The SBA Should Simplify the Definition of “Small Business”

The U.S. Small Business Administration is proposing increasing the size definition of “what is a small business” for three commercial sectors: retail trade; accommodations and food services; and “other services.”  The proposed increases would affect businesses in 71 different NAICS classifications, mostly in retail sectors.

karen-millsSize standards represent the largest size that a business (including its subsidiaries and affiliates) can be and still be classified as a small business. SBA Administrator Karen Mills (pictured) said the changes would help make SBA lending, assistance and government contract programs available to more small businesses, ultimately helping them to expand and create new jobs during this economic downturn. “This reviewwill ensure SBA is in a position to be a real partner in helping our nation’s entrepreneurs and small-business owners succeed,” Mills said.

“SBA has undertaken a comprehensive review of our size standards to ensure they are current reflect changes in the economy and the marketplace,” Mills added. Size standards in many industries have become outdated due to changing market conditions and business models, but it has been over 25 years since the last overall review of industry size standards took place. (Specific industries have been reviewed from time to time as requested by the public or by federal agencies.)

Ultimately, SBA will perform a comprehensive review of all its small-business size standards to make sure they are based on the latest economic data; these three proposed rules are the first of the series.

But here’s the real question:  why do the size standards have to be so complicated?

I can appreciate that Administrator Mills wants to review the size standards.  She inherited a complex system of size standards, and after 25 years they should be reviewed. Things change over time.

But why should the characterization of what is a “small business” vary by industry or NAICS code in the first place?  That’s what defies a good explanation.

The more complex the definition of the “size of small businesses” …  the more regulatory bureaucracy you need to define, monitor and enforce all those size standards.  It just makes government and government contracting more complex, and then we pay more in taxes to support all that complexity.

On top of that, to the public — and to small business owners — the size standards appear as if they have been chosen arbitrarily.  (Yes, there’s a “size standards methodology” white paper that attempts to justify how size standards are chosen, but it is itself overly complex.)

Instead of making the size standards more complicated, let’s collapse multiple definitions down to one definition for all small businesses — or perhaps a few definitions for certain broad industry categories.  This would make more sense than adding complexity to already-complex rules.

The public will have the chance to review and comment on the SBA’s proposed standards as well as on the data and methodology to be used. The SBA is accepting comments on the proposed rule until December 21, 2009. You can submit your comments at Regulations.gov, or by mail to Khem R. Sharma, chief, Size Standards Division, 409 3rd St. SW, Mail Code 6530, Washington, DC  20416.

You can find out more about the complex size standards that currently exist, at http://www.sba.gov/size.

To learn more about the proposed changes visit the  “What’s New” section at the SBA site.

9 Comments ▼

Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

9 Reactions

  1. Grant Wickes

    I like the overall approach SBA is trying here…”help make SBA lending, assistance and government contract programs available to more small businesses” but to focus on retail and service?

    Retail and service areas (of small business) are relatively easy to start and therefore there tends to be lots started. However, they tend to stay small and there is lots of churn in the first few years (ie they go out of business as new ones start). Few really grow, adding employees as they do.

    SBA should spend less time on tweaking definitions and more time on helping the funding needs of all business… especially in sectors (eg manufacturing) that have start up capital needs and drive long term employment growth…

    My 2 cents… Cheers, Grant

  2. Martin Lindeskog

    Anita:

    Great paragraph and insight:

    “The more complex the definition of the “size of small businesses” the more regulatory bureaucracy you need to define, monitor and enforce all those size standards. It just makes government and government contracting more complex, and then we pay more in taxes to support all that complexity.”

  3. I agree with Anita 100%. The government needs to make things simpler for small businesses (and themselves).

  4. Joel Libava

    Anita,

    This probably can be simplified, but the government doesn’t seem to have that word in their playbook.

    How much of our money will be spent and wasted on this study?

    The Franchise King
    Joel Libava

  5. Attempting to fix ‘size standards’ without addressing three of its key elements: size protests, the penalties and their enforcement is akin to fixing a flat tire on a car without an engine.

    Small biz have called for congressional hearings to strengthen the size protests. You can read about it on this link. http://www.prweb.com/releases/2009/11/prweb3146134.htm

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