SBA Proposes Significant Expansion of Small Business Size Standards

The Small Business Administration has proposed the broadest rewrite of its size standards in decades. The proposal raises thresholds in nearly every industry and, by SBA’s estimate, would reclassify about 114,500 firms as small. After heavy opposition, SBA extended the comment deadline to November 20, 2026. The current standards remain in force until a final rule takes effect.

What SBA proposed

On August 20, 2026, SBA published two companion documents. The first, Small Business Size Standards (91 Fed. Reg. 53741, RIN 3245-AI67), proposes new standards for 338 industry groups and industries. The second, the Revised Size Standards Methodology (91 Fed. Reg. 54096), explains the formula behind them. Together they are the agency’s third five-year review under the Small Business Jobs Act of 2010.

The changes are structural:

Fewer, broader standards. Nearly 1,000 standards set for six-digit NAICS codes would collapse into 338 set at the four- and five-digit level. The NAICS codes themselves do not change. Each six-digit code would take the standard of its group.
A shift to headcount. Receipts-based standards would fall from 496 to 129, and 208 of the 338 standards would be measured by employees. Most of the construction sector would convert.
No ceiling. Today’s standards top out at $47 million in receipts or 1,500 employees. The proposal sets floors of 500 employees and $30.6 million and removes the caps. The highest proposed standards are 3,600 employees and just over $1 billion in receipts.
A new formula. SBA would replace its seven-factor analysis with a single “average market size” measure built from national industry size, the number of geographic markets and net imports.
A productivity adjustment. Receipts-based standards would be adjusted for productivity growth as well as inflation.
No exceptions. All 18 subindustry exceptions would be removed, including the 150-employee standard for information technology value-added resellers and the separate engineering standard for military and aerospace work.
No reductions. SBA would not lower any standard, even in the 45 industries where its own analysis pointed to a decrease.

How far the thresholds move

The largest increases are in professional services, IT and consulting, where several standards would rise roughly tenfold or more. Construction and software publishing would trade a revenue cap for a headcount cap with no revenue limit.

NAICS	Industry	Current standard	Proposed standard
5415	IT and computer services	$34M–$37M receipts	$531M receipts
5416	Management, scientific and technical consulting	$19M–$29M receipts	$295M receipts
541330	Engineering services	$25.5M receipts	$252M receipts
541715	R&D in the physical, engineering and life sciences	1,000 employees	2,800 employees
518210	Computing infrastructure, data processing and hosting	$40M receipts	$402M receipts
513210	Software publishers	$47M receipts	3,600 employees
561210	Facilities support services	$47M receipts	$156M receipts
236220	Commercial and institutional building construction	$45M receipts	600 employees
336611	Ship building and repairing	1,300 employees	2,300 employees
721110	Hotels and motels	$40M receipts	$503M receipts

These are selected examples. The full table is in the proposed rule, and each firm should check the standard for every code it bids under.

Why SBA says it is acting

SBA presents the proposal as a fix for the “benefit cliff” that pushes growing firms to slow down, turn away work or sell as they near a size cap. In its announcement, the agency said the higher thresholds are meant to “reward growth rather than force successful firms out of small business eligibility prematurely.”

The rulemaking gives further reasons. SBA wants a simpler table of standards. It wants fewer firms moving between small and other-than-small status because of inflation or a single contract win, which is its case for employee counts over revenue. And it argues that the market-size formula tracks the Small Business Act’s description of a small business more closely than the old model.

SBA also expects an effect outside its own programs. Other agencies use SBA’s standards when they assess the burden of new rules under the Regulatory Flexibility Act, so a larger small-business population could mean more rules written with small-entity relief. The Congressional Research Service, in an Insight dated September 21, 2026 (IN12740), cautions that this depends on later decisions by those agencies.

Who is affected

SBA projects a net increase of 114,541 small firms, about 1.8 percent of the country’s 6.3 million employer firms. Of those, about 37,000 hold federal contracts: roughly 105,655 fiscal year 2025 awards worth more than $71 billion. Fewer than 200 firms would lose small status.

A second estimate from inside the agency is far smaller. On September 17, SBA’s Office of Advocacy said it concurs with SBA’s analysis, but estimated that only 4,000 to 6,000 current contractors would gain small status, against roughly 56,000 firms in the small-business contracting market today. It called the proposal a “narrow, targeted adjustment.” Neither document explains the gap between that figure and the 37,002 contractors counted in the proposed rule.

The effects split along predictable lines:

Firms that outgrew their standard could regain access to set-asides, SBA lending and small-business subcontracting credit, with room to grow several times over before reaching a new cap.
Firms that are comfortably small today would compete for the same set-asides against larger rivals with deeper past performance and full-time capture staff. SBA acknowledges that growing small businesses closest to the current standards are likely to face the greatest competition.
Lean, high-revenue firms gain from the move to headcount. Labor-intensive firms in converted industries should model average employment before assuming they stay small.
Agencies could count contracts held by newly small firms toward their small business goals, which could ease pressure to create new set-asides.
Investors and acquirers get more headroom for roll-ups. The affiliation rules are unchanged and still aggregate affiliates’ receipts and employees.

Some things do not change. Size alone does not confer 8(a), HUBZone, WOSB or SDVOSB status, and the SBIR and STTR programs keep their separate 500-employee standard.

Pushback and the extension

The response was fast and mostly negative. Washington Technology reported about 68,000 submissions on the size standards proposal by September 22, most of them not yet posted. SBA took public testimony at a virtual forum on September 17 and in person in Denver on September 21.

Commenters returned to three objections:

Scale. Some thresholds would rise more than tenfold at once. Small firms argue that a $300 million company has proposal, capture and accounting infrastructure that a $30 million company cannot match.
Process. A 30-day comment period was widely called too short for a rule of this scope, and the methodology was opened for comment at the same time as the standards derived from it.
Pace. Commenters asked SBA to phase in the increases rather than apply them all at once.

Congress has weighed in. Thirteen senators, led by Sen. Edward Markey, the ranking member of the Senate Committee on Small Business and Entrepreneurship, urged SBA to rescind the proposals. Professional Services Council president Stephanie Kostro described the proposal as a “seismic” shift for the market.

SBA then extended both comment periods by 60 days, to November 20, 2026. The extension notice (91 Fed. Reg. 60524) cites requests for more time and “the SBA’s clarification of the impacts” of the proposed changes.

What contractors should do now

Nothing changes yet. Do not update SAM representations or certify size on any offer based on the proposed standards. The work for now is analysis and comment.

Map every NAICS code you bid under to its proposed four- or five-digit grouping, and flag any switch from receipts to employees.
Run the numbers both ways. Calculate size under the current and proposed standards, including affiliates. A firm can be small on headcount and large on receipts, or the reverse.
Reassess the pipeline. Incumbents on set-aside work should expect recompetes to draw larger offerors. Firms that graduated should identify set-asides they could re-enter.
Revisit deals and teaming. Acquisitions, joint ventures, mentor-protégé arrangements and recertification timing were all planned around current caps.
Comment by November 20. Data-driven comments carry the most weight. Transition rules for pending offers and recertifications, phase-in periods and industry-specific thresholds are the areas most open to change.

Comments are filed at regulations.gov under Docket No. SBA-2026-0199 for the size standards and Docket No. SBA-2026-0265 for the methodology.

What comes next

The timing and shape of a final rule are uncertain. SBA must consider the comments and testimony before it finalizes anything, and the volume of opposition makes changes to the proposal possible. The proposed rule states that it would not apply retroactively.

Date	Event
August 20, 2026	Proposed rule and revised methodology published
September 17, 2026	Virtual public forum; Office of Advocacy releases its estimate
September 21, 2026	Original comment deadline; Denver public forum
September 24, 2026	Extension notice published
November 20, 2026	Extended comment deadline for both proposals

The definition of “small” in federal contracting is open for comment, and the current table still governs. Firms on either side of the line have until November 20 to weigh in.

We advise contractors on size and affiliation questions. If you want to know where your firm would fall under the proposed standards, or want help preparing a comment, contact us.

This article is general information, not legal advice.