Earlier this month, SBA published its final rule adopting a revised size standards methodology. My colleagues, Jon Williams and Tim Valley, previously described the proposed changes to the methodology in a blog last year. The final methodology white paper adopts all the changes SBA proposed with minor revisions.
SBA is moving from an “anchor” approach to a “percentile” approach. Under the anchor approach, SBA generally evaluated the characteristics of individual industries relative to the average characteristics of industries with an anchor size standard ($7.5 million and 500 employees) to other industries to determine whether they should have a higher or a lower size standard than the anchor. In the “percentile” approach, SBA will rank each industry among all industries with the same measure of size standards (receipts versus employees) using four industry factors: (1) average firm size, (2) average assets size as proxy for startup costs and entry barriers, (3) industry competition, and (4) distribution of firms by size. SBA believes that “both in terms of the direction and magnitude of changes to size standards, the impacts of the percentile approach would be minimal as compared to the anchor approach.” So the range of size standards will likely not dramatically change under the new percentile approach.
SBA’s most notable statement in the latest rulemaking, though, may be the following: “The Agency plans to issue proposed rules on all receipts based size standards, including those in NAICS Sector 54 and Subsector 236, in the near future.” The size standards are long overdue for updates, having not been adjusted (except for inflation) since 2012, so this is welcome news. We will let you know once these proposed changes are published. Industry will then have an opportunity to comment on the proposed new size standards and potentially sway SBA to change them.