SBA standards revision would increase the number of SMBs

More companies may be able to call themselves small businesses if the Small Business Administration goes forward with plans to overhaul its size standards. And it could open up opportunities for finance leaders and owners of smaller companies who want to grow, but stay under the threshold for special government contracting opportunities.

In August, the SBA proposed a revision to its company size standards to “better reflect current industry structures, market conditions, and competitiveness,” and published its methodology for developing those standards.

The methodology consolidated almost 1,000 industry-specific standards into 338.

The overhaul to the size standards, if it goes through, would increase the number of businesses that could call themselves “small” by roughly 114,541, including more than 37,000 companies that held $71 billion in government contracts in 2025. It could have a big impact on eligibility for US government contract set-asides and SBA loans.

The SBA’s contracting programs help both the government and small business, according to Matt Swartz, an M&A partner at law firm Pillsbury Winthrop Shaw Pittman. The government gets access to “more nimble and specialized businesses” while small companies can compete for contracts in a separate category, “rather than a small company with focused expertise always eclipsed by the marketing resources of the giants,” he told CFO Brew via email. 

“One of the aspects of the small business program that frustrated small businesses was that the ceiling was too low…that as soon as they got good traction with customers they lost access to the small business program,” he said.

He gave the hypothetical example of a radar technology company that grows to $30 million in sales, making it too big to qualify for government contracts based on the SBA’s current small business definition.

Yet it also wouldn’t have the resources to compete against huge contractors like Lockheed Martin, he said. “Competing as a company [that is] one-hundredth the size [of a much bigger rival] is still an enormous challenge. And sometimes small business is the better answer for the customer—in this case, the government.”

Andrew Nixon, an SBA spokesperson, agreed. “Under previous rules, truly small businesses across many industries were abruptly forced out of small business programs the moment they achieved modest success, leaving them unable to compete against massive conglomerates,” Nixon told CFO Brew in an email. “Raising these thresholds would give growing businesses, particularly those in critical industries like manufacturing, energy, and agriculture, additional runway—instead of being punished for their success,” Nixon added.

Selling opportunities. The proposed SBA changes will give founders of small businesses options, which could include selling to another small company, Swartz said. Currently, founders of small businesses often have to seek outside investors, like private equity, if they want to exit. Right now, a small company is unlikely to buy another small business if it wants to maintain its small business status, he explained.

For example, with the $34 million threshold for custom computer programming or computer systems design services, a company in either of these categories that generates $25 million in revenue can continue to compete for government contracts as a small business, he said. But M&A likely is off the table. “There are almost no businesses that could acquire that hypothetical company without causing it to lose small business status,” he said.

The SBA proposal “opens a new category of buyers that wasn’t there before, which is other small businesses that are big enough to have the money and still, when a combined company, wouldn’t trigger a loss of the advantages,” Swartz said.

Congress requires the SBA to review all size standards every five years.

Comments for both proposed rules were initially due Sept. 21, but the SBA extended that period to Nov. 20. The SBA has received over 3,200 comments on its proposed size standard rule, and more than 1,300 comments on its revised methodology.