 185 (December 10, 2009),
p. S12913.
Congressional Research Service
30
Small Business Size Standards: A Historical Analysis of Contemporary Issues
Industry Size Standards
federal taxes (excluding any carry-over losses) for the two full fiscal years before the date of the application.135
Industry Size Standards
The SBA administrator has the authority to establish and modify size standards for particular
industries. Overall, the SBA currently classifies about 97% of all employer firms as small.
136
136 These firms account for about 30% of industry receipts.
The SBA generally
“"prefers to use average annual receipts as a size measure because it measures
the value of output of a business and can be easily verified by business tax returns and financial
records.
”137"137 However, historically, the SBA has used the number of employees to determine if
manufacturing and mining companies are small. As a starting point, the SBA
presumes $7.0 million as an appropriate size standard for the services, retail trade,
construction, and other industries with receipts based size standards; 500 employees for the
manufacturing, mining and other industries with employee based size standards; and 100
employees for the wholesale trade industries. These three levels, referred to as
“"anchor size
standards,
”" are not minimum size standards, but rather benchmarks or starting points. To the
extent an industry displays
“"differing industry characteristics,
”" a size standard higher, or in
some cases lower, than an anchor size standard is supportable.
138
138
Before a proposed change to the size standards can take effect, the SBA
’'s Office of Size
Standards (OSS) undertakes an analysis of the change
’'s likely impact on the affected industry,
focusing on the industry
’'s overall degree of competition and the competitiveness of the firms
within the industry. The analysis includes an assessment of the following five industry factors:
average firm size, degree of competition within the industry, start-up costs and entry barriers,
distribution of firms by size, and small business share in federal contracts.
139139 The SBA also
considers several other secondary factors
“"as they are relevant to the industries and the interests
of small businesses, including technological change, competition among industries, industry
growth trends, and impacts on SBA programs.
”140
"140
Any changes to size standards must follow the rulemaking procedures of the Administrative
Procedure Act. A proposed rule changing a size standard is first published in the Federal Register
,
, allowing for public comment. It must include documentation establishing that a significant
problem exists that requires a revision of the size standard, plus an economic analysis of the
change. Comments from the public, plus any other new information, are reviewed and evaluated
before a final rule is promulgated establishing a new size standard.
136
SBA, “SBA’s Size Standards Analysis: An Overview on Methodology and Comprehensive Size Standards Review,”
power point presentation, Khem R. Sharma, SBA Office of Size Standards, July 13, 2011, p. 4, at
http://www.actgov.org/sigcom/SIGs/SIGs/SBSIG/Documents/2011%20-%20Documents%20and%20Presentations/
Size%20Stds%20Presentation_SIG%20Meeting.pdf.
137
SBA, Office of Government Contracting and Business Development, “SBA Size Standards Methodology,” April
2009, p. 8, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
138
Ibid., p. 1. SBA established 500 employees as the anchor size standard for the manufacturing industries at SBA’s
inception in 1953, and shortly thereafter established a receipts based anchor size standard of $1 million in average
annual receipts for the nonmanufacturing industries. The receipts based anchor size standard has been adjusted
periodically for inflation.
139
13 C.F.R. §121.102.
140
SBA, Office of Government Contracting and Business Development, “SBA Size Standards Methodology,” April
2009, p. 1, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
Congressional Research Service
31
Small Business Size Standards: A Historical Analysis of Contemporary Issues
The SBA currently uses employment size to determine eligibility for 509 industries, including all
364 manufacturing industries, 25 of 29 mining industries, and all 71 wholesale trade industries.
Most manufacturing industries (247 of 364 classifications, or 67.9%) have an upper limit of 500
employees; some have an upper limit of 750 employees (53 of 364 classifications, or 14.6%);
some have an upper limit of 1,000 employees (61 of 364 classifications, or 16.8%); and 3
(ammunition, except small arms, manufacturers, petroleum refineries, and aircraft manufacturers)
have an upper limit of 1,500 employees.141 All 25 of the mining industries that use employment to
determine eligibility have an upper limit of 500 employees. All 71 of the wholesale trades
industries have an upper limit of 100 employees.142
The SBA currently has nine employee based industry size standards in effect (50 or fewer, 100 or
fewer, 150 or fewer, 200 or fewer, 250 or fewer, 500 or fewer, 750 or fewer, 1,000 or fewer, and
1,500 or fewer employees). As mentioned earlier, the SBA has proposed adding a 1,250 or fewer
employee based size standard and eliminating the 150 or fewer employee based size standard.143
The SBA uses average annual receipts over the three most recently completed fiscal years to
determine program eligibility for most other industries (533 of 1,047 industries, or 50.9%).144 The
SBA also uses average asset size as reported in the firm’s four quarterly financial statements for
the preceding year to determine eligibility for five finance industries, and a combination of
number of employees and barrel per day refining capacity for petroleum refineries.145
The SBA currently has 17 receipt based industry size standards in effect.146 In some instances,
there is considerable variation in the size standards used within each industrial sector. For
example, the SBA uses 10 different size standards to determine eligibility for 69 industries in the
retail trade sector.147 In general,
•
most administrative and support service industries have an upper limit of either
$15.0 million or $20.5 million in average annual sales or receipts;
141
SBA, “Table of Small Business Size Standards,” July 14, 2014, at http://www.sba.gov/content/table-small-businesssize-standards.
142
Ibid. Since 1986, all industries in the Wholesale Trade Sector have had the 100-employee size standard. For
procurement purposes, the SBA’s size standard is 500 or fewer employees for all industries in both the Retail Trade and
Wholesale Trade Sectors.
143
The 509 count of employee based size standards includes the use of a combination of number of employees and
barrel per day refining capacity for petroleum refineries. Also, see SBA, “Small Business Size Standards: Industries
With Employee Based Size Standards Not Part of Manufacturing, Wholesale Trade, or Retail Trade,” 79 Federal
Register 53647, September 10, 2014; and SBA, “Small Business Size Standards for Manufacturing,” 79 Federal
Register 54150, September 10, 2014.
144
The annual receipts of a concern which has been in business for less than three complete fiscal years is determined
by dividing the total receipts for the period the concern has been in business by the number of weeks in business,
multiplied by 52. See 13 C.F.R. §121.104.
145
SBA, “Table of Small Business Size Standards,” July 14, 2014, at http://www.sba.gov/content/table-small-businesssize-standards.
146
The 17 receipts based size standards currently in effect are: $0.75 million or less, $5.5 million or less, $7.5 million
or less, $11.0 million or less, $15.0 million or less, $18.0 million or less, $19.0 million or less, $20.5 million or less,
$25.0 million or less, $27.5 million or less, $29.5 million or less, $30.5 million or less, $32.0 million or less, $32.5
million or less, $36.5 million or less, $37.5 million or less, and $38.5 million or less.
147
Ibid.
Congressional Research Service
32
Small Business Size Standards: A Historical Analysis of Contemporary Issues
•
most agricultural industries have an upper limit of $0.75 million in average
annual sales or receipts;148
•
most construction of buildings and civil engineering construction industries have
an upper limit of $36.5 million in average annual sales or receipts, and most
construction specialty trade contractors have an upper limit of $15.0 million in
average annual sales or receipts;
•
most educational services industries have an upper limit of either $7.5 million or
$11 million in average annual sales or receipts;
•
most health care industries have an upper limit of either $7.5 million or $15.0
million in average annual sales or receipts;
•
most social assistance industries have an upper limit of $11.0 million in average
annual sales or receipts;
•
most professional, scientific, and technical service industries have an upper limit
of $15.0 million in average annual sales or receipts, but range from $7.5 million
to $38.5 million;
•
there is considerable variation within the transportation and warehousing
industrial sector (e.g., all 11 transit and ground passenger transportation
industries have an upper limit of $15.0 million in average annual sales or
receipts, the 6 truck transportation and 4 transportation warehousing and storage
industries have an upper limit of $27.5 million in average annual sales or
receipts, 7 transportation industries have an upper limit of 500 employees, 8
transportation industries have an upper limit of 1,500 employees, and the
remaining industries in this sector have an upper limit ranging from $7.5 million
to $38.5 million in average annual sales or receipts); and
•
most finance and insurance industries have an upper limit of $38.5 million in
average annual sales or receipts.
The SBA also applies a $550 million average asset limit (as reported in the firm’s four quarterly
financial statements for the preceding year) to determine eligibility in five finance industries:
commercial banks, saving institutions, credit unions, other depository credit intermediation, and
credit card issuing.149
As mentioned previously, the SBA is currently using eight receipt based size standards when
establishing new or reviewing existing size standards. The SBA has argued that reducing the
number of receipt based size standards will simplify the management and use of size standards
and provide “greater consistency in size standards among industries that are similar in their
economic characteristics.”150
148
P.L. 99-272, the Consolidated Omnibus Budget Reconciliation Act of 1985 (Title XVIII, Section 18016) inserted a
requirement that notwithstanding any other provision of law, an agricultural enterprise shall be deemed to be a small
business concern if it, including its affiliates, has annual receipts not in excess of $500,000. P.L. 106-554, the
Consolidated Appropriations Act, 2001 (Title VIII, Section 806(b)), substituted “$750,000” for “$500,000.”
149
SBA, “Table of Small Business Size Standards,” July 14, 2014, at http://www.sba.gov/content/table-small-businesssize-standards.
150
SBA, Office of Government Contracting and Business Development, “SBA Size Standards Methodology,” April
2009, p. 22, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
Congressional Research Service
33
Small Business Size Standards: A Historical Analysis of Contemporary Issues
The SBA’s decision to reduce the number of receipt based size standards and to use a common
size standard for closely related industries when establishing or approving industry size standards
raised the possibility of establishing or approving a size standard that may not be directly
supported by its economic assessment of that industrial classification. For example, in the final
rule issued for Professional, Technical, and Scientific Services (Sector 54), on February 10, 2012,
the SBA argued that “it should continue to maintain similar or comparable size standards among
the surveying and mapping industries and the architectural and engineering service industries.”151
As a result,
although the industry data point to a size standard higher than $14 million for NAICS
541360 and lower than $14 million for NAICS 541370, SBA believes a common size
standard of $14 million is more appropriate than establishing two very different size
standards for the two very similar types of industries, because (1) it represents a significant
increase to the current size standard, as the commenters desired and (2) it maintains the
historical common size standard between mapping and surveying services and architecture
and engineering services.152
H.R. 3987, the Small Business Protection Act of 2012, introduced on February 8, 2012, and
ordered to be reported by the House Committee on Small Business on March 21, 2012, addressed
the SBA’s practice of combining size standards within industrial groups to promote greater
consistency for industries that have similar economic characteristics.
The bill would have authorized the SBA’s Administrator to “establish or approve a single size
standard for a grouping of four digit North American Industrial Classification codes only if the
Administrator makes publicly available, not later than the date on which such size standard is
established or approved, a justification demonstrating that such size standard is appropriate for
each individual industry classification included in the grouping.”153 The bill would have required
the SBA’s Administrator
to provide a detailed description of the industry for which the new size standard is proposed;
an analysis of the competitive environment for that industry; the approach the Administrator
used to develop the proposed standard including the source of all data used to develop the
proposed rulemaking; and the anticipated effect of the proposed rulemaking on the industry,
including the number of concerns not currently considered small that would be considered
small under the proposed rulemaking and the number of concerns currently considered small
that would be deemed other than small under the proposed rulemaking.154
P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, which became law
on January 2, 2013, included these provisions. The Senate’s version of the bill did not include
before a final rule is promulgated establishing a new size standard.
The SBA currently uses employment size to determine eligibility for 509 industries, including all 364 manufacturing industries, 25 of 29 mining industries, and all 71 wholesale trade industries. As of February 26, 2016, 99 manufacturing industries will have an upper limit of 500 employees (27.2%); 91 will have an upper limit of 750 employees (25.0%); 90 will have an upper limit of 1,000 employees (24.7%); 58 will have an upper limit of 1,250 employees (15.9%), and 26 will have an upper limit of 1,500 employees (7.2%).141 Also, as of February 26, 2016, 25 of the 71 wholesale trades industries will have an upper limit of 100 employees (35.2%), 16 will have an upper limit of 150 employees (22.5%), 22 will have an upper limit of 200 employees (31%), and 8 will have an upper limit of 250 employees (11.3%).142 In addition, all 25 of the mining industries that use employment to determine eligibility have an upper limit of 500 employees.
The SBA currently has nine employee based industry size standards in effect (50 or fewer, 100 or fewer, 150 or fewer, 200 or fewer, 250 or fewer, 500 or fewer, 750 or fewer, 1,000 or fewer, and 1,500 or fewer employees). As mentioned earlier, effective February 26, 2016, the SBA will also use a 1,250 or fewer employee based size standard.
The SBA uses average annual receipts over the three most recently completed fiscal years to determine program eligibility for most other industries (533 of 1,047 industries, or 50.9%).143 The SBA also uses average asset size as reported in the firm's four quarterly financial statements for the preceding year to determine eligibility for five finance industries, and a combination of number of employees and barrel per day refining capacity for petroleum refineries.144
The SBA currently has 17 receipt based industry size standards in effect.145 In some instances, there is considerable variation in the size standards used within each industrial sector. For example, the SBA uses 10 different size standards to determine eligibility for 69 industries in the retail trade sector.146 In general,
- most administrative and support service industries have an upper limit of either $15.0 million or $20.5 million in average annual sales or receipts;
- most agricultural industries have an upper limit of $0.75 million in average annual sales or receipts;147
- most construction of buildings and civil engineering construction industries have an upper limit of $36.5 million in average annual sales or receipts, and most construction specialty trade contractors have an upper limit of $15.0 million in average annual sales or receipts;
- most educational services industries have an upper limit of either $7.5 million or $11 million in average annual sales or receipts;
- most health care industries have an upper limit of either $7.5 million or $15.0 million in average annual sales or receipts;
- most social assistance industries have an upper limit of $11.0 million in average annual sales or receipts;
- most professional, scientific, and technical service industries have an upper limit of $15.0 million in average annual sales or receipts, but range from $7.5 million to $38.5 million;
- there is considerable variation within the transportation and warehousing industrial sector (e.g., all 11 transit and ground passenger transportation industries have an upper limit of $15.0 million in average annual sales or receipts, the 6 truck transportation and 4 transportation warehousing and storage industries have an upper limit of $27.5 million in average annual sales or receipts, 7 transportation industries have an upper limit of 500 employees, 8 transportation industries have an upper limit of 1,500 employees, and the remaining industries in this sector have an upper limit ranging from $7.5 million to $38.5 million in average annual sales or receipts); and
- most finance and insurance industries have an upper limit of $38.5 million in average annual sales or receipts.
The SBA also applies a $550 million average asset limit (as reported in the firm's four quarterly financial statements for the preceding year) to determine eligibility in five finance industries: commercial banks, saving institutions, credit unions, other depository credit intermediation, and credit card issuing.148
As mentioned previously, the SBA is currently using eight receipt based size standards when establishing new or reviewing existing size standards. The SBA has argued that reducing the number of receipt based size standards will simplify the management and use of size standards and provide "greater consistency in size standards among industries that are similar in their economic characteristics."149
The SBA's decision to reduce the number of receipt based size standards and to use a common size standard for closely related industries when establishing or approving industry size standards raised the possibility of establishing or approving a size standard that may not be directly supported by its economic assessment of that industrial classification. For example, in the final rule issued for Professional, Technical, and Scientific Services (Sector 54), on February 10, 2012, the SBA argued that "it should continue to maintain similar or comparable size standards among the surveying and mapping industries and the architectural and engineering service industries."150 As a result,
although the industry data point to a size standard higher than $14 million for NAICS 541360 and lower than $14 million for NAICS 541370, SBA believes a common size standard of $14 million is more appropriate than establishing two very different size standards for the two very similar types of industries, because (1) it represents a significant increase to the current size standard, as the commenters desired and (2) it maintains the historical common size standard between mapping and surveying services and architecture and engineering services.151
H.R. 3987, the Small Business Protection Act of 2012, introduced on February 8, 2012, and ordered to be reported by the House Committee on Small Business on March 21, 2012, addressed the SBA's practice of combining size standards within industrial groups to promote greater consistency for industries that have similar economic characteristics.
The bill would have authorized the SBA's Administrator to "establish or approve a single size standard for a grouping of four digit North American Industrial Classification codes only if the Administrator makes publicly available, not later than the date on which such size standard is established or approved, a justification demonstrating that such size standard is appropriate for each individual industry classification included in the grouping."152 The bill would have required the SBA's Administrator
to provide a detailed description of the industry for which the new size standard is proposed; an analysis of the competitive environment for that industry; the approach the Administrator used to develop the proposed standard including the source of all data used to develop the proposed rulemaking; and the anticipated effect of the proposed rulemaking on the industry, including the number of concerns not currently considered small that would be considered small under the proposed rulemaking and the number of concerns currently considered small that would be deemed other than small under the proposed rulemaking.153
P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, which became law on January 2, 2013, included these provisions. The Senate's version of the bill did not include these provisions, but the conference report accompanying the bill (H.R. 4310), which was agreed
to by the House on December 20, 2012, and by the Senate on December 21, 2012, included them.
151
SBA, “Small Business Size Standards: Professional, Technical, and Scientific Services,” 77 Federal Register 7498,
February 10, 2012.
152
Ibid.
153
H.R. 3987, the Small Business Protection Act of 2012, Section 2, Small Business Concern Size Standards.
154
Ibid.
Congressional Research Service
34
Small Business Size Standards: A Historical Analysis of Contemporary Issues
Other Federal Agency Size Standards
Many federal statutes provide special considerations for small businesses. For example, small
businesses are provided preferences through set-asides and sole source awards in federal
contracting and pay lower fees to apply for patents and trademarks.
155154 In most instances,
businesses are required to meet the SBA
’'s size standards to be considered a small business.
However, in some cases, the underlying statute defines the eligibility criteria for defining a small
business. In other cases, the statute authorizes the implementing agency to make those
determinations.
Under current law, a federal agency that decides that it would like to exercise its authority to
establish its own size standard through the federal rulemaking process is required to, among other
things, (1) undertake an initial regulatory flexibility analysis to determine the potential impact of
the proposed rule on small businesses, (2) transmit a copy of the initial regulatory flexibility
analysis to the SBA
’'s Chief Counsel for Advocacy for comment, and (3) publish the agency
’s
's response to any comments filed by the SBA
’'s Chief Counsel for Advocacy in response to the
proposed rule and a detailed statement of any change made to the proposed rule in the final rule
as a result of those comments.
156155 In addition, the federal agency must provide public notice of the
proposed rule and an opportunity for the public to comment on the proposed rule, typically
through the publication of an advanced notice of proposed rulemaking in the Federal Register
and notification of interested small businesses and related organizations.
157156 Also, prior to issuing
the final rule, the federal agency must have the approval of the SBA
’'s Administrator.
158157 Under
current practice, the SBA
’'s Administrator, through the SBA
’'s Office of Size Standards, consults
with the SBA
’'s Office of Advocacy prior to making a final decision concerning such requests.
159
158 The Office of Advocacy is an independent office within the SBA.
During the 112th Congress, H.R. 585, the Small Business Size Standard Flexibility Act of 2011,
was reported by the House Committee on Small Business on November 16, 2011, by a vote of 13
155
The federal government has a goal of awarding at least 23% of all small business eligible federal government
procurement contracts to small businesses, including 5% for small disadvantaged businesses, 5% for women-owned
small businesses, 3% for small businesses owned by service-disabled veterans, and 3% for small businesses located in a
HUBZone. See U.S. General Services Administration, Federal Procurement Data System – Next Generation, “Small
Business Goaling Reports,” at https://www.fpds.gov/fpdsng_cms/index.php/en/reports. For further information and
analysis concerning federal contracting preferences for small businesses see CRS Report R41268, Small Business
Administration HUBZone Program, by Robert Jay Dilger.
156
5 U.S.C. 601; 5 U.S.C. 603; and 5 U.S.C. 604. The SBA last published a list of size standards set by agencies other
than the SBA in 1995. See SBA, “Small Business Size Standards,” 60 Federal Register 57988-57991, November 24,
1995.
157
15 U.S.C. 632.
158
Ibid. The SBA reports “that there have been approximately 25 requests by other agencies under the authority of
amended §3 of the Small Business Act since the date of amendment in 1992.” See U.S. Congress, House Committee on
Small Business, Small Business Size Standard Flexibility Act of 2011, report to accompany H.R. 585, 112th Cong., 2nd
sess., November 16, 2011, H.Rept. 112-288 (Washington: GPO, 2011), p. 7.
159
Rep. Sam Graves, “Full Committee Hearing, Lifting the Weight of Regulations: Growing Jobs By Reducing
Regulatory Burdens (III. H.R. 585—Small Business Size Standard Flexibility Act of 2011),” letter to House Committee
on Small Business, June 8, 2011, p. 44, at http://smbiz.house.gov/UploadedFiles/6-15_Memo.pdf; U.S. Congressional
Budget Office, “Congressional Budget Office Cost Estimate: H.R. 585—Small Business Size Standard Flexibility Act
of 2011,” p. 2, at http://www.cbo.gov/ftpdocs/124xx/doc12449/hr585.pdf; and U.S. Congress, House Committee on
Small Business, Small Business Size Standard Flexibility Act of 2011, report to accompany H.R. 585, 112th Cong., 2nd
sess., November 16, 2011, H.Rept. 112-288 (Washington: GPO, 2011), pp. 6-8. Also, see 13 C.F.R §121.901-903.
Congressional Research Service
35
Small Business Size Standards: A Historical Analysis of Contemporary Issues
was reported by the House Committee on Small Business on November 16, 2011, by a vote of 13 to 8. The bill would have retained the SBA
’'s Administrator
’'s authority to approve or disapprove
size standards for programs under the Small Business Act of 1953 (as amended) and the Small
Business Investment Act of 1958 (as amended). The Office of Chief Counsel for Advocacy would
have assumed the SBA Administrator
’'s authority to approve or disapprove size standards for
purposes of any other act.
160
During the 113th159
During the 113th Congress, legislative language providing the Office of Chief Counsel for
Advocacy authority to approve or disapprove size standards for purposes other than the Small
Business Act of 1953 (as amended) and the Small Business Investment Act of 1958 (as amended)
was included in H.R. 4, the Jobs for America Act, a comprehensive jobs bill that was introduced
and referred to several committees, including the Committee on Small Business, on September
15, 2014. The bill was passed by the House on September 18, 2014, by a vote of 227-193 (see
H.Res. 727
).
).
During the 114th Congress, H.R. 527, the Small Business Regulatory Flexibility Improvements
Act of 2015, would, among other provisions, authorize the SBA
’'s Office of Chief Counsel for
Advocacy to approve or disapprove a size standard requested by a federal agency for purposes
other than the Small Business Act or the Small Business Investment Act of 1958. The bill was
reported by the House Committee on the Judiciary on January 27, 2015, by a vote of 19-8.
Advocates of splitting the SBA Administrator
’'s small business size standards
’' authority between
the Office of Chief Counsel for Advocacy and the SBA
’'s Administrator have argued that
Should an agency wish to draft a regulation that adopts a size standard different from the one
already adopted by the Administrator in regulations implementing the Small Business Act,
the agency must obtain approval of the Administrator. However, that requires the
Administrator to have a complete understanding of the regulatory regime of that other act—
knowledge usually outside the expertise of the SBA. However, the Office of the Chief
Counsel for Advocacy, an independent office within the SBA, represents the interests of
small businesses in rulemaking proceedings (as part of its responsibility to monitor agency
compliance with the Regulatory Flexibility Act, 5 U.S.C. 601-12, (RFA)) does have such
expertise. Therefore, it is logical to transfer the limited function on determining size
standards of small businesses for purposes other than the Small Business Act and Small
Business Investment Act of 1958 to the Office of the Chief Counsel for Advocacy….
the Administrator is not the proper official to determine size standards for purposes of other
agencies’ agencies' regulatory activities. The Administrator is not fluent with the vast array of federal
regulatory programs, is not in constant communication with small entities that might be
affected by another federal agency
’'s regulatory regime, and does not have the analytical
expertise to assess the regulatory impact of a particular size standard on small entities.
Furthermore, the Administrator
’'s standards are: very inclusive, not developed to comport
with other agencies
’' regulatory regimes, and lack sufficient granularity to examine the
impact of a proposed rule on a spectrum of small businesses.161
160
U.S. Congressional Budget Office, “Congressional Budget Office Cost Estimate: H.R. 585—Small Business Size
Standard Flexibility Act of 2011,” p. 2, at http://www.cbo.gov/ftpdocs/124xx/doc12449/hr585.pdf; and H.Rept. 112288, the Business Size Standard Flexibility Act of 2011. CBO has estimated that the Office of Advocacy would
ultimately need 10 additional staff positions to implement its new authority; and that the bill would cost $6 million over
the 2012-2016 period.
161
U.S. Congress, House Committee on Small Business, Small Business Size Standard Flexibility Act of 2011, report to
accompany H.R. 585, 112th Cong., 2nd sess., November 16, 2011, H.Rept. 112-288 (Washington: GPO, 2011), p. 6.
Congressional Research Service
36
Small Business Size Standards: A Historical Analysis of Contemporary Issues
impact of a proposed rule on a spectrum of small businesses.160
Opponents have argued that
When an agency is seeking to use a size standard other than those approved by the SBA, the
agency may consult with the Office of Advocacy. Such consultation is sensible, as the Office
of Advocacy has significant knowledge of the regulatory environment outside of the canon
of SBA law. However, the SBA
’'s Office of Size Standards, with its historical involvement,
expertise, and staff resources in this area, remains the appropriate entity to approve such size
standards….
While the legislation permits the SBA to continue to approve size standards for its enabling
statutes, it removes SBA
’'s authority to do so for other statutes. The result would be to create
a duplicate size standard authority in both the SBA and the Office of Advocacy. Both the
SBA and the Office of Advocacy would have personnel who would analyze and evaluate
size standards. Through the bifurcation of these responsibilities, taxpayers would effectively
be forgoing the economies of scale that are currently enjoyed by the operation of a single
Office of Size Standards in the SBA….
Having two such entities that have the same mission is not a transfer of function, but an
inefficient and duplicative reorganization.… Instead of having one central office, there will
now be two—further muddling small businesses
’' relationship with the federal
government.
162
Congressional Policy Options
161
Other Recent Legislation
As mentioned earlier, legislation has been introduced during the 114th Congress (H.R. 4341, the Defending America's Small Contractors Act of 2016) that would authorize the SBA to establish size standards for agricultural enterprises not later than 18 months after the date of enactment (currently set in statute as having annual receipts not in excess of $750,000)162 and, when establishing size standards, limit an industry category to a greater extent than provided under the North American Industry Classification codes for small business procurement purposes if further segmentation of the industry category is warranted.163
Congressional Policy Options
Historically, the SBA has relied on economic analysis of market conditions within each industry
to define eligibility for small business assistance. On several occasions in its history, the SBA
attempted to revise its small business size standards in a comprehensive manner. However,
because (1) the Small Business Act provides leeway in how the SBA is to define small business;
(2) there is no consensus on the economic factors that should be used in defining small business;
(3) federal agencies have generally opposed size standards that might adversely affect their pool
of available small business contractors; and (4) the SBA
’'s initial size standards provided program
eligibility to nearly all businesses, the SBA
’'s efforts to undertake a comprehensive reassessment
of its size standards met with resistance. Firms that might lose eligibility objected. Federal
agencies also objected. As a result, in each instance, the SBA
’'s comprehensive revisions were not
fully implemented.
It remains to be seen how the requirement to conduct a detailed review of at least one-third of the
SBA’ SBA's industry size standards every 18 months, which was imposed by P.L. 111-240, the Small
Business Jobs Act of 2010, will affect the SBA
’'s current, ongoing review of each NAICS Sector
in a sequential fashion. For example, the SBA may find it necessary to increase the number of
OSS staff to meet the new requirement.
In the meantime, the SBA continues to adjust its receipts based size standards for inflation at least
once every five years, or more frequently if inflationary circumstances warrant, to prevent firms
from losing their small business eligibility solely due to the effects of inflation. The most recent
adjustment for inflation took place on July 14, 2014.
163 Prior to that, the last adjustment for
162
Ibid., p. 14.
SBA, “Small Business Size Standards: Inflation Adjustment to Monetary Size Standards,” 79 Federal Register
33647-33669, June 12, 2014.
163
Congressional Research Service
37
Small Business Size Standards: A Historical Analysis of Contemporary Issues
164 Prior to that, the last adjustment for inflation took place in 2008.
164165 The SBA also continues to review size standards within specific
industries whenever it determines that market conditions within that industry have changed.
Congress has several options related to the SBA
’'s ongoing review of its size standards. For
example, as part of its oversight of the SBA, Congress can wait for the agency to issue its
proposed rule before providing input or establish a dialogue with the agency, either at the staff
level or with Members involved directly, prior to the issuance of its proposed rule. Historically,
Congress has tended to wait for the SBA to issue proposed rules concerning its size standards
before providing input, essentially deferring to the agency
’'s expertise in the technical and
methodological issues involved in determining where to draw the line between small and large
firms. Congress has then tended to respond to the SBA
’'s proposed rules concerning its size
standards after taking into consideration current economic conditions and input received from the
SBA and affected industries.
Waiting for the SBA to issue its proposed rule concerning its size standards before providing
congressional input has both advantages and disadvantages. It provides the advantage of
insulating the proposed rule from charges that it is influenced by political factors. It also has the
advantage of respecting the separation of powers and responsibilities of the executive and
legislative branches. However, it has the disadvantage of heightening the prospects for
miscommunication, false expectations, and wasted effort, as evidenced by past proposed rules
concerning the SBA
’'s size standards that were either rejected outright, or withdrawn, after facing
congressional opposition.
Another policy option that has not received much congressional attention in recent years, but
which Congress may choose to address, is the targeting of the SBA
’'s resources. When the SBA
reviews its size standards, it focuses on the competitive nature of the industry under review, with
the goal of removing eligibility of firms that are considered large, or dominant, in that industry.
There has been relatively little discussion of the costs and benefits of undertaking those reviews
with the goal of targeting SBA resources to small businesses that are struggling to remain
competitive. GAO recommended this approach in 1978 and Roger Rosenberger, then SBA
’s
's associate administrator for policy, planning, and budgeting, testified at a congressional hearing in
1979 that it was debatable whether the SBA should provide any assistance to any of the
businesses within industries where
“"smaller firms are flourishing.
”165
"166
Revising the SBA
’'s size standards using this more targeted approach would likely reduce the
number of firms eligible for assistance. It would also present the possibility of increasing
available benefits to eligible small firms in those industries deemed
“mixed” or “concentrated” by
"mixed" or "concentrated" by the SBA without necessarily increasing overall program costs. Perhaps because previous
proposals that would result in a reduction in the number of firms eligible for assistance have met
with resistance, this alternative approach to determining program eligibility has not received
serious consideration in recent years. Nonetheless, it remains an option available to Congress
should it decide to change current policy.
164
SBA, “Small Business Size Standards: Inflation Adjustment to Size Standards, Business Loan Programs, and
Disaster Assistance Program,” 73 Federal Register 41237-41254, July 18, 2008.
165
U.S. Congress, House Committee on Small Business, Subcommittee on General Oversight and Minority Enterprise,
Author Contact Information
[author name scrubbed], Senior Specialist in American National Government
([email address scrubbed], [phone number scrubbed])
Footnotes
| 1.
|
Senate Democratic Policy Committee, "Senate Democrats Are Committed to America's Small Businesses," Washington, DC: Senate Democratic Policy Committee, May 18, 2009, at http://sbc.senate.gov/DPC_small_biz_doc.pdf; Senate Republican Policy Committee, "Taxing Success: President Obama's Tax Increases on Small Businesses are Bad for Job Creation," Washington, DC: Senate Republican Policy Committee, March 17, 2009, at http://rpc.senate.gov/public/_files/031709TaxingSuccess.pdf; and President Barack Obama, "Remarks by the President to Small Business Owners, Community Lenders and Members of Congress," press release, Office of the Press Secretary, March 16, 2009, at http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-small-business-owners/. For further analysis of the role of small businesses in job creation, see CRS Report R41392, Small Business and the Expiration of the 2001 Tax Rate Reductions: Economic Issues, by [author name scrubbed] and [author name scrubbed].
|
| 2.
|
P.L. 83-163, the Small Business Act of 1953, §202.
|
| 3.
|
U.S. Small Business Administration (SBA), Office of Government Contracting and Business Development, "SBA Size Standards Methodology," April 2009, p. 1, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
|
| 4.
|
SBA, "SBA's Size Standards Analysis: An Overview on Methodology and Comprehensive Size Standards Review," power point presentation, Khem R. Sharma, SBA Office of Size Standards, July 13, 2011, p. 4, at http://www.actgov.org/sigcom/SIGs/SIGs/SBSIG/Documents/2011%20-%20Documents%20and%20Presentations/Size%20Stds%20Presentation_SIG%20Meeting.pdf.
|
| 5.
|
SBA, Office of Government Contracting and Business Development, "SBA Size Standards Methodology," April 2009, p. 22, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
|
| 6.
|
SBA, "Small Business Size Standards for Manufacturing," 79 Federal Register 54150, September 10, 2014; SBA, "Small Business Size Standards for Manufacturing," 80 Federal Register 78044, December 15, 2015; and SBA, "Small Business Size Standards for Manufacturing," 81 Federal Register 4469-4492, January 26, 2016.
|
| 7.
|
On December 20, 2010, the SBA announced that it planned to issue a notice of proposed rulemaking concerning the new alternative size standard in February 2011. It did not do so. On January 8, 2013, the SBA announced that it would issue an interim final rule, to be effective when published, establishing an alternative size standard for the 7(a) and 504/CDC programs by October 2013. See SBA, "Small Business Jobs Act: Small Business Size Standards; Alternative Size Standard for 7(a) and 504 Business Loan Programs," 75 Federal Register 79868, December 20, 2010 and SBA, "Small Business Jobs Act: Small Business Size Standards; Alternative Size Standard for 7(a) and 504 Business Loan Programs," 78 Federal Register 1638, January 8, 2013. The SBA also indicated in its notice of proposed rulemaking on January 8, 2013, that "the amendments will increase the current alternative standard for applicants for 504 loans." On December 15, 2015, the SBA announced that it would issue a notice of proposed rulemaking concerning the new alternative size standard by November 2016. See SBA, "Small Business Size Standards; Alternative Size Standard for 7(a), 504, and Disaster Loan Programs," 80 Federal Register 78045, December 15, 2015.
|
| 8.
|
SBA, "Small Business Size Standards: Professional, Scientific and Technical Services," 76 Federal Register 14327, March 16, 2011.
|
| 9.
|
U.S. Census Bureau, "Statistics of U.S. Businesses: U.S. & States, totals," at http://www.census.gov/econ/susb/index.html; and U.S. Census Bureau, "Nonemployer Statistics," at http://censtats.census.gov/cgi-bin/nonemployer/nonsect.pl.
|
| 10.
|
U.S. Census Bureau, "Nonemployer Statistics: Definitions," at http://www.census.gov/econ/nonemployer/definitions.htm.
|
| 11.
|
U.S. Census Bureau, "Nonemployer Statistics," at http://www.census.gov/econ/nonemployer/index.html. Nonemployer firms account for less than 4% of business annual sales or receipts.
|
| 12.
|
SBA, "Part 103 - Small Business Size Standards," 21 Federal Register 9709-9714, December 7, 1956.
|
| 13.
|
P.L. 111-240, the Small Business Act of 2010, §1344. Updated Size Standards.
|
14.
|
According to one source, the Internal Revenue Code contains at least 24 different definitions of a small business. See Douglas K. Barney, Chris Bjornson, and Steve Wells, "Just How Small Is Your Business?," The National Public Accountant, August 2003, pp. 4-6, at http://findarticles.com/p/articles/mi_m4325/is_2003_August/ai_n25073718/, cited in CRS Report RL32254, Small Business Tax Benefits: Current Law and Main Arguments For and Against Them, by [author name scrubbed].
| 15.
|
U.S. Congress, House Select Committee on Small Business, Review of Small Business: 82nd Congress, final report pursuant to H.Res. 33, A Resolution Creating a Select Committee to Conduct a Study and Investigation of the Problems of Small Business, 82nd Cong., 2nd sess., December 31, 1952 (Washington: GPO, 1952), pp. 5, 13, 14, 78, and 136.
|
| 16.
|
Ibid., p. 3.
|
| 17.
|
Ibid., p. 2.
|
| 18.
|
Ibid.; and U.S. Congress, Conference Committee, Selective Service Act of 1948, conference report no. 2438, 80th Cong., 2nd sess., June 19, 1948 (Washington: GPO, 1948), p. 24.
|
| 19.
|
U.S. Congress, House Select Committee on Small Business, Review of Small Business: 82nd Congress, final report pursuant to H.Res. 33, A Resolution Creating a Select Committee to Conduct a Study and Investigation of the Problems of Small Business, 82nd Cong., 2nd sess., December 31, 1952 (Washington: GPO, 1952), p. 3.
|
| 20.
|
Ibid.
|
| 21.
|
Ibid., p. 4.
|
| 22.
|
U.S. Congress, House Select Committee on Small Business, Subcommittee No. 2, Definition of "Small Business" Within Meaning of the Small Business Act of 1953, as Amended, hearing on H.Res. 114, 84th Cong., 2nd sess., July 5, 1956 (Washington: GPO, 1956), p. 19.
|
| 23.
|
U.S. Congress, House Select Committee on Small Business, Review of Small Business: 82nd Congress, final report pursuant to H. Res. 33, A Resolution Creating a Select Committee to Conduct a Study and Investigation of the Problems of Small Business, 82nd Cong., 2nd sess., December 31, 1952 (Washington: GPO, 1952), p. 4. See Abraham David Hannath Kaplan, Small Business: Its Place and Problems (NY: McGraw-Hill Book Co., 1948), pp. 21, 22.
|
| 24.
|
U.S. Congress, House Select Committee on Small Business, Review of Small Business: 82nd Congress, final report pursuant to H.Res. 33, A Resolution Creating a Select Committee to Conduct a Study and Investigation of the Problems of Small Business, 82nd Cong., 2nd sess., December 31, 1952 (Washington: GPO, 1952), p. 4.
|
| 25.
|
Ibid., p. 5.
|
| 26.
|
15 U.S.C. §632(a)(1).
|
| 27.
|
Initially, the SBA size standards applied only to its own programs. Other federal agencies used the SBA size standards for procurement purposes on a voluntary basis. The Regulatory Flexibility Act of 1980 directed federal agencies to use SBA size standards or establish their own definitions after conferring directly with the SBA's Bureau (now Office) for Advocacy. U.S. Congress, Senate Committee on Small Business, Small Business Administration's Size Standards, hearing, 97th Cong., 1st sess., May 5, 1981 (Washington: GPO, 1981), p. 18. Also, see 5 U.S.C. §601(3).
|
| 28.
|
15 U.S.C. §632(a)(2).
|
| 29.
|
15 U.S.C. §632(a)(3).
|
| 30.
|
U.S. Congress, House Committee on Banking and Currency, Small Business Act of 1953, report to accompany H.R. 5141, 83rd Cong., 1st sess., May 28, 1953, H.Rept. 83-494 (Washington: GPO, 1953), p. 3.
|
| 31.
|
Ibid., p. 4.
|
| 32.
|
U.S. Congress, House Select Committee on Small Business, Subcommittee No. 2, Definition of "Small Business" Within Meaning of the Small Business Act of 1953, as Amended, hearing on H. Res. 114, 84th Cong., 2nd sess., July 5, 1956 (Washington: GPO, 1956), p. 24.
|
| 33.
|
Ibid., p. 39.
|
| 34.
|
SBA, "Small Business Size Standards," 21 Federal Register 79-80, January 5, 1956.
|
| 35.
|
U.S. Congress, House Select Committee on Small Business, Subcommittee No. 2, Definition of "Small Business" Within Meaning of the Small Business Act of 1953, as Amended, hearing on H. Res. 114, 84th Cong., 2nd sess., July 5, 1956 (Washington: GPO, 1956), p. 40.
|
| 36.
|
SBA, "Part 103 - Small Business Size Standards," 21 Federal Register 9709-9714, December 7, 1956.
|
| 37.
|
Ibid., p. 41.
|
| 38.
|
Ibid., p. 3. In the retail sector, department and variety stores, grocery stores with fresh meats, and new and used automobile stores were considered small if they had annual sales volume of $2 million or less. In the service trades sector, hotels and power industry firms were considered small if they had annual receipts of $2 million or less.
|
| 39.
|
Ibid., p. 40.
|
| 40.
|
Ibid., pp. 33, 43.
|
| 41.
|
U.S. Congress, House Committee on Small Business, Subcommittee on General Oversight and Minority Enterprise, Size Standards for Small Business, hearing, 96th Cong., 1st sess., July 10, 1979 (Washington: GPO, 1979), p. 3. GAO reported that adjustments to the size standards had been made to "only 81 of the 534 industries covered by the special standards" from January 1, 1968 through April 25, 1978. The upward inflation adjustments for industries using annual sales or receipts ranged from 10.3% to 92.9% depending on the date when the standards were adopted. See U.S. Small Business Administration, "Small Business Size Standards," 40 Federal Register 24210-24215, June 5, 1975, and U.S. Small Business Administration, "Small Business Size Standards Regulation," 40 Federal Register 32824-32826, August 5, 1975.
|
| 42.
|
U.S. General Accounting Office, What Is A Small Business? The Small Business Administration Needs To Reexamine Its Answer, CED-78-149, August 9, 1978, pp. 1, 2, at http://www.gao.gov/assets/130/123644.pdf.
|
| 43.
|
Ibid., p. 3.
|
| 44.
|
Ibid.
|
| 45.
|
Ibid., p. 20.
|
| 46.
|
U.S. Congress, House Committee on Small Business, Subcommittee on General Oversight and Minority Enterprise, Size Standards for Small Business, hearing, 96th Cong., 1st sess., July 10, 1979 (Washington: GPO, 1979), p. 9.
|
| 47.
|
Ibid., p. 6.
|
| 48.
|
U.S. Congress, Senate Committee on Small Business, Small Business Administration's Size Standards, hearing, 97th Cong., 1st sess., May 5, 1981 (Washington: GPO, 1981), p. 14.
|
49.
|
U.S. Congress, House Committee on Small Business, Subcommittee on General Oversight and Minority Enterprise, Size Standards for Small Business, hearing,
96th96th Cong.,
1st1st sess., July 10, 1979 (Washington: GPO, 1979), p.
28.
Congressional Research Service
38
Small Business Size Standards: A Historical Analysis of Contemporary Issues
Author Contact Information
Robert Jay Dilger
Senior Specialist in American National Government
rdilger@crs.loc.gov, 7-3110
Congressional Research Service
39
17.
| 50.
|
Ibid.
|
| 51.
|
Ibid., p. 28.
|
| 52.
|
Ibid.
|
| 53.
|
U.S. Congress, House Committee on Small Business, Small Business Size Standards, hearing, 96th Cong., 2nd sess., March 13, 1980 (Washington: GPO, 1980), p. III.
|
| 54.
|
Ibid., p. 49.
|
| 55.
|
Ibid., p. 50.
|
| 56.
|
Ibid., p. 48.
|
| 57.
|
Ibid.
|
| 58.
|
Ibid.
|
| 59.
|
U.S. Congress, Senate Committee on Small Business, Small Business Administration's Size Standards, hearing, 97th Cong., 1st sess., May 5, 1981 (Washington: GPO, 1981), p. 19.
|
| 60.
|
U.S. Congress, House Committee on Small Business, Small Business Size Standards, hearing, 96th Cong., 2nd sess., March 13, 1980 (Washington: GPO, 1980), p. 48.
|
| 61.
|
Ibid., p. 49.
|
| 62.
|
Ibid.
|
| 63.
|
Ibid.
|
| 64.
|
U.S. Congress, Senate Committee on Small Business, Small Business Administration's Size Standards, hearing, 97th Cong., 1st sess., May 5, 1981 (Washington: GPO, 1981), p. 11.
|
| 65.
|
Ibid., p. 25.
|
| 66.
|
Ibid., pp. 4, 10, 16.
|
| 67.
|
Ibid., pp. 21, 43.
|
| 68.
|
Ibid., p. 43.
|
| 69.
|
Ibid., p. 44.
|
| 70.
|
Ibid., p. 5; and P.L. 96-481, the Small Business Export Expansion Act of 1980.
|
| 71.
|
U.S. Congress, Senate Committee on Small Business, Small Business Administration's Size Standards, hearing, 97th Cong., 1st sess., May 5, 1981 (Washington: GPO, 1981), p. 12.
|
| 72.
|
Ibid., p. 11.
|
| 73.
|
U.S. Congress, House Committee on Small Business, Subcommittee on SBA and SBIC Authority, Minority Enterprise and General Small Business Problems, Size Standards, hearing, 98th Cong., 1st sess., October 20, 1983 (Washington: GPO, 1983), p. 17. Congress created the Small Business Investment Company (SBIC) program in 1958 to provide small businesses enhanced access to equity capital, long-term loans, and consultative management assistance.
|
| 74.
|
U.S. Congress, House Committee on Small Business, Subcommittee on SBA and SBIC Authority, Minority Enterprise and General Small Business Problems, H.R. 1178: Small Business Size Standards, hearing, 99th Cong., 1st sess., July 30, 1985 (Washington: GPO, 1985), p. 198.
|
| 75.
|
U.S. Congress, House Committee on Small Business, Subcommittee on SBA and SBIC Authority, Minority Enterprise and General Small Business Problems, Size Standards, hearing, 98th Cong., 1st sess., October 20, 1983 (Washington: GPO, 1983), p. 18.
|
| 76.
|
Ibid.
|
| 77.
|
Ibid.
|
| 78.
|
Ibid.
|
| 79.
|
Ibid.
|
| 80.
|
U.S. Congress, House Committee on Small Business, Subcommittee on SBA and SBIC Authority, Minority Enterprise and General Small Business Problems, H.R. 1178: Small Business Size Standards, hearing, 99th Cong., 1st sess., July 30, 1985 (Washington: GPO, 1985), p. 4.
|
| 81.
|
Ibid., pp. 237-250.
|
| 82.
|
Ibid., pp. 6, 8, 53, 153, 181, 244, 245, 261.
|
| 83.
|
SBA, "Small Business Size Standards: Fixed Size Standard Levels," 57 Federal Register 62515, December 31, 1992.
|
| 84.
|
Ibid.
|
| 85.
|
U.S. Congress, House Committee on Small Business, Subcommittee on Minority Enterprise, Finance, and Urban Development, SBA's Efforts to Streamline Size Standards, hearing, 103rd Cong., 1st sess., May 25, 1993 (Washington: GPO, 1993), pp. 5, 6.
|
| 86.
|
SBA, "Small Business Size Standards: Restructuring of Size Standards," 69 Federal Register 13130, March 19, 2004.
|
| 87.
|
U.S. Small Business Administration, "Small Business Size Standards: Inflation Adjusted Size Standards," 59 Federal Register 16513-16538, April 7, 1994.
|
| 88.
|
SBA, "Small Business Size Standards: Inflation Adjustment to Size Standards," 67 Federal Register 65285-65290, October 24, 2002.
|
| 89.
|
SBA, "Small Business Size Standards: Restructuring of Size Standards," 69 Federal Register 13129-13164, March 19, 2004.
|
| 90.
|
Ibid.
|
| 91.
|
Ibid., p. 13130.
|
| 92.
|
Ibid., pp. 13131-13132.
|
| 93.
|
Ibid., p. 13138.
|
| 94.
|
SBA, "Small Business Size Standards: Selected Size Standards Issues," 69 Federal Register 70197, December 3, 2004; and U.S. Small Business Administration, "Small Business Size Standards: Selected Size Standards Issues," 70 Federal Register 2976, January 19, 2005.
|
| 95.
|
Rep. Donald A. Manzullo and Rep. Nydia M. Velázquez, "Small Business Size Standards; Restructuring of Size Standards, 69 Federal Register 13,130 (March 19, 2004); Letter to Gary M. Jackson, SBA Assistant Administrator for Size Standards," July 8, 2004, at http://democrats.smallbusiness.house.gov/Size%20Standards%20Comment%20Letter%200704.pdf; and U.S. Newswire, "Snowe Hails SBA's Withdrawal of New Size Standards Proposal; Decision Spares Small Firms Costly Disruptions," July 1, 2004, p. 1, at http://proquest.umi.com/pqdweb?did=657675071&sid=1&Fmt=3&clientId=45714&RQT=309&VName=PQD.
|
| 96.
|
U.S. Senate Committee on Small Business and Entrepreneurship, "Kerry Urges SBA to Withdraw Small Business Size Standard Proposal," press release, June 29, 2004, at http://sbc.senate.gov/press/record.cfm?id=223511.
|
| 97.
|
U.S. Newswire, "Snowe Hails SBA's Withdrawal of New Size Standards Proposal; Decision Spares Small Firms Costly Disruptions," July 1, 2004, p. 1, at http://proquest.umi.com/pqdweb?did=657675071&sid=1&Fmt=3&clientId=45714&RQT=309&VName=PQD.
|
| 98.
|
Ibid.
|
| 99.
|
SBA, "Small Business Size Standards, Inflation Adjustment to Size Standards; Business Loan Program; Disaster Assistance Loan Program," 70 Federal Register 72577, December 6, 2005; and U.S. Small Business Administration, "Small Business Size Standards: Inflation Adjustment to Size Standards; Business Loan Program, and Disaster Assistance Loan Program," 73 Federal Register 41237-41254, July 18, 2008.
|
| 100.
|
SBA, "Small Business Size Standards: Public Meetings on a Comprehensive Review of Small Business Size Standards," 73 Federal Register 30440-30442, May 27, 2008. Other Services (NAICS Sector 81) include repair and maintenance, personal and laundry services, and religious, grantmaking, civic, professional, and similar organizations.
|
| 101.
|
SBA, "Small Business Size Standards: Public Meetings on a Comprehensive Review of Small Business Size Standards," 73 Federal Register 30441, May 27, 2008.
|
| 102.
|
Ibid.
|
| 103.
|
SBA, "Size Standards Comprehensive Review," June 3, 2008, at http://archive.sba.gov/idc/groups/public/documents/adacct/june_3_public_presentation_rem.pdf.
|
| 104.
|
Ibid.
|
| 105.
|
Ibid.
|
| 106.
|
SBA, "Small Business Administration Semiannual Regulatory Agenda," 73 Federal Register 71449, 71450, November 24, 2008.
|
| 107.
|
SBA, "Small Business Size Standards: Retail Trade," 74 Federal Register 53924-53940, October 21, 2009; SBA, "Small Business Size Standards: Accommodation and Food Services Industries," 74 Federal Register 53913-53924, October 21, 2009; and SBA, "Small Business Size Standards: Other Services Industries," 74 Federal Register 53941-53954, October 21, 2009.
|
| 108.
|
SBA, "Small Business Size Standards Methodology," April 2009, pp. 21, 22, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
|
| 109.
|
Ibid., p. 23.
|
| 110.
|
Ibid.
|
| 111.
|
Ibid., pp. 22- 23.
|
| 112.
|
Ibid., p. 23.
|
| 113.
|
SBA, "Small Business Size Standards for Manufacturing," 79 Federal Register 54150, September 10, 2014; SBA, "Small Business Size Standards for Manufacturing," 80 Federal Register 78044, December 15, 2015; and SBA, "Small Business Size Standards for Manufacturing," 81 Federal Register 4469-4492, January 26, 2016.
|
| 114.
|
SBA, "Small Business Size Standards: Industries With Employee Based Size Standards Not Part of Manufacturing, Wholesale Trade, or Retail Trade," 79 Federal Register 53647, September 10, 2014.
|
| 115.
|
SBA, "Small Business Size Standards: Industries With Employee Based Size Standards Not Part of Manufacturing, Wholesale Trade, or Retail Trade," 81 Federal Register 4436-4469, January 26, 2016.
|
| 116.
|
SBA, "Small Business Size Standards: Retail Trade," 75 Federal Register 61597-61604, October 6, 2010; SBA, "Small Business Size Standards: Accommodations and Food Service Industries," 75 Federal Register 61604-61609, October 6, 2010; and SBA, "Small Business Size Standards: Other Services," 75 Federal Register 61591-61596, October 6, 2010. The final rule for the retail trade industries also converted the measure of size for new car dealers from annual receipts to number of employees.
|
| 117.
|
Ibid.
|
| 118.
|
SBA, "Small Business Size Standards: Retail Trade," 75 Federal Register 61598, October 6, 2010; SBA, "Small Business Size Standards: Accommodations and Food Service Industries," 75 Federal Register 61605, October 6, 2010; and SBA, "Small Business Size Standards: Other Services," 75 Federal Register 61592, October 6, 2010.
|
| 119.
|
SBA, "Small Business Size Standards: Agriculture, Forestry, Fishing, and Hunting," 77 Federal Register 55763, September 11, 2012.
|
| 120.
|
SBA, "Small Business Size Standards: Retail Trade," 75 Federal Register 21895, April 26, 2010; U.S. Small Business Administration, "Small Business Size Standards: Accommodations and Food Service Industries," 75 Federal Register 21895, April 26, 2010; SBA, "Small Business Size Standards: Other Services," 75 Federal Register 21895, April 26, 2010; SBA, "Small Business Size Standards: Professional Scientific and Technical Services," 75 Federal Register 21893, April 26, 2010; and SBA, "Small Business Size Standards: Transportation and Warehousing Industries," 75 Federal Register 21894, April 26, 2010.
|
| 121.
|
The proposed rule would have increased small business size standards for 35 industries and one sub-industry within the professional, scientific and technical services industries. The SBA estimated that about 9,450 additional firms would obtain small business status if the proposed rule became effective and the small business share of total industry receipts in those industries would increase from about 35% under the current size standards to 41%. The number of firms that would obtain eligibility under the proposed rule represents about 1.2% of the total number of firms in those industries defined as small under current standards. Also, the SBA's analysis supported a decrease in the size standards in 14 industries and one sub-industry, but the SBA concluded that "lowering small business size standards is not in the best interests of small businesses under current economic conditions." See SBA, "Small Business Size Standards: Professional, Scientific and Technical Services," 76 Federal Register 14323-14341, March 16, 2011.
|
| 122.
|
The proposed rule would have increased small business size standards for 22 industries within the transportation and warehousing industries. The SBA estimated that about 1,200 additional firms would obtain small business status if the proposed rule became effective and the small business share of total industry receipts in those industries would increase from about 36% under the current size standards to 39%. The number of firms that would obtain eligibility under the proposed rule represents about 0.7% of the total number of firms in those industries defined as small under current standards. Also, the SBA's analysis supported a decrease in the size standards in 18 industries, but the SBA concluded that "lowering small business size standards is not in the best interests of small businesses under current economic conditions." See SBA, "Small Business Size Standards: Transportation and Warehousing," 76 Federal Register 27935-27952, May 13, 2011.
|
| 123.
|
SBA, "Small Business Size Standards: Professional, Technical, and Scientific Services," 77 Federal Register 7490-7515, February 10, 2012.
|
| 124.
|
SBA, "Small Business Size Standards: Transportation and Warehousing," 77 Federal Register 10943-10950, February 24, 2012.
|
| 125.
|
P.L. 111-240, the Small Business Act of 2010, §1344. Updated Size Standards.
|
| 126.
|
Ibid.
|
| 127.
|
SBA, "Semiannual Regulatory Agenda," 76 Federal Register 40140-40142, July 7, 2011.
|
| 128.
|
SBA, Office of Congressional and Legislative Affairs, "Correspondence with the author," March 30, 2012.
|
| 129.
|
13 C.F.R. §121.105. Affiliations between businesses, or relationships allowing one party control or the power of control over another, generally count in size determinations. Businesses can thus be determined to be other than small because of their involvement in joint ventures, subcontracting arrangements, or franchise or license agreements, among other things, provided that their personnel numbers or income, plus those of their affiliate(s), are over the pertinent size threshold. 13 C.F.R. §121.103. For further analysis, see CRS Report R40744, The "8(a) Program" for Small Businesses Owned and Controlled by the Socially and Economically Disadvantaged: Legal Requirements and Issues, by [author name scrubbed].
|
| 130.
|
13 C.F.R. §107.700; 13 C.F.R. §107.710; 13 C.F.R. §301(c)(2); and 13 C.F.R. §301(c)(1).
|
| 131.
|
SBA, Office of Government Contracting and Business Development, "SBA Size Standards Methodology," April 2009, p. 8, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
|
| 132.
|
SBA, "SOP 50 10 5(C): Lender and Development Company Loan Programs," (effective October 1, 2010), p. 266, at http://www.sba.gov/sites/default/files/serv_sops_50105c_loan_0.pdf; and SBA, "SOP 50 10 5(E): Lender and Development Company Loan Programs," (effective June 1, 2012), p. 92, at http://www.sba.gov/sites/default/files/SOP%2050%2010%205(E)%20(6-27-2013)%20change%20of%20ownership%20eff%20date%207-1-13%20clean.pdf.
|
| 133.
|
13 C.F.R. §121.201.
|
| 134.
|
SBA, "Small Business Size Standards; Temporary Alternative Size Standards for 7(a) Business Loan Program," 74 Federal Register 20577, May 5, 2009.
|
| 135.
|
P.L. 111-240, the Small Business Act of 2010, §1116. Alternative Size Standards. S. 3103, the Small Business Job Creation Act of 2010, introduced by then-Senator Olympia Snowe on March 10, 2010, and referred to the Senate Committee on Finance, and S. 2869, the Small Business Job Creation and Access to Capital Act of 2009, introduced by Senator Mary Landrieu on December 10, 2009, and reported favorably by the Senate Committee on Small Business and Entrepreneurship, would have authorized the SBA to establish an alternative size standard for the SBA's 7(a) and 504/CDC loan programs. Both bills would have used maximum tangible net worth of not more than $15 million and average net income after federal taxes of not more than $5 million for the two full fiscal years before the date of the application as an alternative to the use of the SBA's industry size standards. Senator Snowe stated on the Senate floor, on December 10, 2009, that the proposed alternative size standard in S. 2869 would "help more small businesses meet the SBA's requirements to access SBA-backed loans." Senator Olympia Snowe, "Statements on Introduced Bills and Joint Resolutions," remarks in the Senate, Congressional Record, daily edition, vol. 155, no. 185 (December 10, 2009), p. S12913.
|
| 136.
|
SBA, "SBA's Size Standards Analysis: An Overview on Methodology and Comprehensive Size Standards Review," power point presentation, Khem R. Sharma, SBA Office of Size Standards, July 13, 2011, p. 4, at http://www.actgov.org/sigcom/SIGs/SIGs/SBSIG/Documents/2011%20-%20Documents%20and%20Presentations/Size%20Stds%20Presentation_SIG%20Meeting.pdf.
|
| 137.
|
SBA, Office of Government Contracting and Business Development, "SBA Size Standards Methodology," April 2009, p. 8, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
|
| 138.
|
Ibid., p. 1. SBA established 500 employees as the anchor size standard for the manufacturing industries at SBA's inception in 1953, and shortly thereafter established a receipts based anchor size standard of $1 million in average annual receipts for the nonmanufacturing industries. The receipts based anchor size standard has been adjusted periodically for inflation.
|
| 139.
|
13 C.F.R. §121.102.
|
| 140.
|
SBA, Office of Government Contracting and Business Development, "SBA Size Standards Methodology," April 2009, p. 1, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
|
| 141.
|
SBA, "Small Business Size Standards for Manufacturing," 81 Federal Register 4469-4492, January 26, 2016. Until February 26, 2016, 247 manufacturing industries have an upper limit of 500 employees, 53 have an upper limit of 750 employees, 61 have an upper limit of 1,000 employees, and three have an upper limit of 1,500 employees. See SBA, "Table of Small Business Size Standards," July 14, 2014, at http://www.sba.gov/content/table-small-business-size-standards.
|
| 142.
|
SBA, "Small Business Size Standards: Employee Based Size Standards in Wholesale Trade and Retail Trade," 81 Federal Register 3941-3949, January 25, 2016. Until February 26, 2016 (and since 1986) all industries in the Wholesale Trade Sector have an upper limit of 100 employees. See SBA, "Table of Small Business Size Standards," July 14, 2014, at http://www.sba.gov/content/table-small-business-size-standards. Also, for procurement purposes, the SBA's size standard is 500 or fewer employees for all industries in both the Retail Trade and Wholesale Trade Sectors.
|
| 143.
|
The annual receipts of a concern which has been in business for fewer than three complete fiscal years is determined by dividing the total receipts for the period the concern has been in business by the number of weeks in business, multiplied by 52. See 13 C.F.R. §121.104.
|
| 144.
|
SBA, "Table of Small Business Size Standards," July 14, 2014, at http://www.sba.gov/content/table-small-business-size-standards.
|
| 145.
|
The 17 receipts based size standards currently in effect are: $0.75 million or less, $5.5 million or less, $7.5 million or less, $11.0 million or less, $15.0 million or less, $18.0 million or less, $19.0 million or less, $20.5 million or less, $25.0 million or less, $27.5 million or less, $29.5 million or less, $30.5 million or less, $32.0 million or less, $32.5 million or less, $36.5 million or less, $37.5 million or less, and $38.5 million or less.
|
| 146.
|
Ibid.
|
| 147.
|
P.L. 99-272, the Consolidated Omnibus Budget Reconciliation Act of 1985 (Title XVIII, Section 18016) inserted a requirement that notwithstanding any other provision of law, an agricultural enterprise shall be deemed to be a small business concern if it, including its affiliates, has annual receipts not in excess of $500,000. P.L. 106-554, the Consolidated Appropriations Act, 2001 (Title VIII, Section 806(b)), substituted "$750,000" for "$500,000."
|
| 148.
|
SBA, "Table of Small Business Size Standards," July 14, 2014, at http://www.sba.gov/content/table-small-business-size-standards.
|
| 149.
|
SBA, Office of Government Contracting and Business Development, "SBA Size Standards Methodology," April 2009, p. 22, at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
|
| 150.
|
SBA, "Small Business Size Standards: Professional, Technical, and Scientific Services," 77 Federal Register 7498, February 10, 2012.
|
| 151.
|
Ibid.
|
| 152.
|
H.R. 3987, the Small Business Protection Act of 2012, Section 2, Small Business Concern Size Standards.
|
| 153.
|
Ibid.
|
| 154.
|
The federal government has a goal of awarding at least 23% of all small business eligible federal government procurement contracts to small businesses, including 5% for small disadvantaged businesses, 5% for women-owned small businesses, 3% for small businesses owned by service-disabled veterans, and 3% for small businesses located in a HUBZone. See U.S. General Services Administration, Federal Procurement Data System – Next Generation, "Small Business Goaling Reports," at https://www.fpds.gov/fpdsng_cms/index.php/en/reports. For further information and analysis concerning federal contracting preferences for small businesses see CRS Report R41268, Small Business Administration HUBZone Program, by [author name scrubbed].
|
| 155.
|
5 U.S.C. 601; 5 U.S.C. 603; and 5 U.S.C. 604. The SBA last published a list of size standards set by agencies other than the SBA in 1995. See SBA, "Small Business Size Standards," 60 Federal Register 57988-57991, November 24, 1995. For a related example (establishing a size standard for Regulatory Flexibility Act compliance), see U.S. Department of Commerce, National Oceanic and Atmospheric Administration, "Establish a Single Small Business Size Standard for Commercial Fishing Business," 80 Federal Register 81194-80872, December 29, 2015.
|
| 156.
|
15 U.S.C. 632.
|
| 157.
|
Ibid. The SBA reports "that there have been approximately 25 requests by other agencies under the authority of amended §3 of the Small Business Act since the date of amendment in 1992." See U.S. Congress, House Committee on Small Business, Small Business Size Standard Flexibility Act of 2011, report to accompany H.R. 585, 112th Cong., 2nd sess., November 16, 2011, H.Rept. 112-288 (Washington: GPO, 2011), p. 7.
|
| 158.
|
Rep. Sam Graves, "Full Committee Hearing, Lifting the Weight of Regulations: Growing Jobs By Reducing Regulatory Burdens (III. H.R. 585—Small Business Size Standard Flexibility Act of 2011)," letter to House Committee on Small Business, June 8, 2011, p. 44, at http://smbiz.house.gov/UploadedFiles/6-15_Memo.pdf; U.S. Congressional Budget Office, "Congressional Budget Office Cost Estimate: H.R. 585—Small Business Size Standard Flexibility Act of 2011," p. 2, at http://www.cbo.gov/ftpdocs/124xx/doc12449/hr585.pdf; and U.S. Congress, House Committee on Small Business, Small Business Size Standard Flexibility Act of 2011, report to accompany H.R. 585, 112th Cong., 2nd sess., November 16, 2011, H.Rept. 112-288 (Washington: GPO, 2011), pp. 6-8. Also, see 13 C.F.R §121.901-903.
|
| 159.
|
U.S. Congressional Budget Office, "Congressional Budget Office Cost Estimate: H.R. 585—Small Business Size Standard Flexibility Act of 2011," p. 2, at http://www.cbo.gov/ftpdocs/124xx/doc12449/hr585.pdf; and H.Rept. 112-288, the Business Size Standard Flexibility Act of 2011. CBO has estimated that the Office of Advocacy would ultimately need 10 additional staff positions to implement its new authority; and that the bill would cost $6 million over the 2012-2016 period.
|
| 160.
|
U.S. Congress, House Committee on Small Business, Small Business Size Standard Flexibility Act of 2011, report to accompany H.R. 585, 112th Cong., 2nd sess., November 16, 2011, H.Rept. 112-288 (Washington: GPO, 2011), p. 6.
|
| 161.
|
Ibid., p. 14.
|
| 162.
|
P.L. 99-272, the Consolidated Omnibus Budget Reconciliation Act of 1985, established the size standard for agricultural enterprises as annual receipts not in excess of $500,000. P.L. 106-554, the Consolidated Appropriations Act, 2001, increased the size standard for agricultural enterprises to annual receipts not in excess of $750,000.
|
| 163.
|
The bill would authorize the SBA Administrator to limit an industry category due to special capital equipment needs, special labor requirements, special geographic requirements (with specified limitations), or to recognize a new industry. See H.R. 4341, the Defending America's Small Contractors Act of 2016, Sec. 101. Plain Language Rewrite of Requirements for Small Business Procurements.
|
| 164.
|
SBA, "Small Business Size Standards: Inflation Adjustment to Monetary Size Standards," 79 Federal Register 33647-33669, June 12, 2014.
|
| 165.
|
SBA, "Small Business Size Standards: Inflation Adjustment to Size Standards, Business Loan Programs, and Disaster Assistance Program," 73 Federal Register 41237-41254, July 18, 2008.
|
| 166.
|
U.S. Congress, House Committee on Small Business, Subcommittee on General Oversight and Minority Enterprise, Size Standards for Small Business, hearing, 96th Cong., 1st sess., July 10, 1979 (Washington: GPO, 1979), p. 28.
|