Small Business Size Standards: A Historical Analysis of Contemporary Issues Page: 2 of 41
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Small Business Size Standards: A Historical Analysis of Contemporary Issues
Small business size standards are of congressional interest because the standards determine
eligibility for receiving Small Business Administration (SBA) assistance as well as federal
contracting and tax preferences. Although there is bipartisan agreement that the nation's small
businesses play an important role in the American economy, there are differences of opinion
concerning how to define them. The Small Business Act of 1953 (P.L. 83-163, as amended)
authorized the SBA to establish size standards for determining eligibility for federal small
business assistance. The SBA currently uses two types of size standards to determine SBA
program eligibility: industry-specific size standards and alternative size standards based on the
applicant's maximum tangible net worth and average net income after federal taxes.
The SBA's industry-specific size standards determine program eligibility for firms in 1,037
industrial classifications in 19 sub-industry activities described in the 2017 North American
Industry Classification System (NAICS). The size standards are based on one of four measures:
(1) number of employees, (2) average annual receipts in the previous three years, (3) average
asset size as reported in the firm's four quarterly financial statements for the preceding year, or
(4) a combination of number of employees and barrel per day refining capacity. Overall, the SBA
currently classifies about 97% of all employer firms as small. These firms represent about 30% of
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;
" 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;
" required the SBA to conduct a detailed review of not less than one-third of the
SBA's industry size standards every 18 months beginning on the new law's date
of enactment (September 27, 2010) and ensure that each size standard is
reviewed at least once every five years.
This report provides a historical examination of the SBA's size standards and assesses competing
views concerning how to define a small business. It also discusses
" P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013,
which requires the SBA to make available a justification when establishing or
approving a size standard that the size standard is appropriate for each individual
industry classification. It addresses the SBA's recent practice of combining size
standards within industrial groups as a means to reduce the complexity of its size
Congressional Research Service
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Dilger, Robert Jay. Small Business Size Standards: A Historical Analysis of Contemporary Issues, report, April 17, 2018; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc1156786/m1/2/?q=%22business%22: accessed March 25, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.