SBA considers changing definition of a small business

Whether a business is considered “small” in the government’s eyes is pretty important. It determines whether the business is eligible for federal aid money and federal contracts. Now, the Small Business Administration is proposing some changes to how it defines “small business.”

The government sets aside about a quarter of federal contracts for small businesses, including manufacturing jobs, service-sector work, and construction.

Those contracts can be a big deal for a small business, said Richard Prisinzano, director of policy analysis at The Budget Lab at Yale University.

”There’s a lot of money, and the government is a very good payer,” he said.

But unless a business meets the government’s definition of a small business determined by revenue or headcount, it might miss out on those lucrative contracts. As a result, some small businesses might not want to grow.

“Maybe they want to hire three extra employees, but that would put them out of this. I could see them not hiring, because they don’t want to go over the employee count,” Prisinzano said.

The SBA is proposing to more than double the size limit in several industries. In some, including architectural services and custom computer programming services, it’ll increase more than tenfold.

The SBA said the new size standards will “better reflect the nature of the markets in which small businesses compete.”

But that could also make it harder for the smallest companies, argued Tom Schryver, a visiting lecturer at Cornell’s SC Johnson College of Business.

”If I’m imagining my current student who’s setting up a new business, just him and his partner, competing against a consulting firm with 1,000 people perhaps, it’s hard to see how that playing field will be level,” he said.

Schryver added that supporting the smallest firms can have an outsized impact on employment and the broader economy.