Small Business Size Standards:
A Historical Analysis of Contemporary Issues

Robert Jay Dilger
Senior Specialist in American National Government
December 6, 2012
Congressional Research Service
7-5700
www.crs.gov
R40860
CRS Report for Congress
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epared for Members and Committees of Congress

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 size standards to determine SBA program
eligibility: industry-specific size standards and an alternative size standard 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 the following five measures:
number of employees, average annual receipts in the previous three years, asset size, annual
megawatt hours of electric output in the preceding fiscal year, or 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 also required the SBA to conduct a detailed review of
not less than one-third of the SBA’s industry size standards every 18 months.
This report provides a historical examination of the SBA’s size standards, assesses competing
views concerning how to define a small business, and discusses how the Small Business Jobs Act
of 2010 might affect program eligibility. It also discusses H.R. 585, the Small Business Size
Standard Flexibility Act of 2011, which would authorize the SBA’s Office of Chief Counsel for
Advocacy to approve or disapprove a size standard proposed by a federal agency if it deviates
from the SBA’s size standards. The SBA’s Administrator currently has that authority. It also
discusses H.R. 3987, the Small Business Protection Act of 2012, and H.R. 4310, the National
Defense Authorization Act for Fiscal Year 2013, which would require 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 within a grouping of four-digit NAICS codes. These
two bills also address 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.
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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 ............. 7
Industry Challenges the SBA’s Initial Size Standards, Claiming They Are Too Restrictive ........... 8
GAO and Several Members of Congress Challenge the SBA’s Size Standards, Claiming
They Are Too Broad ................................................................................................................... 10
SBA Proposes More Restrictive Size Standards Based on Industry Competitiveness .................. 12
SBA Proposes to Streamline its Size Standards ............................................................................. 16
SBA Adopts a More Incremental, Targeted Approach ................................................................... 19
Congress Requires Periodic Size Standard Reviews ..................................................................... 22
SBA’s Definitions for Small Business ........................................................................................... 26
Alternative Size Standards ....................................................................................................... 27
Industry Size Standards ........................................................................................................... 27
Other Federal Agency Size Standards ..................................................................................... 32
Congressional Policy Options ........................................................................................................ 34

Tables
Table 1. Number of Employer Firms, Employer Firm Employment, and Employer Firm
Annual Payroll, by Employer Firm Employment Size, 2009 ....................................................... 3
Table 2. Industry-Based Size Standard Levels Currently Being Applied During the SBA’s
On-going Review of its Size Standards ...................................................................................... 21
Table 3. Status of SBA Size Standard Reviews, 2010-2012 .......................................................... 24

Contacts
Author Contact Information........................................................................................................... 36

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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 were 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 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 size
standards to determine SBA program eligibility: industry-specific size standards and an
alternative size standard based 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 (hereafter 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 the following five measures: number of employees, average annual receipts in the
previous three years, asset size, annual megawatt hours of electric output in the preceding fiscal
year, or a combination of number of employees and barrel per day refining capacity.4 Overall, the
SBA currently classifies about 97% of all employer firms as small.5 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-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 Jane G. Gravelle and Sean Lowry.
2 P.L. 83-163, the Small Business Act of 1953, §202.
3 U.S. Small Business Administration, 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 The SBA has proposed to replace the annual megawatt hours of electric output in the preceding fiscal year size
standard with number of employees (500 or fewer). See U.S. Small Business Administration, “Small Business Size
Standards: Utilities,” 77 Federal Register 42450, July 19, 2012.
5 U.S. Small Business Administration, “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.
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As will be discussed, the SBA began a comprehensive size standards review in 2008. At that time,
the SBA used 41 different size standards: number of employees (7 size standards), average annual
receipts in the previous three years (31 size standards), average assets (1 size standard), annual
megawatt hours of electric output in the preceding fiscal year (1 size standard), and a combination
of number of employees and barrel per day refining capacity (1 size standard). It also had 11
other size standards for its financial and other programs.
Since 2008, the SBA has used eight receipt-based size standards and eight employee-based size
standards when establishing new, or reviewing existing, size standards. The SBA has argued that
reducing the number of receipt-based size standards, from 31 to 8, 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.”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.
Congress considered several bills during the 111th Congress that would have authorized an
alternative size standard for both the 7(a) and 504/CDC loan guaranty programs as a means to
allow more small businesses to access SBA-backed loans before passing the Small Business Jobs
Act of 2010. The act (P.L. 111-240) authorizes 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.7 It 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. It also requires 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
date of enactment of the new law (September 27, 2010).
This report provides a historical examination of the SBA’s size standards, assesses competing
views concerning how to define a small business, and discusses how various proposals to change
the SBA’s size standards, including those adopted under the Small Business Jobs Act of 2010
might affect program eligibility. It also discusses H.R. 585, the Small Business Size Standard
Flexibility Act of 2011. It would authorize the SBA’s Office of Chief Counsel for Advocacy to
approve or disapprove a size standard proposed by a federal agency if it deviates from the SBA’s
size standards. 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 concerning such requests.

6 U.S. Small Business Administration, 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.
7 The SBA announced that it planned to issue a notice of proposed rulemaking concerning the new alternative size
standard in February 2011. However, as of the date of this writing, it has not done so. U.S. Small Business
Administration, “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.
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This report also discusses H.R. 3987, the Small Business Protection Act of 2012, and H.R. 4310,
the National Defense Authorization Act for Fiscal Year 2013. These bills would require 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. The bills also address the SBA’s recent practice of combining size standards within
industrial groups to provide greater consistency for industries that have similar economic
characteristics.8
How Big Is Small?
An estimated 26.9 million businesses were in the United States in 2009, including about 5.8
million employer firms and 21.1 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 2009 (the latest available data) there were 5,767,306 employer firms in
the United States employing 114,509,626 people and providing total payroll of $4.86 trillion.
Table 1. Number of Employer Firms, Employer Firm Employment, and Employer
Firm Annual Payroll, by Employer Firm Employment Size, 2009
Cumulative
Cumulative
Percentage
Cumulative
Percentage
of Total
Percentage
Employer
of Employer
Number
Number of
Number of
of Employer
Firm Annual
Firm Total
of
Employer
Employer
Firm Total
Payroll
Annual
Employees
Firms
Firms Employment
Employment
($1,000)
Payroll
0-4a 3,558,708
61.7%
5,966,190
5.2%
$219,913,105
4.5%
5-9 1,001,313
79.0%
6,580,830
11.0%
$212,718,822
8.9%
10-19 610,777
90.0%
8,191,289
18.1%
$278,321,099
14.6%
20-99 495,673
98.2%
19,389,940
35.0%
$719,054,001
29.5%
100-499 83,326
99.7%
16,153,254
49.1%
$654,811,946
42.9%
500-999 8,631
99.8%
5,963,102
54.4%
$257,740,751
48.2%
1,000-1,999 4,280 99.9% 5,956,275 59.6% $272,874,890
53.8%
2,000-4,999 2,711 99.9% 8,279,666 66.8% $402,760,367
62.2%

8 U.S. Small Business Administration, “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.
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Small Business Size Standards: A Historical Analysis of Contemporary Issues

Cumulative
Cumulative
Percentage
Cumulative
Percentage
of Total
Percentage
Employer
of Employer
Number
Number of
Number of
of Employer
Firm Annual
Firm Total
of
Employer
Employer
Firm Total
Payroll
Annual
Employees
Firms
Firms Employment
Employment
($1,000)
Payroll
5,000+ 1,887
100.0%
38,029,080
100.0%
$1,837,350,258
100.0%
Total 5,767,306
114,509,626
$4,855,545,239

Source: U.S. Census Bureau, “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.
Most employer firms (61.7%) had 4 or fewer employees, 90.0% had fewer than 20 employees,
98.2% had fewer than 100 employees, and 99.7% had fewer than 500 employees in 2009. 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.
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 61.7% of the total number of employer firms in 2009).
• 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
54.4% of employer firm total employment in 2009).
• 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 53.8% of employer firm total annual payroll in 2009).
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.
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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 55 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, the Small Business Act of 2010,
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.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.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.

12 U.S. Small Business Administration, “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 Economic Justification, by Gary Guenther.
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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.”15 It noted that the definition of
small businesses in federal statutes reflected this consensus by taking into consideration the firm’s
size relative to other firms in its field and “matters of independence and nondominance.”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.”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.”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.”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.”20
The Select Committee also noted that in 1951, the National Production Authority’s Office of
Small Business proposed defining all manufacturing firms with less than 50 employees as small
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 less 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.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

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.
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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.22
In reviewing the academic literature, the Select Committee reported that Abraham Kaplan’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.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” 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.”24 However, it concluded
that the definition of small 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.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.”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.27 The act specifies that the size standards “may utilize number of

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.
(continued...)
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employees, dollar volume of business, net worth, net income, a combination thereof, or other
appropriate factors.”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.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.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 under 8 employees and 95.2% of the total number of concerns,
employed less 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.”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:

(...continued)
§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.
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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.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.34 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.”35 The SBA
published its final rule concerning its small business size standards on December 7, 1956, and
they became effective on January 1, 1957.36
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
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.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

33 Ibid., p. 39.
34 U.S. Small Business Administration, “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 U.S. Small Business Administration, “Part 103 - Small Business Size Standards,” 21 Federal Register 9709-9714,
December 7, 1956.
37 Ibid., p. 41.
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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.38
Mr. Abels testified that the SBA experienced “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.”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’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
an industry-to-industry basis.”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.
GAO and Several Members of Congress Challenge
the SBA’s Size Standards, Claiming They Are
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.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

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.
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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.42
After conducting its analysis, GAO found that the SBA’s size standards “are often high and often
are not justified by economic rationale.”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.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 set-
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.”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.”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.”47 At that time, approximately 99% of all
firms with employees were classified by the SBA as a small business.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

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.
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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.”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.”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
firms are flourishing.”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 mid-
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?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.”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.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.55

49 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.
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.
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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.”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.”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.”58 In mixed industries, the four largest firms typically account for 20% to
50% of industry sales.59
The SBA determined that there were 160 concentrated industries, 317 competitive industries, and
249 mixed industries.60 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
account for a disproportionately large share of the industry’s sales.”61 For competitive industries,
the SBA argued that the size standard should be set “relatively low, so as to support entry and
moderate growth.”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.”63
The proposed new SBA size standards would have had the net effect of reducing the number of
firms classified as small by about 225,000.64 In percentage terms, the number of firms classified
as small would have been reduced from about 99% of all employer firms to 96%.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.66 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.”67 For example, the Department of Defense argued that “the

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.
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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].”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.”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.”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
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’s loan and consultative support services; and (3) increase the reliance on the firm’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.71 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. He 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.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.

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.
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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.73
He also testified that the SBA received about 500 comments on the proposed rule, with about
72% of those comments opposing the rule.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’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.75
SBA Administrator Sanders characterized the SBA’s revised size standard proposal as “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.”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.”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,

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.
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98.6% of all firms with employees would be classified as small.78 The final rule was published in
the Federal Register on February 9, 1984.79
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.”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
of federal procurement contracts.81 The bill was opposed by various trade associations, the SBA,
and federal agency procurement officials, and was not reported out of committee.82
SBA Proposes to Streamline its Size Standards
In 1992, the SBA used 30 different size standards (e.g., 100 or fewer employees, 500 or fewer
employees, 1,000 or fewer employees, $5 million in average annual receipts) when 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.”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.”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.85 The SBA
ultimately decided not to pursue this approach because it felt that converting “receipts-based size

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 U.S. Small Business Administration, “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.
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standards in effect at that time to one of four proposed receipts levels created a number of
unacceptable anomalies.”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.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.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.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.90 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).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.92 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

86 U.S. Small Business Administration, “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 U.S. Small Business Administration, “Small Business Size Standards: Inflation Adjustment to Size Standards,” 67
Federal Register
65285-65290, October 24, 2002.
89 U.S. Small Business Administration, “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.
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businesses could gain and 34,100 could lose small business eligibility, with the net effect of 1,100
additional businesses defined as small.”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
approach to simplifying size standards.”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.95 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
with the Federal government, but will lose their small business status abruptly as a result of the
change.”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.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.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

93 Ibid., p. 13138.
94 U.S. Small Business Administration, “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 Representative Donald A. Manzullo and Representative 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.
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eligibility for approximately 10,400 firms that lost small-business status due solely to the effects
of inflation.99
SBA Adopts a More Incremental,
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).100 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.”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
unexamined many deserving industries for updating and may create over time a set of illogical
size standards.”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.”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.”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.”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

99 U.S. Small Business Administration, “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 U.S. Small Business Administration, “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 U.S. Small Business Administration, “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 U.S. Small Business Administration, “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.
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Services (NAICS Sector 81) in January 2009.106 The SBA issued the notices for those industries
on October 21, 2009.107
In April 2009, the SBA announced that it was going to simplify the administration and use of its
size standards by reducing the number of receipt based size standards it used when establishing or
approving a 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
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.108
The SBA also announced that “to simplify size standards further” it “may propose a common size
standard for closely related industries.”109 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.110
Table 2 shows the eight fixed levels for receipts-based size standards and the eight fixed levels
for its employee-based size standards that the SBA is currently applying when establishing or
reviewing size standards under its ongoing review of its size standards.

106 U.S. Small Business Administration, “Small Business Administration Semiannual Regulatory Agenda,” 73 Federal
Register
71449, 71450, November 24, 2008.
107 U.S. Small Business Administration, “Small Business Size Standards: Retail Trade,” 74 Federal Register 53924-
53940, October 21, 2009; U.S. Small Business Administration, “Small Business Size Standards: Accommodation and
Food Services Industries,” 74 Federal Register 53913-53924, October 21, 2009; and U.S. Small Business
Administration, “Small Business Size Standards: Other Services Industries,” 74 Federal Register 53941-53954,
October 21, 2009.
108 U.S. Small Business Administration, “Small Business Size Standards Methodology,” April 2009, pp. 21, 22, at
http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
109 Ibid., pp. 22, 23.
110 Ibid., p. 23.
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Table 2. Industry-Based Size Standard Levels Currently Being Applied During
the SBA’s On-going Review of its Size Standards
Receipts-Based Levels
Employee-Based Levels
$5.0 million
50 employees
$7.0 million (anchor)
100 employees (wholesale anchor)
$10.0 million
150 employees
$14.0 million
200 employees
$19.0 million
250 employees
$25.5 million
500 employees (manufacturing anchor)
$30.0 million
750 employees
$35.5 million
1,000 employees
Source: U.S. Smal Business Administration, “Smal Business Size Standards Methodology,” April 2009, pp. 21-23,
at http://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
Notes: At the start of the current comprehensive size standards review which began in 2008, the SBA had 41
different size standards: number of employees (7 size standards), average annual receipts in the previous three
years (31 size standards), average assets (1 size standard), annual megawatt hours of electric output in the
preceding fiscal year (1 size standard), and a combination of number of employees and barrel per day refining
capacity (1 size standard). It also currently has 11 other size standards for its financial and other programs.
The final rules for Retail Trade (NAICS Sector 44-45), Accommodations and Food Services
(NAICS Sector 72), and Other Services (NAICS Sector 81) were published in the Federal
Register
on October 6, 2010, with an effective date of November 5, 2010.111 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).112 The SBA’s analysis supported a decrease to the current
size standards for 23 industries in Retail Trade (NAICS Sector 44-45), 7 industries in
Accommodations and Food Services (NAICS Sector 72), 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.”113 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.”114

111 U.S. Small Business Administration, “Small Business Size Standards: Retail Trade,” 75 Federal Register 61597-
61604, October 6, 2010; U.S. Small Business Administration, “Small Business Size Standards: Accommodations and
Food Service Industries,” 75 Federal Register 61604-61609, October 6, 2010; and U.S. Small Business Administration,
“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.
112 Ibid.
113 U.S. Small Business Administration, “Small Business Size Standards: Retail Trade,” 75 Federal Register 61598,
October 6, 2010; U.S. Small Business Administration, “Small Business Size Standards: Accommodations and Food
Service Industries,” 75 Federal Register 61605, October 6, 2010; and U.S. Small Business Administration, “Small
Business Size Standards: Other Services,” 75 Federal Register 61592, October 6, 2010.
114 U.S. Small Business Administration, “Small Business Size Standards: Agriculture, Forestry, Fishing, and Hunting,”
(continued...)
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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 2010.115 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, 2011,116 and Transportation and
Warehousing (NAICS Sector 48-49) on May 13, 2011.117 The SBA issued the final size standard
rule for Professional, Scientific and Technical Services (NAICS Sector 54) on February 10,
2012.118 It issued the final size standard rule for Transportation and Warehousing (NAICS Sector
48-49) on February 24, 2012.119
Congress Requires Periodic Size Standard Reviews
As mentioned previously, P.L. 111-240, the Small Business Jobs Act of 2010, 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.120 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

(...continued)
77 Federal Register 55763, September 11, 2012.
115 U.S. Small Business Administration, “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; U.S. Small Business Administration, “Small Business
Size Standards: Other Services,” 75 Federal Register 21895, April 26, 2010; U.S. Small Business Administration,
“Small Business Size Standards: Professional Scientific and Technical Services,” 75 Federal Register 21893, April 26,
2010; and U.S. Small Business Administration, “Small Business Size Standards: Transportation and Warehousing
Industries,” 75 Federal Register 21894, April 26, 2010.
116 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 U.S. Small Business Administration, “Small
Business Size Standards: Professional, Scientific and Technical Services,” 76 Federal Register 14323-14341, March
16, 2011.
117 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 U.S. Small Business Administration, “Small Business Size Standards: Transportation and
Warehousing,” 76 Federal Register 27935-27952, May 13, 2011.
118 U.S. Small Business Administration, “Small Business Size Standards: Professional, Technical, and Scientific
Services,” 77 Federal Register 7490-7515, February 10, 2012.
119 U.S. Small Business Administration, “Small Business Size Standards: Transportation and Warehousing,” 77
Federal Register
10943-10950, February 24, 2012.
120 P.L. 111-240, the Small Business Act of 2010, §1344. Updated Size Standards.
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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.121
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 Sectors 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).122
The SBA also announced that once these reviews are complete that it anticipates reviewing size
standards in the following NAICS Sectors 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).123
Table 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
notice of intent to review the size standard;
• the date the SBA published or anticipates to publish in the Federal Register a
notice of proposed rulemaking for the size standard;
• the recommended change proposed in the notice of proposed rulemaking;

121 Ibid.
122 U.S. Small Business Administration, “Semiannual Regulatory Agenda,” 76 Federal Register 40140-40142, July 7,
2011.
123 U.S. Small Business Administration, Office of Congressional and Legislative Affairs, “Correspondence with the
author,” March 30, 2012.
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• 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, 2010-2012
Notice of Intent
Notice of
to Review the
Proposed
Recommended
Final
Final
NAICS Sectors
Standard
Rulemaking
Change
Rule
Change
Transportation and
75 Federal Register
76 Federal Register
Would increase
77 Federal
Increased
Warehousing
21894,
27935-27952,
size standards for
Register
size
(NAICS Sector 48-
Apr. 26, 2010
May 13, 2011
22 industries
10943-
standards
49)
10950,
for 22
Feb. 24,
industries
2012
(effective
Mar. 26,
2012)
Professional,
75 Federal Register
76 Federal Register
Would increase
77 Federal
Increased
Scientific and
21893, 21894
14323-14341,
size standards for
Register
size
Technical Services
Apr. 26, 2010
Mar. 16, 2011
35 industries and 1 7488-
standards
(NAICS Sector 54)
sub-industry
7515,
for 34
Feb. 10,
industries
2012
and 3 sub-
(effective
industriesa
Mar. 12,
2012)
Information
76 Federal Register
76 Federal Register
Would increase
77 Federal
Increased
(NAICS Sector 51)
40140-40142,
63216-63229,
size standards for
Register
size
July 7, 2011
Oct. 12, 2011
15 industries
72702-
standards
72709,
for 15
Dec. 6,
industries
2012
(effective
Jan. 7,
2013)
Administrative and
76 Federal Register
76 Federal Register
Would increase
77 Federal
Increased
Support, Waste
40140-40142,
63510-63525,
size standards for
Register
size
Management and
July 7, 2011
Oct. 12, 2011
37 industries
72691-
standards
Remediation
72702,
for 37
Services
Dec. 6,
industries
(NAICS Sector 56)
2012
(effective
Jan. 7,
2013)
Educational
76 Federal Register
76 Federal Register
Would increase
77 Federal
Increased
Services
40140-40142,
70667-70680,
size standards for
Register
size
(NAICS Sector 61)
July 7, 2011
Nov. 15, 2011
nine industries
58739-
standards
58747,
for nine
September industries
24, 2012
(effective
Oct. 24,
2012)
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Notice of Intent
Notice of
to Review the
Proposed
Recommended
Final
Final
NAICS Sectors
Standard
Rulemaking
Change
Rule
Change
Real Estate, Rental
76 Federal Register
76 Federal Register
Would increase
77 Federal
Increased
and Leasing
40140-40142,
70680-70694,
size standards for
Register
size
(NAICS Sector 53)
July 7, 2011
Nov.15, 2011
20 industries and
58747-
standards
1 sub-industry
58755,
for 21
September industries
24, 2012
and 1 sub-
(effective
industry
Oct. 24,
2012)
Health Care and
76 Federal Register
77 Federal Register
Would increase
77 Federal
Increased
Social Assistance
40140-40142,
11001-11017,
size standards for
Register
size
Services
July 7, 2011
Feb. 24, 2012
28 industries
58755-
standards
(NAICS Sector 62)
58761,
for 28
September industries
24, 2012
(effective
Oct. 24,
2012
Arts,
77 Federal Register
77 Federal Register
Would increase
Expected
Expected
Entertainment, and
8024,
42211-42225,
size standards for
2013
2013
Recreation
February 13, 2012
July 18, 2012
17 industries
(NAICS Sector 71)
Construction
77 Federal Register
77 Federal Register
Would increase
Expected
Expected
(NAICS Sector 23)
8024,
42197-42211,
size standards for
2013
2013
February 13, 2012
July 18, 2012
one industry and
one sub-industry
Utilities
76 Federal Register
77 Federal Register
Would increase
Expected
Expected
(NAICS Sector 22)
40140-40142,
42441-42454,
size standards for
in 2013
in 2013
July 7, 2011
July 19, 2012
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
Finance and
NA 77 Federal Register
Would increase
Expected
Expected
Insurance
55737-55755,
size standards for
in 2013
in 2013
(NAICS Sector 52)
September, 11,
37 industries and
2012
change the
measure of size
from total assets
to annual receipts
for 1 industry
Management of
NA 77 Federal Register
Would increase
Expected
Expected
Companies
55737-55755,
size standards for
in 2013
in 2013
(NAICS Sector 55)
September, 11,
two industries
2012
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Notice of Intent
Notice of
to Review the
Proposed
Recommended
Final
Final
NAICS Sectors
Standard
Rulemaking
Change
Rule
Change
Agriculture,
NA 77 Federal Register
Would increase
Expected
Expected
Forestry, Fishing
55755-55768,
size standards for
in 2013
in 2013
and Hunting
September, 11,
11 industries
(NAICS Sector 11)
2012
Support Activities
NA 77 Federal Register
Would increase
Expected
Expected
for Mining
72766-72776,
size standards for
in 2013
in 2013
(within NAICS
December, 6,
three industries
Sector 21)
2012
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, that 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.124
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 no
more than $18 million and average after-tax net income for the preceding two years of not more
than $6 million.125 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.”126
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

124 13 CFR §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 CFR §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 and John R. Luckey.
125 13 CFR §107.700; 13 CFR §107.710; 13 CFR §301(c)(2); and 13 CFR §301(c)(1).
126 U.S. Small Business Administration, 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.
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$8.5 million and did not have an average net income in excess of $3 million after taxes for the
preceding two years.127 As discussed below, P.L. 111-240, the Small Business Jobs Act of 2010,
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 the North American Industry Classification System (NAICS).128
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, 2010.129 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.130
Industry Size Standards
The SBA administrator has the authority to establish and modify size standards for particular
industries. At the start of the current review of comprehensive size standards which started in

127 U.S. Small Business Administration, “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.
128 13 CFR §121.201.
129 U.S. Small Business Administration, “Small Business Size Standards; Temporary Alternative Size Standards for
7(a) Business Loan Program,” 74 Federal Register 20577, May 5, 2009.
130 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 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.
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2008, the SBA had 41 different size standards: number of employees (7 size standards, 8 slightly
different ones under the new methodology); average annual receipts in the previous three years
(31 size standards, 8 under the new methodology); average assets (1 size standard); annual
megawatt hours of electric output in the preceding fiscal year (1 size standard), and a combination
of number of employees and barrel per day refining capacity (1 size standard).131 Overall, the
SBA currently classifies about 97% of all employer firms as small.132 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.”133 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.134
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.135 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.”136

131 13 CFR §121.102; 13 CFR §121.104; 13 CFR §121.106; and 13 CFR §121.201. Almost all industries have only one
measure of size. A few industries use a combination of measures. For example, the petroleum refinery industry uses a
combination of refining capacity and number of employees. Also, the number of employees of a concern is its average
number of persons employed for each pay period over the concern’s latest 12 months. Any person on the payroll must
be included as one employee regardless of hours worked or temporary status. Also, if a concern has not been in
business for three years, the average weekly revenue for the number of weeks the concern has been in business is
multiplied by 52 to determine its average annual receipts.
132 U.S. Small Business Administration, “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.
133 U.S. Small Business Administration, 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.
134 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.
135 13 C.F.R. §121.102.
136 U.S. Small Business Administration, 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.
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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.
The SBA uses employment size to determine eligibility for 499 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 having an upper limit of 1,000 employees (61 of 364 classifications, or 16.8%); and 3
(ammunition, other than small arms, manufacturers, petroleum refineries, and aircraft
manufacturers) have an upper limit of 1,500 employees.137 All 25 of the mining industries that use
employment to determine eligibility have an upper limit of 500 employees (four mining support
industries use an upper limit of $7 million in average annual receipts). All 71 of the wholesale
trades industries have an upper limit of 100 employees.138
The SBA currently has eight different employee-based size standards (50 or fewer, 100 or fewer,
150 or fewer, 200 or fewer, 500 or fewer, 750 or fewer, 1,000 or fewer, and 1,500 or fewer
employees) in 499 industries. Under the new methodology, the SBA will use the following eight
slightly different employee-based size standards when establishing new, or reviewing existing,
size standards: 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.
The SBA uses average annual receipts over the three most recently completed fiscal years to
determine program eligibility for most other industries (532 of 1,047 industries, or 50.8%).139 The
SBA also uses total assets to determine eligibility for 6 industries, annual megawatt hours of
electric output in the preceding fiscal year for 10 power generation and transmission industries,
and a combination of number of employees and barrel per day refining capacity for petroleum
refineries.140
As mentioned previously, at the start of the current comprehensive size standards review which
began in 2008, the SBA had 31 different size limits using the firm’s average annual sales or
receipts, ranging from no more than $0.75 million to no more than $35.5 million, to determine
program eligibility in 538 industries. In some instances, there is considerable variation in the size
standards used within each industrial sector. For example, the SBA uses 8 different size standards
to determine eligibility for 67 industries in the retail trade sector.141 In general

137 U.S. Small Business Administration, “Table of Small Business Size Standards,” October 1, 2012, at
http://www.sba.gov/content/table-small-business-size-standards.
138 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.
139 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.
140 U.S. Small Business Administration, “Table of Small Business Size Standards,” October 1, 2012, at
http://www.sba.gov/content/table-small-business-size-standards.
141 Ibid.
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• most administrative and support service industries have an upper limit of $7.0
million in average annual sales or receipts;
• most agricultural industries have an upper limit of $0.75 million in average
annual sales or receipts;142
• most agricultural and forestry support industries have an upper limit of $7.0
million in average annual sales or receipts;
• most construction of buildings and civil engineering construction industries have
an upper limit of $33.5 million in average annual sales or receipts, and most
construction specialty trade contractors have an upper limit of $14.0 million in
average annual sales or receipts;
• most educational services industries have an upper limit of either $7.0 million or
$10 million in average annual sales or receipts;
• most health care and social assistance industries have an upper limit of either
$7.0 million or $10.0 million in average annual sales or receipts;
• most professional, scientific, and technical service industries, including mining
services, have an upper limit of $14.0 million in average annual sales or receipts,
but range from $7.0 million to $35.5 million;
• most real estate, rental and leasing industries have an upper limit of $2.0 million
or $7.0 million in average annual sales or receipts;
• 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 $14.0 million in average annual sales or
receipts, the 6 truck transportation and 4 transportation warehousing and storage
industries have an upper limit of $25.5 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 $7.0 million
to $35.5 million in average annual sales or receipts); and
• most finance and insurance industries have an upper limit of $7.0 million in
average annual sales or receipts.143
The SBA also applies a $175 million asset limitation for eligibility purposes for six industries:
commercial banks, saving institutions, credit unions, other depository credit intermediation, credit
card issuing, and international trade financing.144 It also applies a 4 million annual megawatt of

142 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.”
143 The SBA has proposed increasing most finance and insurance industries to either $30 million or $35.5 million in
average annual sales or receipts. See U.S. Small Business Administration, “Small Business Size Standards: Finance and
Insurance and Management of Companies and Enterprises,” 77 Federal Register 55749-55750, September 11, 2012.
144 The SBA has proposed increasing the $175 million asset limit for commercial banks, saving institutions, credit
unions, other depository credit intermediation, and credit card issuing to $500 million. See U.S. Small Business
Administration, “Small Business Size Standards: Finance and Insurance and Management of Companies and
Enterprises,” 77 Federal Register 55749, September 11, 2012.
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electric output limit in the previous fiscal year for six power generation and transmission
industries: hydroelectric power generation, fossil fuel electric power generation, nuclear electric
power generation, other electric power generation, electric bulk power transmission and control,
and electric power distribution.145
As mentioned previously, the SBA is currently using eight receipt-based size standards when
establishing or reviewing size standards. The SBA has argued that reducing the number of
receipt-based size standards, from 31 to 8, 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.”146
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
has 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.”147
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.148
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, addresses
the SBA’s recent practice of combining size standards within industrial groups to promote greater
consistency for industries that have similar economic characteristics.
The bill authorizes 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

145 U.S. Small Business Administration, “Table of Small Business Size Standards,” October 1, 2012, at
http://www.sba.gov/content/table-small-business-size-standards. As mentioned in a previous footnote, the SBA has
proposed to replace the 4 million annual megawatt size standard for these industries with number of employees (500 or
fewer employees). See U.S. Small Business Administration, “Small Business Size Standards: Utilities,” 77 Federal
Register
42450, July 19, 2012.
146 U.S. Small Business Administration, 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.
147 U.S. Small Business Administration, “Small Business Size Standards: Professional, Technical, and Scientific
Services,” 77 Federal Register 7498, February 10, 2012.
148 Ibid.
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industry classification included in the grouping.”149 The bill would require 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.150
H.R. 4310, the National Defense Authorization Act for Fiscal Year 2013, introduced on March 29,
2012, and passed by the House on May 18, 2012, includes these provisions.
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.151 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
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.152 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.153 Also, prior to issuing

149 H.R. 3987, the Small Business Protection Act of 2012, Section 2, Small Business Concern Size Standards.
150 Ibid.
151 The federal government has a goal of awarding at least 23% of all federal government buying targeted 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. Small
Business Administration, “Government-Wide Performance: 2011 Small Business Procurement Scorecard,” at
http://www.sba.gov/sites/default/files/files/FY11%20Final%20Scorecard%20Government-Wide_2012-06-29.pdf. For
further information and analysis concerning federal contracting preferences for small businesses see CRS Report
R41945, Small Business Set-Aside Programs: An Overview and Recent Developments in the Law, by Kate M. Manuel
and Erika K. Lunder; and CRS Report R41268, Small Business Administration HUBZone Program, by Robert Jay
Dilger.
152 5 U.S.C. 601; 5 U.S.C. 603; and 5 U.S.C. 604.
153 15 U.S.C. 632.
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the final rule, the federal agency must have the approval of the SBA’s Administrator.154 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.155
The Office of Advocacy is an independent office within the SBA.
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 to 8. The bill would retain
the SBA’s Administrator’s authority to develop 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 assume the SBA Administrator’s authority to
approve or disapprove a size standard proposed by a federal agency if it deviates from the SBA’s
size standards.156
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 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’ 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

154 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.
155 Representative 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.
156 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.
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with other agencies’ regulatory regimes, and lack sufficient granularity to examine the
impact of a proposed rule on a spectrum of small businesses.157
Opponents 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.158
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’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.

157 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.
158 Ibid., p. 14.
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In the meantime, the SBA continues to adjust its monetary 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 last
adjustment for inflation took place in 2008.159 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
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.”160
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
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

159 U.S. Small Business Administration, “Small Business Size Standards: Inflation Adjustment to Size Standards,
Business Loan Programs, and Disaster Assistance Program,” 73 Federal Register 41237-41254, July 18, 2008.
160 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.
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serious consideration in recent years. Nonetheless, it remains an option available to Congress
should it decide to change current policy.

Author Contact Information

Robert Jay Dilger

Senior Specialist in American National Government
rdilger@crs.loc.gov, 7-3110

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