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U.S. Small Business Administration Revises the Definition of Small Business

Small business size

“Small businesses” are not that small anymore. For the first time since the early 1980s, the U.S. Small Business Administration1 revised the standards that determine the size that companies can be to qualify for the administration’s loans. According to “Small Business Size Standards; Accommodation and Food Services Industries,” posted in the Federal Register, a hotel can show more than four times as much annual revenue, now $30 million instead of $7 million, and still qualify as “small.” New-car dealerships were previously defined as small businesses if they had maximum annual sales of $29 million. Now, the size standard is set by number of employees instead of annual sales. New-car dealerships are now considered small if they have no more than 200 employees. The administration estimates that 5,700 more dealerships will now qualify for its programs.

The rule for the new standards took effect Nov. 5, 2010.

Since the standards were last examined, many industries have undergone dramatic changes brought about by technology, productivity growth, international competition, and mergers. The administration examined 70 industries in order to determine the sizes of the companies that could use its assistance. In all cases, the limits were adjusted upward. The estimate is that 17,000 more companies will be eligible to take advantage of U.S. Small Business Administration loans and assistance.

At The Small Business Authority, business specialists say that a couple of larger U.S. Small Business Administration loans in excess of $2 million have recently been approved, reflecting the larger threshold. In general, however, the business specialists still process mostly smaller loans.

The government bases its definitions on the North American Industry Classification System,2 which examines an industry’s average firm size, startup costs, industry competition, and the size distribution of firms, among other considerations. The U.S. Small Business Administration report included a table, “Summary of Revised Size Standards for NAICS Sector 72.” Sector 72, also known as the Accommodation and Food Services sector, covers five industries: hotels and motels, casino hotels, limited-service restaurants, cafeterias, and food-service contractors. All but the last of these had been limited to $7 million in annual receipts in order to qualify as a small business, but that ceiling has now been raised. Food-service contractors had a size limit of $20.5 million.

The U.S. Small Business Administration raised the annual receipt cap at which businesses in these industries would still be considered small:

  • Hotels and motels—up to $30 million
  • Casino hotels—up to $30 million
  • Limited-service restaurants—up to $10 million
  • Cafeterias—up to $25.5 million
  • Food-service contractors—up to $35.5 million in annual receipts

In the case of the Accommodations and Food Service sector, the U.S. Small Business Administration’s analysis suggested that seven industries in the category should actually see their size standards reduced, but it decided in the end to retain the existing standards rather than reduce them. The reason was that lowering the size standards would reduce the number of firms eligible to participate in U.S. Small Business Administration assistance programs, and that would run counter to the administration’s purpose.

Revised size standards for 47 industries in Retail Trade (Sector 44-45) and for 18 industries in Other Services (Sector 81) were also finalized.

According to the Federal Register document, “SBA’s size standards [currently] consist of 45 different size levels, covering 1,141 NAICS industries and 17 sub-industry activities. Of these size levels, 32 are based on average annual receipts, eight are based on number of employees, and five are based on other measures. In addition, [The U.S. Small Business Administration] has established 11 other size standards for its financial and procurement programs.”

The U.S. Small Business Administration has some work left to do.

“Under provisions in the Small Business Jobs Act of 2010, [the U.S. Small Business Administration] will continue its comprehensive review of all size standards for the next several years, as the law specifies,” according to a press release.

1. What’s New With Size Standards
2. North American Industry Classification System

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