On August 20, the U.S. Small Business Administration (SBA) proposed a rule to overhaul small business size standards under 13 C.F.R. Part 121, proposing new standards with the goal of simplifying categorization rules and raising applicable size thresholds, allowing larger firms to qualify as small businesses.

The proposed rule would consolidate the existing size classification standards, including by reducing the nearly 1,000 size standard categories to 338 categories across multiple industries. The proposed rule implements this consolidation through a revised methodology that shifts the level at which size standards are calculated from the 6-digit NAICS code to a combination of 4- and 5-digit codes, resulting in fewer possible combinations. The proposed rule would also: (i) convert numerous industries from receipt-based size standards to employee-based size standards, in an attempt to reduce classification volatility; (ii) replace seven analytical factors used for calculating size standards with a single average-market-size measure based on three components (national industry size, number of geographic markets, and adjustment for net imports); and (iii) add a productivity adjustment for monetary-based size standards, adjusting such standards annually based on general productivity increases in the U.S. economy, in addition to inflation. The agency decided against proposing reductions to any size standard, even in the 45 industries where analytical results suggest a decrease may be appropriate, citing difficult economic conditions small businesses faced during 2021–2024, including high inflation and increased regulatory burdens.

The agency estimated the changes in the proposed rule, which is part of the agency’s third five-year review of all size standards required under the Small Business Jobs Act, would result in a net increase of approximately 114,541 businesses classified as small, while fewer than 200 businesses would lose small business status, according to the agency. The SBA further estimated that roughly 37,002 unique firms with fiscal year 2025 federal contracts would be newly classified as small businesses under the proposed, expanded standards. Comments on the proposed rule are due by September 21.