Editorial · July 5, 2024
SBA Size Standards: How Small Is Small for Contracts
SBA size standards are the rules the U.S. Small Business Administration uses to decide whether a company is "small" for federal programs. A company that meets the standard for its industry can compete for contracts and loans set aside for small firms. One that does not cannot. The rules sit in Title 13 of the Code of Federal Regulations, Part 121.
What the standards are
The SBA says its size standards define whether a business is small and so eligible for government programs and preferences reserved for small business. The standards are set by type of work, not by one number for everyone. The SBA ties them to the North American Industry Classification System, known as NAICS.
NAICS gives every kind of economic activity a code. The codes sort all activity into twenty broad sectors. Each six-digit code has its own size standard. A bakery and a software firm do not face the same test, because their industries work in different ways.
Receipts or employees
Each standard is written in one of two ways. Most service, construction and farming codes use annual receipts, stated in millions of dollars. Most manufacturing codes use the number of employees. The figure is the most a company and its affiliates can have and still count as small.
Here are a few examples from the table in force on July 5, 2024. Custom computer programming services (541511) is set at $34 million in receipts. Engineering services (541330) is $25.5 million. Janitorial services (561720) is $22 million. Full-service restaurants (722511) is $11.5 million. Retail bakeries (311811) use a limit of 500 employees, and commercial bakeries (311812) use 1,000. Aircraft manufacturing (336411) is 1,500 employees.
The full list is in 13 CFR 121.201. The SBA also publishes a table of the standards on its website. The latest change to the table before this date took effect on March 17, 2023, so those are the figures to check first.
How receipts and employees are counted
The rules say what counts. Receipts means all revenue from any source, including sales, interest, rents, royalties and fees, less returns and allowances. A firm cannot subtract subcontractor costs or payroll taxes to look smaller. The SBA generally points to the figures on the company's federal tax return.
For most federal contracting programs, a firm that has been in business five or more full fiscal years uses its total receipts over the last five years divided by five. A younger firm uses the receipts for the time it has existed, scaled to a year.
Employees are counted differently. The SBA counts full-time, part-time and temporary workers, including staff supplied by a staffing agency. Volunteers who get no pay of any kind are not counted. The count is an average over the pay periods of the last 24 months, not a single day's headcount.
Why affiliates matter
A company does not stand alone when the SBA measures it. The SBA adds the receipts or employees of the company and all of its affiliates, at home and abroad, whether or not those affiliates are run for profit. Firms are affiliates when one controls the other, or when a third party controls both. It does not matter whether control is used. The power to control is enough.
The SBA looks at ownership, management, past ties and contracts. It weighs the whole picture, and it can find affiliation even when no single factor decides it. A small firm owned by a large parent usually does not qualify as small.
When size is judged
For most contracts, the SBA checks size on the date a company certifies that it is small. That is the date it submits its initial offer, including price. Passing on that day is what counts for that bid, so firms should run the numbers before they certify.
The SBA also reviews the standards from time to time. The rules require it to look at the effect of inflation on dollar-based standards at least every five years. If inflation has worn down their value, the SBA must propose raising them.
A short checklist for firms
First, find your main NAICS code, the one that matches the work you do most. Second, look up its standard in the table. Third, add up your receipts or employees the way the rules require, and include affiliates. Fourth, compare the result with the limit. If you pass, you may bid on small business set-asides in that code. If you are close, check again before each bid, because the numbers and the rules can change.
This article is general information, not legal advice. For a firm's own case, the SBA and its local small business offices can help.