How the SBA’s Size Standard Overhaul Could Reshape Small Business Contracting

The Small Business Administration published a proposed rule in the Federal Register on August 20, 2026, that would rewrite size standards for 338 industry groups and industries, replacing a system of nearly 1,000 category-specific thresholds. The agency is accepting public comments through September 21, 2026.

SBA estimates the changes would add about 114,500 firms to the small-business pool nationwide. That includes more than 37,000 companies that already hold federal contracts, together worth roughly $71 billion in fiscal 2025 obligations, according to figures cited by law firm Mayer Brown. The proposal has drawn support from some lenders and objections from small business advocacy groups who say it would let much larger companies compete for contracts set aside for small firms.

What the Proposed Rule Changes

The rule would consolidate roughly 995 existing size standards into 338, according to Mayer Brown’s analysis of the proposal. Of those, 276 would apply at the four-digit NAICS industry group level and 62 at the five-digit industry level, moving away from the more granular six-digit codes SBA has used, according to Holland & Knight.

The new standards would also shift the default measure of business size. Of the 338 proposed standards, 208 would be based on employee counts, 129 on annual receipts, and one on assets, according to Mayer Brown. Holland & Knight reports the proposal sets new minimum thresholds of 500 employees or $30.6 million in receipts, and eliminates 18 federal contracting exceptions that previously applied to specific sectors.

By the Numbers
SBA’s proposal would raise the semiconductor manufacturing size standard from 1,250 to 2,800 employees and the shipbuilding standard from 1,300 to 2,300 employees, according to the agency’s August 20, 2026, announcement.

A New Formula for Measuring ‘Small’

SBA’s current methodology relies on seven factors. The proposal would replace that with a formula built on three inputs: national industry size, the number of geographic markets, and a net-imports adjustment, combined into what the agency calls an “average market size” metric, according to Holland & Knight and Mayer Brown.

Both firms describe the new approach as applying inflation and productivity adjustments to receipts-based thresholds, then converting the resulting market-size figure into a standard using a diminishing-growth formula.

How Many Firms Would Gain Small Status

According to Holland & Knight, the total number of firms qualifying as small nationwide would rise from 6,344,967 to 6,459,508, an increase of 1.8 percent. SBA’s own announcement rounds this to “over 110,000” additional firms, describing it as a 0.3 percent expansion of the 36 million small businesses in the country. Roughly 172 currently small firms would be reclassified as other-than-small, per Mayer Brown.

SBA’s press release cites specific employee-based examples: semiconductor manufacturers would see their threshold rise from 1,250 to 2,800 employees, shipbuilders from 1,300 to 2,300, and oil drilling firms from 1,000 to 2,650. Support services for animal production would move from an $11 million to a $71 million receipts standard, the agency says.

Some of the largest percentage increases would hit technology and professional services. The National Small Business Association says the standard for custom computer programming services would rise from $34 million to $531 million in annual receipts, a jump it calculates at 1,462 percent. Holland & Knight reports the same $34 million-to-$531 million increase applying to computer systems design services and other computer-related services, without citing a percentage figure. Mayer Brown’s data shows the new $531 million standard applies to the whole consolidated NAICS 5415 group, which covers custom computer programming, computer systems design, computer facilities management and other computer-related services alike — so the two accounts describe different codes within the same overall change, not a conflicting figure.

What It Means for Federal Contracts

A larger pool of eligible small businesses affects how federal agencies award work. Under the “Rule of Two,” agencies must set aside a contract for small businesses if at least two are likely to submit competitive bids. Mayer Brown says the expanded pool of qualifying firms could trigger the Rule of Two more often, shifting some previously unrestricted competitions into small-business set-asides. Holland & Knight says the expanded pool of eligible firms should help agencies meet the government’s statutory goal of directing 23 percent of contracting dollars to small businesses.

The National Small Business Association opposes the rule, arguing it would let companies with substantial revenue compete directly against much smaller incumbents within the same set-aside pool. NSBA President and CEO Todd McCracken said of the newly eligible firms that despite their small-business label, “those companies have significant economic heft.” The group’s board chair, Bill Belknap, argued the rule would benefit large businesses and existing federal contractors more than smaller ones, and NSBA has called for either rethinking the proposal entirely or extending its 30-day comment period.

Individual business owners quoted by American Banker echoed that concern. Brian Lynch, chief executive of the Yellowhammer Group, said the proposed increases amount to “a redefinition” rather than an adjustment of what counts as small. Allison Giddens of Win-Tech argued SBA should instead focus on removing existing barriers for small firms rather than expanding who qualifies as one.

“The proposed increases are not adjustments; they are a redefinition.”

SBA Loan Eligibility and Lender Reaction

SBA’s size standards also determine which companies can borrow through its flagship 7(a) loan program, and the agency’s press release describes the proposal as expanding access to SBA loans alongside federal contracts. The text of the proposed rule reviewed by Holland & Knight focuses on contracting eligibility and does not detail loan program effects specifically, leaving open how the changes would apply in practice to SBA lending.

Lenders interviewed by American Banker were more receptive than small business advocates. Jim Pendergast of altLINE said the scale of the potential expansion was significant enough that he expected many lenders to take it seriously, while Nimi Natan of Gulf Coast Small Business Lending called the prospect of newly eligible borrowers exciting. Joel Pruis of Cornerstone Advisors predicted lenders would see growth driven by larger loan amounts to bigger, more established borrowers rather than by a jump in the total number of borrowers.

What Happens Next

SBA is accepting public comments on the proposed rule through September 21, 2026. The two proposals — the industry-by-industry size standards and the underlying methodology — are being considered together, according to Mayer Brown’s summary of the rulemaking.

Photo: NASA Headquarters / NASA/Aubrey Gemignani · Public domain · via Wikimedia Commons