Defining 'small' a big worry to businesses

How the government defines a small business turns out to be a very big deal.
At the behest of industry groups, the Small Business Administration (SBA) last week decided to give businessmen and -women more time to help redefine and simplify the definition of a small business.

For employers, the debate is more than a question of semantics. Small businesses can apply for nearly $15 billion in federally guaranteed loans and are eligible to compete for more than $30 billion in federal contracts set aside specifically for small businesses each year.

More than 4,500 groups and individuals responded to a proposal last March to change the definition. Some comments were complaints, and SBA officials decided to withdraw the proposed rule in July.

The most common concern was that the new definition — meant to be easier for small-business people to follow — would have reduced the number of businesses defined as small, said Gary Jackson, SBA assistant administrator for size standards.

The rule “would have had more of an impact than what we expected,” Jackson said.
In December, the SBA tentatively began to try again, soliciting industry recommendations on how to proceed. It essentially added another step in the process, issuing an advance notice of proposed rulemaking to give businesses more of a chance to come up with solutions.

“SBA remains committed to modifying its size standards in a manner to make them simpler and easier to use,” the new advance notice states.

Jackson said the agency has so far received around 1,700 comments relating to its December announcement. About 25 groups and individuals asked for further time to comment. Because of the sensitivity of the issue, the deadline was extended from Feb. 1 to April 3.

The SBA hopes to reissue a proposed rule before the end of the year, after reviewing the latest batch of comments.

Although the outcry has been loud, the SBA’s effort actually stems from complaints among small businesses that the current rules are difficult to understand and use, Jackson said.

There are 37 size-level standards determining benefits that these types of businesses are eligible to receive. A small business can earn revenues anywhere between $750,000 and $30 million, or operate with just 10 employees or hundreds, depending on the type of business that it’s in.

A retail small business, for example, must operate with 50 employees or fewer. A construction small business can have 200 employees, Jackson said.

The March rule proposed to reduce the standards from 37 to 10. It also called for defining a small business based solely on the number of employees it has. Now both the number of employees or annual revenue are used to define a small business.

Jackson said the most sensitive topic is the definition of which businesses are eligible to compete for federal contracts.

Small businesses won about $65 billion in federal contracts last year. About half of that, Jackson said, was awarded in competitions only for small businesses.