In a proposed rule announced August 20, 2026, the Small Business Administration (SBA) set new size standards for defining firm size while simultaneously issuing a notice for comments on a revised methodology for establishing, reviewing, and modifying these size standards. Currently, the SBA's size standards determine firm-size limits for various SBA services and contracting preferences by industry category that results in over 1,000 individual size standards. These size limits are generally expressed in terms of either average annual revenue or average number of employees, with revenue limits ranging from $2.25 million to $47 million and employee-count limits ranging from 100 employees to 1,500 employees (see the SBA table of size standards at 13 C.F.R. §121.201). Using the revised methodology, the proposed size standards would newly classify approximately 110,000–114,500 additional firms as "small." Although robust analysis of the new proposal is unavailable to date, some researchers and economists have analyzed the impacts of prior expansions to the size standards. This Insight describes the proposed changes and issues that may be of congressional interest.
Under the August 2026 proposal, the number of size standards would shrink from around 1,000 to 338. This is a result of the revised methodology, which calculates size standards at a higher (less specific) industry level. The SBA's 2024 methodology (and its prior methodologies issued in 2023, 2019, 2018, and 2009) defined size standards for the most specific industry category (categories are assigned a six-digit North American Industry Classification code [NAICS]). The proposed 2026 methodology sets size standards by four- and five-digit NAICS codes. An example of a four-digit NAICS code is 5417, Scientific Research and Development Services, which has five-digit codes within that category that include Research and Development (R&D) in the Physical, Engineering, and Life Sciences, as well as R&D in the Social Sciences and Humanities; six-digit codes are as specific as biotechnology R&D.
The proposed 2026 size standards would replace some revenue-based standards with employee-count based standards. While previous methodologies restricted the use of employee-count size standards to mainly manufacturers and mining companies (483 of 997 [excluding exceptions], or 48%), the majority of the proposed size standards are now expressed in terms of number of employees (209 out of 338, or 62%).
In addition to shifting from revenue-based standards to standards primarily based on employee-count, the proposed 2026 standards have higher limits and are generally inclusive of more firms in any given industry. Prior revenue-based size standards included ceilings that ranged from $2.25 million to $47 million; new, proposed standards range from $31 million (e.g., NAICS code 4854, School and Employee Bus Transportation) to over $1.0 billion (for NAICS code 5239, Other Financial Investment Activities). Prior employee-count based standards included ceilings that ranged from 100 employees to 1,500 employees; proposed standards range from 500 employees (e.g., NAICS code 4411, Automobile Dealers) to 3,600 employees (for NAICS code 5132, Software Publishers). The SBA estimates that the approximate number of "small" firms that will become eligible for federal programs and benefits will rise about 1.8 percent, or about 115,000 firms.
SBA size standards are primarily used to define eligibility for SBA programs, though they have some wider applicability.
Within SBA programs, the impact of the proposed 2026 changes may vary. Even though changes to size standards affect eligibility for both lending and contracting programs, those seeking government contracting preferences may be more likely to feel the impacts of the changes than those seeking government assistance with borrowing. For instance, borrowing requirements—such as loan maximums, personal guarantees, interest rates, and training requirements—for SBA's business loan programs (7(a), 504, and Microloan) may make them less appealing to newly-eligible businesses. With regard to contracting, SBA estimates that more than 37,000 unique firms with FY2025 contracts will be newly eligible for small business contracting programs, with benefits such as contract set-asides and sole-source contracts. Some have expressed concerns about the crowding-out of the smallest or newest contractors by larger firms, while others have welcomed the ability for growing contractors to maintain SBA program eligibility. Also, the investment decisions of venture capital funds in the Small Business Investment Company Program may be affected by the newly eligible businesses. Meanwhile, the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are governed by an employee-based standard of 500 employees (13 C.F.R. §121.702(c)).
Beyond SBA programs, SBA indicates that it foresees "lower [regulatory] compliance requirements for small businesses" because of the more inclusive size standards. While hypothetically possible, that outcome would depend on a variety of additional agency decisions. Under the Regulatory Flexibility Act (RFA), agencies are required to analyze the effects of certain regulations on small entities, including small businesses. The RFA is intended to encourage agencies to consider more flexible options for small entities to comply with regulations. For example, more flexible options might include a shorter or less frequent reporting requirement or an outright exemption from a rule. If more businesses are classified as small businesses, agencies may also be required to consider these types of flexibilities more often: the RFA is triggered when a rule is expected to have a "significant economic impact on a substantial number of small entities."
The SBA rulemaking notice states that it aims to simplify the size standards, reduce the number of firms fluctuating between small and other-than-small business status, more closely align its methodology with the Small Business Act's description of a small business, and add a "productivity adjustment" into calculations of the remaining revenue-based size standards. Congress may wish to explore the theory and empirical analyses behind SBA's proposals and consider how it may support or oppose broader policy objectives such as the promotion of competitive markets, innovation, and job creation. For the sake of program effectiveness, Congress has historically debated how to set program eligibility and best target intended benefits to small businesses.