Small Business Administration Changes the Definition of a Small Business
The U.S. Small Business Administration has announced new definitions for small businesses that may add an additional 8,500 businesses as “small businesses” overnight when the rule goes into effect on July 14, 2014.
500 Industries AffectedThe Small Business Administration is modifying its definitions of a small business depending on the particular industry. Each industry is measured using different standards. Some are measured by employee headcount, some by total assets, and other industries are measured by annual revenue.
The new SBA definitions of a small business will affect 500 industries nationwide. Each industry was analyzed by the SBA to determine which metrics (employee headcount, assets, or revenue) would be most appropriate for measuring the size of a business and to determine what the cut-off should be for a small business in that industry.
Some of the industries will now include businesses that some argue are not small at all. For instance, a travel agency would count as small if it has under $20.5 million in annual revenue, while a software publisher that earns less than $38.5 million would also qualify as a small business.
The SBA’s PositionThe SBA finds that these businesses deserve help from the SBA because in some sectors these companies, despite bringing in tens of millions of dollars annually, are up against international multi-billion dollar corporations, so they are small in comparison. The SBA also argues that raising the limits on the definition of a small business restores small business benefits to some companies that may have lost them due to inflation rather than a significant growth in their business. And finally, with a larger pool of small businesses eligible to participate in the Federal government’s small business procurement process (in which certain government contracts are reserved only for small businesses) the government will have more options for procurement, and the increased competition between small business bidders will drive down prices and improve product quality for the government.
Some Argue that “Small Businesses” Are Anything But Small NowSome dispute the SBA’s definitions of a small business, finding that the definitions no longer represent truly small businesses.
Commentators have argued that the SBA’s expansion of the definition of a small business as “absurd” and that it makes a joke out of the idea of a “small” business. The agency is allegedly broadening its reach farther than it has in its more than sixty years of existence.
Additionally, some members of Congress have cried foul. Members have complained that the agency has over-expanded the definition of small business beyond the agency’s intended scope. The lawmakers have criticized the SBA for allegedly supporting medium-sized businesses rather than mom-and-pop institutions that are the prototypical image of small businesses.