Small Business Size Standards: Finance and Insurance and Management of Companies and Enterprises, 55737-55755 [2012-22258]
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55737
Proposed Rules
Federal Register
Vol. 77, No. 176
Tuesday, September 11, 2012
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245–AG45
Small Business Size Standards:
Finance and Insurance and
Management of Companies and
Enterprises
U.S. Small Business
Administration.
AGENCY:
ACTION:
Proposed rule.
The U.S. Small Business
Administration (SBA) proposes to
increase small business size standards
for 37 industries in North American
Industry Classification System (NAICS)
Sector 52, Finance and Insurance, and
for two industries in NAICS Sector 55,
Management of Companies and
Enterprises. In addition, SBA proposes
to change the measure of size from
average assets to average receipts for
NAICS 522293, International Trade
Financing. As part of its ongoing
comprehensive size standards review,
SBA evaluated all receipts based and
assets based size standards in NAICS
Sectors 52 and 55 to determine whether
they should be retained or revised. This
proposed rule is one of a series of
proposed rules that will review size
standards of industries grouped by
NAICS Sector. SBA issued a White
Paper entitled ‘‘Size Standards
Methodology’’ and published a notice in
the October 21, 2009 issue of the
Federal Register to advise the public
that the document is available on its
Web site at www.sba.gov/size for public
review and comments. The ‘‘Size
Standards Methodology’’ White Paper
explains how SBA establishes, reviews,
and modifies its receipts based and
employee based small business size
standards. In this proposed rule, SBA
has applied its methodology that
pertains to establishing, reviewing, and
modifying a receipts based size
standard.
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SBA must receive comments to
this proposed rule on or before
November 13, 2012.
ADDRESSES: Identify your comments by
RIN 3245–AG45 and submit them by
one of the following methods: (1)
Federal eRulemaking Portal:
www.regulations.gov, following the
instructions for submitting comments;
or (2) Mail/Hand Delivery/Courier:
Khem R. Sharma, Ph.D., Chief, Size
Standards Division, 409 Third Street
SW., Mail Code 6530, Washington, DC
20416. SBA will not accept comments to
this proposed rule submitted by email.
SBA will post all comments to this
proposed rule on www.regulations.gov..
If you wish to submit confidential
business information (CBI) as defined in
the User Notice at www.regulations.gov,
you must submit such information to
U.S. Small Business Administration,
Khem R. Sharma, Ph.D., Chief, Size
Standards Division, 409 Third Street
SW., Mail Code 6530, Washington, DC
20416, or send an email to
sizestandards@sba.gov. Highlight the
information that you consider to be CBI
and explain why you believe SBA
should hold this information as
confidential. SBA will review your
information and determine whether it
will make the information public.
FOR FURTHER INFORMATION CONTACT:
Khem R. Sharma, Ph.D., Chief, Size
Standards Division, (202) 205–6618 or
sizestandards@sba.gov.
SUPPLEMENTARY INFORMATION: To
determine eligibility for Federal small
business assistance, SBA establishes
small business size definitions (referred
to as size standards) for private sector
industries in the United States. SBA
uses two primary measures of business
size—average annual receipts and
average number of employees. SBA uses
financial assets, electric output, and
refining capacity to measure the size of
a few specialized industries. For
example, currently six size standards in
NAICS Sector 52 are based on total
assets. In addition, SBA’s Small
Business Investment Company (SBIC),
Certified Development Company (504),
and 7(a) Loan Programs use either the
industry based size standards or net
worth and net income based alternative
size standards to determine eligibility
for those programs. At the beginning of
the current comprehensive size
standards review, there were 41
different size standards covering 1,141
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NAICS industries and 18 sub-industry
activities (‘‘exceptions’’ in SBA’s table
of size standards). Thirty-one of these
size levels were based on average
annual receipts, seven were based on
average number of employees, and three
were based on other measures.
Over the years, SBA has received
comments that its size standards have
not kept up with changes in the
economy, in particular the changes in
the Federal contracting marketplace and
industry structure. The last time SBA
conducted a comprehensive review of
all size standards was during the late
1970s and early 1980s. Since then, most
reviews of size standards were limited
to a few specific industries in response
to requests from the public and Federal
agencies. SBA also adjusts its monetary
based size standards for inflation at least
once every five years. SBA’s latest
inflation adjustment to size standards
was published in the Federal Register
on July 18, 2008 (73 FR 41237).
Because of changes in the Federal
marketplace and industry structure
since the last comprehensive size
standards review, SBA recognizes that
current data may no longer support
some of its existing size standards.
Accordingly, in 2007, SBA began a
comprehensive review of all size
standards to determine if they are
consistent with current data, and to
adjust them when necessary. In
addition, on September 27, 2010, the
President of the United States signed the
Small Business Jobs Act of 2010 (Jobs
Act). The Jobs Act directs SBA to
conduct a detailed review of all size
standards and to make appropriate
adjustments to reflect market
conditions. Specifically, the Jobs Act
requires SBA to conduct a detailed
review of at least one-third of all size
standards during every 18-month period
from the date of its enactment. In
addition, the Jobs Act requires that SBA
conduct a review of all size standards at
least once every five years thereafter.
Reviewing existing small business size
standards and making appropriate
adjustments based on current data are
also consistent with Executive Order
13563 on improving regulation and
regulatory review.
Rather than review all size standards
at one time, SBA is reviewing size
standards on a Sector by Sector basis. A
NAICS Sector generally includes 25 to
75 industries, except for NAICS Sector
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31–33, Manufacturing, which has
considerably more industries. Once SBA
completes its review of size standards
for industries in a given NAICS Sector,
it issues a proposed rule to revise size
standards for those industries for which
it believes currently available data and
other relevant factors support doing so.
Below is a discussion of SBA’s size
standards methodology for establishing
receipts based size standards that SBA
applied to this proposed rule, including
analyses of industry structure, Federal
procurement trends and other relevant
factors for industries reviewed in this
proposed rule, the impact of the
proposed revisions to size standards on
Federal small business assistance, and
the evaluation of whether a revised size
standard would exclude dominant firms
from being considered small.
Size Standards Methodology
SBA has recently developed a ‘‘Size
Standards Methodology’’ for
developing, reviewing, and modifying
size standards when necessary. SBA
published the document on its Web site
at www.sba.gov/size for public review
and comments, and has included it as
a supporting document in the electronic
docket of this proposed rule at
www.regulations.gov, SBA does not
apply all features of its ‘‘Size Standards
Methodology’’ to all industries because
not all features are appropriate for every
industry. For example, since 36 of the
42 industries in NAICS Sectors 52 and
55 reviewed in this rule have receipts
based size standards, the methodology
described in this proposed rule applies
only to establishing receipts based size
standards. For those interested in SBA’s
overall approach to establishing,
evaluating, and modifying small
business size standards, the
methodology is available on SBA’s Web
site at www.sba.gov/size. SBA always
explains its analysis in individual
proposed and final rules relating to size
standards for specific industries.
SBA welcomes comments from the
public on a number of issues concerning
its ‘‘Size Standards Methodology,’’ such
as whether there are other approaches to
establishing and modifying size
standards; whether there are alternative
or additional factors that SBA should
consider; whether SBA’s approach to
small business size standards makes
sense in the current economic
environment; whether SBA’s use of
anchor size standards is appropriate;
whether there are gaps in SBA’s
methodology because the data it uses
are not current or sufficiently
comprehensive; and whether there are
other data, facts, and/or issues that SBA
should consider. Comments on SBA’s
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size standards methodology should be
submitted via (1) the Federal
eRulemaking Portal:
www.regulations.gov, following the
instructions for submitting comments;
the docket number is SBA–2009–0008,
or (2) Mail/Hand Delivery/Courier:
Khem R. Sharma, Ph.D., Chief, Size
Standards Division, 409 Third Street
SW., Mail Code 6530, Washington, DC
20416. As it will do with comments to
this and other proposed rules, SBA will
post all comments on its methodology
on www.regulations.gov. As of May 31,
2012, SBA has received 14 comments to
its ‘‘Size Standards Methodology.’’ The
comments are available to the public at
www.regulations.gov. SBA continues to
welcome comments on its methodology
from interested parties. SBA will not
accept comments to its ‘‘Size Standards
Methodology’’ submitted by email.
Congress granted SBA’s Administrator
discretion to establish detailed small
business size standards. 15 U.S.C.
632(a)(2). Specifically, Section 3(a)(3) of
the Small Business Act (15 U.S.C.
632(a)(3)) requires that ‘‘* * * the
[SBA] Administrator shall ensure that
the size standard varies from industry to
industry to the extent necessary to
reflect the differing characteristics of the
various industries and consider other
factors deemed to be relevant by the
Administrator.’’ Accordingly, the
economic structure of an industry is the
basis for developing and modifying
small business size standards. SBA
identifies the small business segment of
an industry by examining data on the
economic characteristics defining the
industry structure (as described below).
In addition, SBA considers current
economic conditions, its mission and
program objectives, the
Administration’s current policies,
suggestions from industry groups and
Federal agencies, and public comments
on the proposed rule. SBA also
examines whether a size standard based
on industry and other relevant data
successfully excludes businesses that
are dominant in the industry.
This proposed rule includes
information regarding the factors SBA
evaluated and the criteria it used to
propose adjustments to size standards in
NAICS Sectors 52 and 55. This
proposed rule affords the public an
opportunity to review and to comment
on SBA’s proposals to revise size
standards in NAICS Sectors 52 and 55,
as well as on the data and methodology
it used to evaluate and revise the size
standards.
Industry Analysis
For the current comprehensive size
standards review, SBA has established
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three ‘‘base’’ or ‘‘anchor’’ size
standards—$7.0 million in average
annual receipts for industries that have
receipts based size standards, 500
employees for manufacturing and other
industries that have employee based
size standards (except for Wholesale
Trade), and 100 employees for
industries in the Wholesale Trade
Sector. SBA established 500 employees
as the anchor size standard for
manufacturing industries at its
inception in 1953. Shortly thereafter,
SBA established $1 million in average
annual receipts as the anchor size
standard for nonmanufacturing
industries. SBA has periodically
increased the receipts based anchor size
standard for inflation, and today it is $7
million. Since 1986, the size standard
for all industries in the Wholesale Trade
Sector for SBA financial assistance and
for most Federal programs has been 100
employees. However, NAICS codes for
the Wholesale Trade Sector and their
100 employee size standards do not
apply to Federal procurement programs.
Rather, for Federal procurement the size
standard for all industries in Wholesale
Trade (NAICS Sector 42) and for all
industries in Retail Trade (NAICS Sector
44–45), is 500 employees under SBA’s
nonmanufacturer rule (13 CFR
121.406(b)).
These long-standing anchor size
standards have stood the test of time
and gained legitimacy through practice
and general public acceptance. An
anchor is neither a minimum nor a
maximum size standard. It is a common
size standard for a large number of
industries that have similar economic
characteristics and serves as a reference
point in evaluating size standards for
individual industries. SBA uses the
anchor in lieu of trying to establish
precise small business size standards for
each industry. Otherwise, theoretically,
the number of size standards might be
as high as the number of industries for
which SBA establishes size standards
(1,141). Furthermore, the data SBA
analyzes are static, while the U.S.
economy is not. Hence, absolute
precision is impossible. SBA presumes
an anchor size standard is appropriate
for a particular industry unless that
industry displays economic
characteristics that are considerably
different from other industries with the
same anchor size standard.
When evaluating a size standard, SBA
compares the economic characteristics
of the industry under review to the
average characteristics of industries
with one of the three anchor size
standards (referred to as the ‘‘anchor
comparison group’’). This allows SBA to
assess the industry structure and to
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determine whether the industry is
appreciably different from the other
industries in the anchor comparison
group. If the characteristics of a specific
industry under review are similar to the
average characteristics of the anchor
comparison group, the anchor size
standard is generally appropriate for
that industry. SBA may consider
adopting a size standard below the
anchor when (1) all or most of the
industry characteristics are significantly
smaller than the average characteristics
of the anchor comparison group, or (2)
other industry considerations strongly
suggest that the anchor size standard
would be an unreasonably high size
standard for the industry.
If the specific industry’s
characteristics are significantly higher
than those of the anchor comparison
group, then a size standard higher than
the anchor size standard may be
appropriate. The larger the differences
are between the characteristics of the
industry under review and those in the
anchor comparison group, the larger
will be the difference between the
appropriate industry size standard and
the anchor size standard. To determine
a size standard above the anchor size
standard, SBA analyzes the
characteristics of a second comparison
group. For industries with receipts
based size standards, including those in
NAICS Sectors 52 and 55, SBA has
developed a second comparison group
consisting of industries that have the
highest of receipts based size standards.
To determine a size standard above the
anchor size standard, SBA analyzes the
characteristics of this second
comparison group. The size standards
for this group of industries range from
$23 million to $35.5 million in average
annual receipts; the weighted average
size standard for the group is $29
million. SBA refers to this comparison
group as the ‘‘higher level receipts based
size standard group.’’
The primary factors that SBA
evaluates to examine industry structure
include average firm size, startup costs
and entry barriers, industry
competition, and distribution of firms
by size. SBA evaluates, as an additional
primary factor, the impact that revised
size standards might have on Federal
contracting assistance to small
businesses. These are, generally, the five
most important factors SBA examines
when establishing or revising a size
standard for an industry. However, SBA
will also consider and evaluate other
information that it believes is relevant to
a particular industry (such as
technological changes, growth trends,
SBA financial assistance, other program
factors, etc.). SBA also considers
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possible impacts of size standard
revisions on eligibility for Federal small
business assistance, current economic
conditions, the Administration’s
policies, and suggestions from industry
groups and Federal agencies. Public
comments on a proposed rule also
provide important additional
information. SBA thoroughly reviews all
public comments before making a final
decision on its proposed size standards.
Below are brief descriptions of each of
the five primary factors that SBA has
evaluated for each industry in NAICS
Sectors 52 and 55 that has a receipts
based size standard. A more detailed
description of this analysis is provided
in SBA’s ‘‘Size Standards
Methodology,’’ available at https://
www.sba.gov/size.
1. Average firm size. SBA computes
two measures of average firm size:
Simple average and weighted average.
For industries with receipts based size
standards, the Simple average is the
total receipts of the industry divided by
the total number of firms in the
industry. The weighted average firm
size is the sum of weighted simple
averages in different receipts based size
classes, where weights are the shares of
total industry receipts for respective size
classes. The simple average weighs all
firms within an industry equally
regardless of their size. The weighted
average overcomes that limitation by
giving more weight to larger firms.
If the average firm size of an industry
is significantly higher than the average
firm size of industries in the anchor
comparison industry group, this will
generally support a size standard higher
than the anchor size standard.
Conversely, if the industry’s average
firm size is similar to or significantly
lower than that of the anchor
comparison industry group, it will be a
basis to adopt the anchor size standard,
or, in rare cases, a standard lower than
the anchor.
2. Startup costs and entry barriers.
Startup costs reflect a firm’s initial size
in an industry. New entrants to an
industry must have sufficient capital
and other assets to start and maintain a
viable business. If new firms entering a
particular industry have greater capital
requirements than firms in industries in
the anchor comparison group, this can
be a basis for establishing a size
standard higher than the anchor size
standard. In lieu of actual startup cost
data, SBA uses average assets as a proxy
to measure the capital requirements for
new entrants to an industry.
To calculate average assets, SBA
begins with the sales to total assets ratio
for an industry from the Risk
Management Association’s Annual
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Statement Studies. SBA then applies
these ratios to the average receipts of
firms in that industry. An industry with
average assets that are significantly
higher than those of the anchor
comparison group is likely to have
higher startup costs; this in turn will
support a size standard higher than the
anchor. Conversely, an industry with
average assets that are similar to or
lower than those of the anchor
comparison group is likely to have
lower startup costs; this will support the
anchor standard or one lower than the
anchor.
3. Industry competition. Industry
competition is generally measured by
the share of total industry receipts
generated by the largest firms in an
industry. SBA generally evaluates the
share of industry receipts generated by
the four largest firms in each industry.
This is referred to as the ‘‘four-firm
concentration ratio,’’ a commonly used
economic measure of market
competition. SBA compares the fourfirm concentration ratio for an industry
to the average four-firm concentration
ratio for industries in the anchor
comparison group. If a significant share
of economic activity within the industry
is concentrated among a few relatively
large companies, all else being equal,
SBA will establish a size standard
higher than the anchor size standard.
SBA does not consider the four-firm
concentration ratio as an important
factor in assessing a size standard if its
share of economic activity within the
industry is less than 40 percent. For an
industry with a four-firm concentration
ratio of 40 percent or more, SBA
examines the average size of the four
largest firms to determine a size
standard.
4. Distribution of firms by size. SBA
examines the shares of industry total
receipts accounted for by firms of
different receipts and employment size
classes in an industry. This is an
additional factor in assessing industry
competition. If most of an industry’s
economic activity is attributable to
smaller firms, this generally indicates
that small businesses are competitive in
that industry. This can support adopting
the anchor size standard. If most of an
industry’s economic activity is
attributable to larger firms, this
indicates that small businesses are not
competitive in that industry. This can
support adopting a size standard above
the anchor.
Concentration is a measure of
inequality of distribution. To determine
the degree of inequality of distribution
in an industry, SBA computes the Gini
coefficient, using the Lorenz curve. The
Lorenz curve presents the cumulative
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percentages of units (firms) along the
horizontal axis and the cumulative
percentages of receipts (or other
measures of size) along the vertical axis.
(For further detail, please refer to SBA’s
‘‘Size Standards Methodology’’ on its
Web site at www.sba.gov/size.) Gini
coefficient values vary from zero to one.
If receipts are distributed equally among
all the firms in an industry, the value of
the Gini coefficient will equal zero. If an
industry’s total receipts are attributed to
a single firm, the Gini coefficient will
equal one.
SBA compares the Gini coefficient
value for an industry with that for
industries in the anchor comparison
group. If the Gini coefficient value for
an industry is higher than it is for
industries in the anchor comparison
industry group this may, all else being
equal, warrant a size standard higher
than the anchor. Conversely, if an
industry’s Gini coefficient is similar to
or lower than that for the anchor group,
the anchor standard, or in some cases a
standard lower than the anchor, may be
adopted.
5. Impact on Federal contracting and
SBA loan programs. SBA examines the
possible impact a size standard change
may have on Federal small business
assistance. This most often focuses on
the share of Federal contracting dollars
awarded to small businesses in the
industry in question. In general, if the
small business share of Federal
contracting in an industry with
significant Federal contracting is
appreciably less than the small business
share of the industry’s total receipts,
this could justify considering a size
standard higher than the existing size
standard. The disparity between the
small business Federal market share and
industry-wide small business share may
be due to various factors, such as
extensive administrative and
compliance requirements associated
with Federal contracts, the different
skill set required for Federal contracts as
compared to typical commercial
contracting work, and the size of
Federal contracts. These, as well as
other factors, are likely to influence the
type of firms within an industry that
compete for Federal contracts. By
comparing the small business Federal
contracting share with the industrywide small business share, SBA
includes in its size standards analysis
the latest Federal contracting trends.
This analysis may support a size
standard larger than the current size
standard.
SBA considers Federal contracting
trends in the size standards analysis
only if (1) the small business share of
Federal contracting dollars is at least 10
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percent lower than the small business
share of total industry receipts, and (2)
the amount of total Federal contracting
averages $100 million or more during
the latest three fiscal years. These
thresholds reflect significant levels of
contracting where a revision to a size
standard may have an impact on
contracting opportunities to small
businesses.
Besides the impact on small business
Federal contracting, SBA also evaluates
the impact of a proposed size standard
revision on SBA’s loan programs. For
this, SBA examines the data on volume
and number of its guaranteed loans
within an industry and the size of firms
obtaining those loans. This allows SBA
to assess whether the existing or the
proposed size standard for a particular
industry may restrict the level of
financial assistance to small firms. If
current size standards have impeded
financial assistance to small businesses,
higher size standards may be
supportable. However, if small
businesses under current size standards
have been receiving significant amounts
of financial assistance through SBA’s
loan programs, or if the financial
assistance has been provided mainly to
businesses that are much smaller than
the existing size standards, SBA does
not consider this factor when
determining the size standard.
Sources of Industry and Program Data
The primary source of industry data
that SBA used in evaluating industries
in NAICS Sectors 52 and 55 that have
receipts based size standards is a special
tabulation of the 2007 Economic Census
(see www.census.gov/econ/census07/)
prepared by the U.S. Bureau of the
Census (Census Bureau) for SBA. The
2007 Economic Census data are the
latest available. The special tabulation
provides SBA with data on the number
of firms, number of establishments,
number of employees, annual payroll,
and annual receipts of companies by
Industry (6-digit level), Industry Group
(4-digit level), Subsector (3-digit level),
and Sector (2-digit level). These data are
arrayed by various classes of firms’ size
based on the overall number of
employees and receipts of the entire
enterprise (all establishments and
affiliated firms) from all industries. The
special tabulation enables SBA to
evaluate average firm size, four-firm
concentration ratio, and distribution of
firms by various receipts and
employment size classes.
In some cases, where data were not
available due to disclosure prohibitions
in the Census Bureau’s tabulation, SBA
either estimated missing values using
available relevant data or examined data
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at a higher level of industry aggregation,
such as at the NAICS 2-digit (Sector), 3digit (Subsector), or 4-digit (Industry
Group) level. In some instances, SBA’s
analysis was based only on those factors
for which data were available or
estimates of missing values were
possible.
Five of the seven industries within
NAICS Subsector 525 (Funds, Trusts
and Other Financial Vehicles) are not
covered by the 2007 Economic Census.
All industries in that Subsector
currently have a common size standard.
To maintain the common size standard,
in this proposed rule, SBA applies the
results for the two industries (NAICS
525910, Open End Investment Funds,
and NAICS 525990, Other Financial
Vehicles) for which the Economic
Census data are available to those five
industries.
To evaluate industries in NAICS
Sector 52 that have assets based size
standards, as discussed below, SBA
obtained the data from the Statistics on
Depository institutions (SDI) database of
the Federal Depository Insurance
Corporation (FDIC) between 1984 and
2011 (https://www2.fdic.gov/sdi/
main.asp). SDI does not include a field
to classify the institutions by the NAICS
definition. However, it has a field that
identifies an institution’s primary
specialization in terms of asset
concentration and another field that
identifies each institution as a bank or
thrift. Since the SDI database does not
identify minority owned financial
institutions from others, SBA identified
them using data on financial institutions
that participate in the Department of the
Treasury’s Minority Bank Deposit
Program, compiled by the Federal
Reserve Board (FRB) (https://
www.federalreserve.gov/releases/mob/).
To examine characteristics of minority
owned financial institutions, SBA
merged the FRB data with SDI database
using the common identification
number for each institution.
The SDI database does not include
Credit Unions, NAICS 522130, while the
FRB data is limited to minority-owned
credit unions only. The data to evaluate
the Credit Unions industry were based
on call reports for the fourth quarters of
1994 and 2011 from the National Credit
Union Administration (NCUA) Web site
(https://www.ncua.gov/DataApps/
QCallRptData/Pages/CallRptData.aspx).
The earliest year for which these data
were available on the NCUA Web site is
1994.
To calculate average assets, SBA used
sales to total assets ratios from the Risk
Management Association’s Annual
Statement Studies, 2008–2010.
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To evaluate Federal contracting
trends, SBA examined data on Federal
contract awards for fiscal years 2008–
2010. The data are available from the
U.S. General Service Administration’s
Federal Procurement Data System—
Next Generation (FPDS–NG).
To assess the impact on financial
assistance to small businesses, SBA
examined data on its own guaranteed
loan programs for fiscal years 2008–
2010.
Data sources and estimation
procedures SBA uses in its size
standards analysis are documented in
detail in SBA’s ‘‘Size Standards
Methodology’’ White Paper, which is
available at www.sba.gov/size.
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Dominance in Field of Operation
Section 3(a) of the Small Business Act
(15 U.S.C. 632(a)) defines a small
business concern as one that is (1)
independently owned and operated, (2)
not dominant in its field of operation,
and (3) within a specific small business
definition or size standard established
by SBA Administrator. SBA considers
as part of its evaluation whether a
business concern at a proposed size
standard would be dominant in its field
of operation. For this, SBA generally
examines the industry’s market share of
firms at the proposed standard. Market
share and other factors may indicate
whether a firm can exercise a major
controlling influence on a national basis
in an industry where a significant
number of business concerns are
engaged. If a contemplated size standard
includes a dominant firm, SBA will
consider a lower size standard to
exclude the dominant firm from being
defined as small.
Selection of Size Standards
To simplify receipts based size
standards, SBA has proposed to select
size standards from a limited number of
levels. For many years, SBA has been
concerned about the complexity of
determining small business status
caused by a large number of varying
receipts based size standards (see 69 FR
13130 (March 4, 2004) and 57 FR 62515
(December 31, 1992)). At the beginning
of the current comprehensive size
standards review, there were 31
different levels of receipts based size
standards. They ranged from $0.75
million to $35.5 million, and many
applied to one or only a few industries.
SBA believes that such a large number
of different small business size
standards are unnecessary and difficult
to justify analytically. To simplify
managing and using size standards, SBA
proposes that there be fewer size
standard levels. This will produce more
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common size standards for businesses
operating in related industries. This will
also result in greater consistency among
the size standards for industries that
have similar economic characteristics.
The SBA proposes, therefore, to apply
one of eight receipts based size
standards to each industry in NAICS
Sectors 52 and 55 that has a receipts
based standard. The eight ‘‘fixed’’
receipts based size standard levels are
$5 million, $7 million, $10 million, $14
million, $19 million, $25.5 million, $30
million, and $35.5 million. SBA
established these eight receipts based
size standard based on the current
minimum, the current maximum, and
the most commonly used current
receipts based size standards. At the
start of the current comprehensive
review, the most commonly used
receipts based size standards clustered
around the following—$2.5 million to
$4.5 million, $7 million, $9 million to
$10 million, $12.5 million to $14.0
million, $25 million to $25.5 million,
and $33.5 million to $35.5 million. SBA
selected $7 million as one of eight fixed
levels of receipts based size standards
because it is an anchor standard. The
lowest or minimum receipts based size
level will be $5 million. Other than the
size standards for agriculture that are
statutorily set at $0.75 million and those
based on commissions (such as real
estate brokers and travel agents), $5
million includes those industries with
the lowest receipts based standards,
which ranged from $2 million to $4.5
million. Among the higher level size
clusters, SBA has set four fixed levels:
$10 million, $14 million, $25.5 million,
and $35.5 million. Because of the large
intervals between some of the fixed
levels, SBA established two
intermediate levels, namely $19 million
between $14 million and $25.5 million,
and $30 million between $25.5 million
and $35.5 million. These two
intermediate levels reflect roughly the
same proportional differences as
between the other two successive levels.
To simplify size standards further,
SBA may propose a common size
standard for closely related industries.
Although the size standard analysis may
support a separate size standard for each
industry, SBA believes that establishing
different size standards for closely
related industries may not always be
appropriate. For example, in cases
where many of the same businesses
operate in the same multiple industries,
a common size standard for those
industries might better reflect the
Federal marketplace. This might also
make size standards among related
industries more consistent than separate
size standards for each of those
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industries. This led SBA to establish a
common size standard for the
information technology (IT) services
(NAICS 541511, NAICS 541112, NAICS
541513, NAICS 541519, and NAICS
811212), even though the industry data
might support a distinct size standard
for each industry (57 FR 27906 (June 23,
1992)). More recently SBA adopted
common size standards for some of the
industries in NAICS Sector 44–45,
Retail Trade (75 FR 61597 (October 6,
2010)), NAICS Sector 54, Professional,
Scientific and Technical Services (77 FR
7490 (February 10, 2012)), and NAICS
Sector 48–49, Transportation and
Warehousing (77 FR 10943 (February
24, 2012)).
In NAICS Sector 52, currently all
industries in NAICS Industry Group
5221 and NAICS Industries 522210 and
522293 have a common size standard of
$175 million in total assets. Similarly,
all other industries in NAICS Sector 52,
with an exception of NAICS Industry
524126 which has a size standard of
1,500 employees, have a common size
standard of $7 million in average annual
receipts. Based on the characteristics of
those industries, SBA proposes to retain
common size standards for all industries
within NAICS Industry Group 5222
(with the exception of NAICS 522210,
Credit Card Issuing). NAICS 522210
currently has an assets based size
standard and based on the evaluation of
business operations and characteristics
of firms in this industry SBA proposes
to maintain the assets based size
standard for this industry. NAICS
522293, International Trade Financing,
also has an assets based size standard
currently, but based on the evaluation of
business operations and characteristics
of firms involved in this industry, SBA
proposes to replace the assets based size
standard with a receipts based size
standard for this industry. In addition,
SBA proposes to apply the same
common receipts based size standard for
NAICS 522293 as that for NAICS
Industry Group 5222 (except for NAICS
522210). SBA also proposes common
size standards for industries within
NAICS Subsector 523, NAICS Industry
Group 5241 (with exception of NAICS
524126), and NAICS Subsector 525.
Whenever SBA proposes a common size
standard for closely related industries it
will provide its justification.
Evaluation of Industry Structure
SBA evaluated 29 industries in
NAICS Sector 52, Finance and
Insurance, and two industries in NAICS
Sector 55, Management of Companies
and Enterprises (for which industry data
were available from the 2007 Economic
Census), to assess the appropriateness of
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the current receipts based size
standards. For this, as described above,
SBA compared data on the economic
characteristics of each of those
industries to the average characteristics
of industries in two comparison groups.
The first comparison group consists of
all industries with $7 million size
standards and is referred to as the
‘‘receipts based anchor comparison
group.’’ Because the goal of SBA’s
review is to assess whether a specific
industry’s size standard should be the
same as or different from the anchor size
standard, this is the most logical group
of industries to analyze. In addition, this
group includes a sufficient number of
firms to provide a meaningful
assessment and comparison of industry
characteristics.
If the characteristics of an industry are
similar to the average characteristics of
industries in the anchor comparison
group, the anchor size standard is
generally appropriate for that industry.
If an industry’s structure is significantly
different from industries in the anchor
group, a size standard lower or higher
than the anchor size standard might be
appropriate. The proposed new size
standard is based on the difference
between the characteristics of the
anchor comparison group and a second
industry comparison group. As
described above, the second comparison
group for receipts based standards
consists of industries with the highest
receipts based size standards, ranging
from $23 million to $35.5 million. The
average size standard for this group is
$29 million. SBA refers to this group of
industries as the ‘‘higher level receipts
based size standard comparison group.’’
SBA determines differences in industry
structure between an industry under
review and the industries in the two
comparison groups by comparing data
on each of the industry factors,
including average firm size, average
assets size, the four-firm concentration
ratio, and the Gini coefficient of
distribution of firms by size. Table 1,
Average Characteristics of Receipts
Based Comparison Groups, shows the
average firm size (both simple and
weighted), average assets size, four-firm
concentration ratio, average receipts of
the four largest firms, and the Gini
coefficient for both anchor level and
higher level comparison groups for
receipts based size standards.
TABLE 1—AVERAGE CHARACTERISTICS OF RECEIPTS BASED COMPARISON GROUPS
Average firm size
($ million)
Average
assets
size
($ million)
Receipts based comparison group
Simple
average
Anchor Level ............................................
Higher Level .............................................
Weighted
average
1.32
5.07
19.63
116.84
Four-firm
concentration
ratio
(%)
Average
receipts of four
largest
firms
($ million) *
16.6
32.1
196.4
1,376.0
0.84
3.20
Gini
coefficient
0.693
0.830
* To be used for industries with a four-firm concentration ratio of 40% or greater.
Derivation of Size Standards Based on
Industry Factors
For each industry factor in Table 1,
SBA derives a separate size standard
based on the differences between the
values for an industry under review and
the values for the two comparison
groups. If the industry value for a
particular factor is near the
corresponding factor for the anchor
comparison group, the $7 million
anchor size standard is appropriate for
that factor.
An industry factor significantly above
or below the anchor comparison group
will generally imply a size standard for
that industry above or below the $7
million anchor. The new size standard
in these cases is based on the
proportional difference between the
industry value and the values for the
two comparison groups.
For example, if an industry’s simple
average receipts are $3.3 million, that
can support a $19 million size standard.
The $3.3 million level is 52.8 percent
between $1.32 million for the anchor
comparison group and $5.07 million for
the higher level comparison group
(($3.30 million¥$1.32 million) ÷ ($5.07
million ¥ $1.32 million) = 0.528 or
52.8%). This proportional difference is
applied to the difference between the $7
million anchor size standard and
average size standard of $29 million for
the higher level size standard group and
then added to $7.0 million to estimate
a size standard of $18.61 million
([{$29.0 million ¥ $7.0 million} *
0.528] + $7.0 million = $18.61 million).
The final step is to round the estimated
$18.61 million size standard to the
nearest fixed size standard, which in
this example is $19 million.
SBA applies the above calculation to
derive a size standard for each industry
factor. Detailed formulas involved in
these calculations are presented in
SBA’s ‘‘Size Standards Methodology’’
which is available on its Web site at
www.sba.gov/size. (However, it should
be noted that figures in the ‘‘Size
Standards Methodology’’ White Paper
are based on 2002 Economic Census
data and are different from those
presented in this proposed rule. That is
because when SBA prepared its ‘‘Size
Standards Methodology,’’ the 2007
Economic Census data were not yet
available). Table 2, Values of Industry
Factors and Supported Size Standards,
(below) shows ranges of values for each
industry factor and the levels of size
standards supported by those values.
srobinson on DSK4SPTVN1PROD with PROPOSALS
TABLE 2—VALUES OF INDUSTRY FACTORS AND SUPPORTED SIZE STANDARDS
If simple avg.
receipts size
($ million)
Or if weighted avg. receipts
size
($ million)
Or if avg. assets
size
($ million)
Or if avg. receipts of largest
four firms
($ million)
Or if Gini
coefficient
<1.15 .......................
1.15 to 1.57 ............
1.58 to 2.17 ............
2.18 to 2.94 ............
2.95 to 3.92 ............
3.93 to 4.86 ............
<15.22 ...................................
15.22 to 26.26 ......................
26.27 to 41.73 ......................
41.74 to 61.61 ......................
61.62 to 87.02 ......................
87.03 to 111.32 ....................
<0.73 .....................
0.73 to 1.00 ...........
1.01 to 1.37 ...........
1.38 to 1.86 ...........
1.87 to 2.48 ...........
2.49 to 3.07 ...........
<142.8 ...................................
142.8 to 276.9 ......................
277.0 to 464.5 ......................
464.6 to 705.8 ......................
705.9 to 1,014.1 ...................
1,014.2 to 1,309.0 ................
<0.686 ...................
0.686 to 0.702 .......
0.703 to 0.724 .......
0.725 to 0.752 .......
0.753 to 0.788 .......
0.789 to 0.822 .......
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Then implied
size standard
is
($ million)
5.0
7.0
10.0
14.0
19.0
25.5
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TABLE 2—VALUES OF INDUSTRY FACTORS AND SUPPORTED SIZE STANDARDS—Continued
Then implied
size standard
is
($ million)
If simple avg.
receipts size
($ million)
Or if weighted avg. receipts
size
($ million)
Or if avg. assets
size
($ million)
Or if avg. receipts of largest
four firms
($ million)
Or if Gini
coefficient
4.87 to 5.71 ............
>5.71 .......................
111.33 to 133.41 ..................
>133.41 .................................
3.08 to 3.61 ...........
>3.61 .....................
1,309.1 to 1,577.1 ................
>1,577.1 ................................
0.823 to 0.853 .......
>0.853 ...................
Derivation of Size Standard Based on
Federal Contracting Factor
Besides industry structure, SBA also
evaluates Federal contracting data to
assess the success of small businesses in
getting Federal contracts under the
existing size standards. For industries
where the small business share of total
Federal contracting dollars is 10 to 30
percent lower than the small business
share of total industry receipts, SBA has
designated a size standard one level
higher than their current size standard.
For industries where the small business
share of total Federal contracting dollars
is more than 30 percent lower than the
small business share of total industry
receipts, SBA has designated a size
standard two levels higher than the
current size standard.
Because of the complex relationships
among several variables affecting small
business participation in the Federal
marketplace, SBA has chosen not to
designate a size standard for the Federal
contracting factor alone that is more
than two levels above the current size
standard. SBA believes that a larger
adjustment to size standards based on
Federal contracting activity should be
based on a more detailed analysis of the
impact of any subsequent revision to the
current size standard. In limited
situations, however, SBA may conduct
a more extensive examination of Federal
contracting experience. This may
support a different size standard than
indicated by this general rule and take
into consideration significant and
unique aspects of small business
competitiveness in the Federal contract
market. SBA welcomes comments on its
methodology for incorporating the
Federal contracting factor in its size
standard analysis and suggestions for
alternative methods and other relevant
information on small business
experience in the Federal contract
market that SBA should consider.
Eight of the 29 industries in NAICS
Sector 52 that have receipts based size
standards averaged $100 million or
more annually in Federal contracting
during fiscal years 2008–2010. The
Federal contracting factor was
significant (i.e., the difference between
the small business share of total
industry receipts and small business
share of Federal contracting dollars was
10 percentage points or more) in three
of those eight industries and a separate
size standard was derived for that factor
for each of them. Federal contracting
averaged less than $100 million
annually for both industries in NAICS
Sector 55 and was not included in the
calculations of new size standards for
them.
30.0
35.5
New Size Standards Based on Industry
and Federal Contracting Factors
Table 3, Size Standards Supported by
Each Factor for Each Industry (millions
of dollars), shows the results of analyses
of industry and Federal contracting
factors for each industry covered by this
proposed rule. Many NAICS industries
in columns 2, 3, 4, 6, 7, and 8 show two
numbers. The upper number is the
value for the industry or federal
contracting factor shown on the top of
the column and the lower number is the
size standard supported by that factor.
For the four-firm concentration ratio,
SBA estimates a size standard only if its
value is 40 percent or more. If the fourfirm concentration ratio is 40 percent or
more, SBA indicates in column 6 the
average size of the industry’s four
largest firms together with a size
standard based on that average. Column
9 shows a calculated new size standard
for each industry. This is the average of
the size standards supported by each
factor, rounded to the nearest fixed size
level. Analytical details involved in the
averaging procedure are described in
SBA’s ‘‘Size Standard Methodology.’’
For comparison with the new standards,
the current size standards are in column
10 of Table 3.
TABLE 3—SIZE STANDARDS SUPPORTED BY EACH FACTOR FOR EACH INDUSTRY
[Millions of dollars]
srobinson on DSK4SPTVN1PROD with PROPOSALS
18:01 Sep 10, 2012
New size
standard
Current
size
standard
0.880
$35.5
0.940
$35.5
0.930
$35.5
0.871
$35.5
0.959
$35.5
0.583
$5.0
0.934
................
................
................
................
................
................
................
................
................
................
................
................
1.9
................
35.5
................
35.5
................
35.5
................
35.5
................
35.5
7.0
................
................
................
$7.0
................
7.0
................
7.0
................
7.0
................
7.0
................
7.0
................
$35.5
0.834
$30.0
0.941
$35.5
0.952
$35.5
................
¥17.0
10.0
¥1.1
................
................
................
35.5
................
19.0
................
35.5
................
35.5
7.0
................
7.0
................
7.0
................
7.0
Weighted
average
firm size
Average
assets
size
Four-firm
ratio
(%)
Four-firm
average
size
Gini
coefficient
$48.8
35.5
11.8
35.5
11.5
35.5
796.6
35.5
16.6
35.5
0.6
5.0
18.9
$434.1
35.5
364.4
35.5
279.0
35.5
6,175.9
35.5
750.8
35.5
6.2
5.0
387.6
$162.7
35.5
35.4
35.5
31.4
35.5
2,987.1
35.5
62.4
35.5
1.2
10.0
12.9
42.1
................
61.2
................
38.5
................
97.9
................
................
................
5.2
................
33.1
$13,199.9
35.5
6,874.4
35.5
9,127.3
................
25,931.0
35.5
................
................
186.3
................
3,624.7
35.5
1.9
10.0
74.9
35.5
17.4
35.5
35.5
47.2
14.0
1,453.1
35.5
581.4
35.5
35.5
1.9
19.0
86.4
35.5
9.7
35.5
................
19.6
................
51.7
................
36.9
................
................
602.8
................
26,248.4
35.5
14,369.4
................
522220 ........................................................................
Sales Financing ...........................................................
522291 ........................................................................
Consumer Lending ......................................................
522292 ........................................................................
Real Estate Credit .......................................................
522294 ........................................................................
Secondary Market Financing ......................................
522298 ........................................................................
All Other Nondepository Credit Intermediation ...........
522310 ........................................................................
Mortgage and Nonmortgage Loan Brokers ................
522320 ........................................................................
Financial Transactions, Reserve, and Clearinghouse
Activities ...................................................................
522390 ........................................................................
Other Activities Related to Credit Intermediation .......
523110 ........................................................................
Investment Banking and Securities Dealing ...............
523120 ........................................................................
Securities Brokerage ...................................................
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Federal
contract
factor
(%)
Simple
average
firm size
NAICS code/title
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TABLE 3—SIZE STANDARDS SUPPORTED BY EACH FACTOR FOR EACH INDUSTRY—Continued
[Millions of dollars]
srobinson on DSK4SPTVN1PROD with PROPOSALS
Common Size Standards
When many of the same businesses
operate in several closely related
industries, SBA believes that a common
size standard can be more appropriate
for these industries even if the industry
and relevant program data might suggest
different size standards. For instance, in
past rules, SBA established a common
size standard for Computer Systems
Design and Related Services (NAICS
541511, NAICS 541112, NAICS 541513,
NAICS 541519 (excluding the
‘‘exception’’ for Information Technology
Value Added Resellers), and NAICS
811212). Another example is the
common size standard for certain
Architectural, Engineering and Related
Services. These include NAICS 541310,
NAICS 541330 (excluding the
18:01 Sep 10, 2012
New size
standard
Current
size
standard
0.903
$35.5
0.886
$35.5
0.454
$5.0
0.797
$25.5
0.914
$35.5
0.815
$25.5
0.876
$35.5
0.909
$35.5
0.787
$19.0
0.684
$5.0
0.954
$35.5
0.890
................
................
................
................
................
................
¥27.7
10.0
................
................
................
................
................
................
7.0
................
................
................
¥0.1
................
................
................
................
................
30.0
................
19.0
................
19.0
................
19.0
................
35.5
................
14.0
................
30.0
................
35.5
................
30.0
................
25.5
................
35.5
30.0
................
7.0
................
7.0
................
7.0
................
7.0
................
7.0
................
7.0
................
7.0
................
7.0
................
7.0
................
7.0
................
7.0
7.0
19.0
5,405.7
35.5
2,729.8
................
841.7
19.0
1,622.9
$35.5
0.724
$14.0
0.667
$5.0
0.840
$30.0
0.847
................
................
................
................
................
................
................
¥4.0
30.0
................
30.0
5.0
................
................
19.0
................
7.0
................
7.0
................
7.0
................
7.0
................
................
278.7
................
................
................
................
................
................
................
................
................
$30.0
0.817
$25.5
0.865
$35.5
0.811
$25.5
0.644
$5.0
0.668
$5.0
................
¥24.4
$10.0
................
................
................
................
................
................
................
................
30.0
................
14.0
................
35.5
................
19.0
................
19.0
................
19.0
7.0
................
7.0
................
7.0
................
7.0
................
7.0
................
7.0
Weighted
average
firm size
Average
assets
size
Four-firm
ratio
(%)
Four-firm
average
size
Gini
coefficient
8.4
35.5
4.5
25.5
467.4
35.5
2.0
10.0
10.2
35.5
1.5
7.0
5.3
30.0
6.7
35.5
635.4
35.5
554.7
35.5
8.9
35.5
13.7
118.6
30.0
120.3
30.0
852.8
35.5
16.6
7.0
212.6
35.5
40.3
10.0
64.8
19.0
124.9
30.0
2,977.0
35.5
1,746.5
35.5
493.1
35.5
152.5
13.3
35.5
1.0
7.0
................
................
6.1
35.5
6.5
35.5
0.6
5.0
8.9
35.5
28.8
35.5
1,003.3
35.5
256.0
35.5
4.1
35.5
19.6
43.4
................
46.9
................
................
................
15.0
................
12.0
................
26.7
................
35.2
................
................
................
26.8
................
36.9
................
84.3
................
50.9
756.7
19.0
654.9
14.0
................
................
636.0
................
5,350.2
................
1,531.6
................
887.0
................
................
................
35,953.1
................
45,842.3
................
3,628.8
35.5
755.9
35.5
214.5
35.5
0.8
5.0
2.0
10.0
8.7
35.5
771.1
35.5
26.0
7.0
73.7
19.0
76.2
35.5
................
................
0.5
5.0
................
................
4.1
................
50.9
................
10.3
................
46.7
................
21.7
35.5
1.9
10.0
10.0
35.5
2.1
10.0
9.6
35.5
9.4
35.5
19.0
25.5
7.0
90.3
25.5
21.4
7.0
30.1
10.0
27.1
10.0
35.5
0.8
7.0
................
................
................
................
32.2
35.5
35.4
35.5
................
30.6
................
................
................
................
................
................
................
................
................
523130 ........................................................................
Commodity Contracts Dealing ....................................
523140 ........................................................................
Commodity Contracts Brokerage ................................
523210 ........................................................................
Securities and Commodity Exchanges .......................
523910 ........................................................................
Miscellaneous Intermediation ......................................
523920 ........................................................................
Portfolio Management .................................................
523930 ........................................................................
Investment Advice .......................................................
523991 ........................................................................
Trust, Fiduciary and Custody Activities ......................
523999 ........................................................................
Miscellaneous Financial Investment Activities ............
524113 ........................................................................
Direct Life Insurance Carriers .....................................
524114 ........................................................................
Direct Health and Medical Insurance Carriers ............
524127 ........................................................................
Direct Title Insurance Carriers ....................................
524128 ........................................................................
Other Direct Insurance (except Life, Health and Medical) Carriers ............................................................
524130 ........................................................................
Reinsurance Carriers ..................................................
524210 ........................................................................
Insurance Agencies and Brokerages ..........................
524291 ........................................................................
Claims Adjusting .........................................................
524292 ........................................................................
Third Party Administration of Insurance and Pension
Funds .......................................................................
524298 ........................................................................
All Other Insurance Related Activities ........................
525910 ........................................................................
Open-End Investment Funds ......................................
525990 ........................................................................
Other Financial Vehicles .............................................
551111 ........................................................................
Offices of Bank Holding Companies ...........................
551112 ........................................................................
Offices of Other Holding Companies ..........................
VerDate Mar<15>2010
Federal
contract
factor
(%)
Simple
average
firm size
NAICS code/title
Jkt 226001
‘‘exceptions’’), Map Drafting (an
‘‘exception’’ under NAICS 541340),
NAICS 541360, and NAICS 541370 (64
FR 28275 (May 25, 1999)). As stated
previously, more recently SBA adopted
common size standards for the
industries in NAICS Sector 44–45,
Retail Trade (75 FR 61597 (October 6,
2010)), NAICS Sector 54, Professional,
Scientific and Technical Services (77 FR
7490 (February 10, 2012)), and NAICS
Sector 48–49, Transportation and
Warehousing (77 FR 10943 (February
24, 2012)). Similarly, SBA proposed
common size standards for several other
industries in NAICS Sector 56,
Administrative and Support, Waste
Management and Remediation Services
(76 FR 63510 (October 12, 2011)),
NAICS Sector 53, Real Estate and Rental
and Leasing (76 FR 70680 (November
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15, 2011)), and NAICS Sector 62, Health
Care and Social Assistance (77 FR 11001
(February 24, 2012)).
For NAICS Sector 52, SBA proposes,
as an alternative to a separate size
standard for each industry, common
size standards for industries in two
NAICS Subsectors and two NAICS
Industry Groups, as shown in Table 4,
NAICS Subsectors and Industry Groups
for Common Size Standards. SBA
evaluated industry and Federal
contracting factors and derived a
common size standard for each NAICS
Subsector and Industry Group using the
same method as described above. The
results are in Table 5, Size Standards
Supported by Each Factor for Subsectors
and Industry Groups, which
immediately follows Table 4, below.
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TABLE 4—NAICS SUBSECTORS AND INDUSTRY GROUPS FOR COMMON SIZE STANDARDS
Subsectors/industry groups: NAICS codes
Subsector/industry group title
5222 a (except NAICS 522210) ..........................
Nondepository Credit Intermediation ...............
523 ......................................................................
5241 b (except NAICS 524126) ..........................
525 c ....................................................................
Industries: 6-digit NAICS codes
522220, 522291, 522292, 522293, 522294,
522298.
Securities, Commodity Contracts, and Other 523110, 523120, 523130, 523140, 523210,
Financial Investments and Related Activities.
523910, 523920, 523930, 523991, 523999.
Insurance Carriers ........................................... 524113, 524114, 524127, 524128, 524130.
Funds, Trusts, and Other Financial Vehicles .. 525110, 525120, 525190, 525910, 525920,
525930, 525990.
a NAICS 522210 is excluded from this Industry Group as that industry currently has an asset based size standard. NAICS 522293 also has an
assets based size standard currently, but SBA proposes to replace it with the same common size standard that SBA is proposing for NAICS Industry Group 5222 (except NAICS 522210).
b NAICS 524126 is excluded from this Industry Group as that industry currently has an employee based size standard. This will be reviewed at
a later date along with other employee based size standards.
c The 2007 Economic Census special tabulation includes data only for two NAICS codes within NAICS Subsector 525, namely 525910 (OpenEnd Investment Funds) and 525990 (Other Financial Vehicles). Consequently, SBA proposes to apply the results from NAICS 525910 and
525990 to all remaining industries within this Subsector because they all share the same size standard currently.
TABLE 5—SIZE STANDARDS SUPPORTED BY EACH FACTOR FOR SUBSECTORS AND INDUSTRY GROUPS
NAICS code/Subsector or Industry Group title
Simple
average
firm size
($ million)
Weighted
average
firm size
($ million)
Average
assets
size
($ million)
Four-firm
ratio
(%)
Four-firm
average
size
($ million)
Gini
coefficient
Federal
contract
factor
(%)
Calculated
size
standard
($ million)
Current
size
standard
($million)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
$23.0
35.5
10.6
$550.3
35.5
319.1
$75.8
35.5
7.7
................
................
24.6
................
................
37,547.5
0.944
35.5
0. 938
................
................
4.5
................
35.5
................
................
7.0
................
35.5
256.0
35.5
3.6
19.0
35.5
1,907.7
35.5
43.8
14.0
35.5
185.6
35.5
14.7
35.5
................
................
................
................
................
................
................
................
................
................
35.5
0.866
35. 5
0. 860
35.5
................
¥0.2
................
................
................
35.5
................
35.5
................
30.0
7.0
................
7.0
................
7.0
5222 (except NAICS 522210) .....................................
Nondepository Credit Intermediation ..........................
523 ..............................................................................
Securities, Commodity Contracts, and Other Financial Investments and Related Activities ...................
5241 (except NAICS 524126) .....................................
Insurance Carriers .......................................................
525 ..............................................................................
Funds, Trusts, and Other Financial Vehicles .............
srobinson on DSK4SPTVN1PROD with PROPOSALS
Evaluation of the Assets Based Size
Standard
In 1984, SBA published a notice of
policy allowing financial services that
prime contractors procure from small
minority owned and controlled
financial institutions to qualify as
subcontracts for purposes of meeting
subcontracting goals and credits (see 49
FR 13091–01 (April 2, 1984)).
Concurrently, SBA also published a
proposed rule that a financial institution
with total assets of not more than $100
million would be considered small (see
49 FR 13052–01 (April 2, 1984)). SBA
adopted the $100 million in total assets
as the size standard for financial
institutions (see 49 FR 49398–01
(October 16, 1984)). Over time, the
definition of small depository
institution was extended to other
financial institutions, such as Credit
Cards Issuing and International Trade
Financing. Since then, along with other
monetary based size standards, SBA has
periodically adjusted the assets based
size standard for inflation, with the
latest adjustment increasing it to $175
million (see 73 FR 41237 (July 18,
2008)).
Currently, the $175 million assets
based size standard applies to four
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industries within NAICS Industry
Group 5221, Depository Credit
Intermediation, and two industries
within NAICS Industry Group 5222,
Non-depository Credit Intermediation.
These are NAICS 522110 (Commercial
Banking), NAICS 522120 (Savings
Institutions), NAICS 522130 (Credit
Unions), NAICS 522190 (Other
Depository Credit Intermediation),
NAICS 522210 (Credit Card Issuing),
and NAICS 522293 (International Trade
Financing).
Because only a small number of
industries have assets based size
standards, no comparison groups could
be developed to assess differing
characteristics of individual industries
based on total assets. Thus, most of the
SBA’s size standards methodology is not
applicable to analyzing the assets based
size standards for financial institutions.
Consequently, in this proposed rule,
SBA has examined trends on financial
industry factors since 1984 to assess
whether the current $175 million assets
based size standard should be modified
to reflect today’s financial industry
structure. Specifically, SBA evaluated
changes in average firm size, industry
concentration, and distribution of firms
by size (i.e., Gini coefficient) for
financial institutions. Similarly in the
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Sfmt 4702
1984 proposed and final rules, SBA both
evaluated depository institutions as a
whole and the minority owned and
controlled depository institutions
separately.
SBA evaluated all depository
institutions (except for Credit Unions,
NAICS 522130 which were evaluated
using the NCUA data) using SDI data.
SDI does not provide the NAICS
definition for every firm included in the
database. However, it has a field called
Asset Concentration Hierarchy, which
can be used to identify each institution’s
primary specialization in terms of asset
concentration, such as credit card
services. Another field, Bank Charter
Class, identifies the institutions as
banks or thrifts. Because the data are not
separated by NAICS code, and also the
differences among services offered by
different financial instructions (such as
commercial banks, saving institutions,
and credit card issuing companies) have
greatly diminished over the recent
decades, SBA has analyzed these
financial institutions as one industry
group.
Since the SDI database does not
distinguish minority owned financial
institutions from others, SBA identified
them using the data on financial
institutions that participate in the
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Department of the Treasury’s Minority
Bank Deposit Program, compiled by the
Federal Reserve Board (FRB) (https://
www.federalreserve.gov/releases/mob/)
for the 3rd quarter of 2011, and
examined their characteristics using the
assets data from the SDI database. The
earliest period the FRB data are
available is the 2nd quarter of 2003.
Thus, to fully capture the changes in
industry structure of minority owned
financial institutions since 1984, SBA
has compared the results based on the
FRB and SDI data with those based on
Depository Institutions (excluding
Credit Unions). Similar calculations for
the minority owned depository
institutions (excluding Credit Unions)
are shown in Table 7, Industry Factors
for Minority Owned Depository
Institutions (excluding Credit Unions).
The number of Credit Unions, total
assets and calculated industry factors
for 1995 and 2011 are shown in Table
8, Industry Factors for Credit Unions.
For comparability, all monetary values
are expressed in 2011 dollars.
the data for minority owned banks from
the 1984 proposed and final rules.
SBA evaluated the changes in the
industry structure of Credit Unions
(NAICS 522130) between 1994 and
2011, using the data from the 5300 Call
Reports available on the NCUA Web site
(https://www.ncua.gov/DataApps/
QCallRptData/Pages/default.aspx).
The number of all depository
institutions (excluding Credit Unions),
total assets and calculated industry
factors for 1984 and 2011 are shown in
Table 6, Industry Factors for All
TABLE 6—INDUSTRY FACTORS FOR ALL DEPOSITORY INSTITUTIONS (EXCLUDING CREDIT UNIONS)
[All monetary values are in millions of 2011 dollars]
Number of
institutions
Year
1984* ............................
2011 .............................
Total assets
17,901
7,445
Simple
average firm
size
$6,702,968
13,843,140
Weighted
average firm
size
$374
1,859
Four-firm ratio
(%)
$12,319
81,690
Four-firm
average size
10.1
41.4
Gini
coefficient
$168,843
1,433,933
0.798
0.907
Source: SDI/FDIC (https://www2.fdic.gov/sdi/main.asp).
* 1984 dataset is not available online, but is available from FDIC on request.
TABLE 7—INDUSTRY FACTORS FOR MINORITY OWNED DEPOSITORY INSTITUTIONS (EXCLUDING CREDIT UNIONS).
[All monetary values are in millions of 2011 dollars]
Number of
institutions
Year
1984 a ...........................
2011 b ...........................
Total assets
96
108
Simple
average firm
size
$7,556
39,138
Weighted
average firm
size
$79
362
Four-firm ratio
(%)
$274
1,662
Four-firm
average size
N/A
40.0
N/A
$3,917
Gini
coefficient
0.491
0.626
Source: a. 1984 proposed (49 FR 13052–01 (April 2, 1984)) and final (49 FR 49398–01 (October 16, 1984)) rules.
b. FRB (https://www.federalreserve.gov/releases/mob/) and FDIC.
TABLE 8—INDUSTRY FACTORS FOR CREDIT UNIONS
[All monetary values are in millions of 2011 dollars]
Number of
institutions
Year
1994 .............................
2011 .............................
Total assets
12,201
7,240
Simple
average firm
size
$420,606
974,187
Weighted
average firm
size
$34
135
Four-firm ratio
(%)
$733
3,543
5.5
9.8
Four-firm
average size
$5,742
3,907
Gini
coefficient
0.793
0.829
srobinson on DSK4SPTVN1PROD with PROPOSALS
Source: NCUA, https://www.ncua.gov/DataApps/QCallRptData/Pages/CallRptData.aspx.
During the 1984 to 2011 span, as
shown in Table 6, Industry Factors for
All Depository Institutions (excluding
Credit Unions), above, the financial
industry saw a large drop in the total
number of financial institutions, but at
the same time it saw a significant
increase in asset concentration among
fewer of them. The total number of all
financial institutions decreased more
than half from 17,901 in 1984 to 7,445
in 2011, while their total assets
(measured in 2011 dollars) more than
doubled during the same period. The
average firm size (measured in total
assets) also showed significant increase
from 1984 to 2011, with their simple
average firm size increasing by a factor
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Jkt 226001
of 5 and the weighted average firm size
increasing by a factor of nearly 7. The
four largest institutions’ share of total
assets (also referred to as four-firm
concentration ratio) more than
quadrupled (from 10.1% to 41.4%) and
their average size increased more than 8
times. The Gini coefficient value also
increased from 0.798 in 1984 to 0.907 in
2011, thereby further confirming the
trend of increased concentration in the
financial industry. The average firm size
and Gini coefficient value for the
minority owned banks in Table 7,
Industry Factors for Minority Owned
Depository Institutions (excluding
Credit Unions), also strongly confirmed
the trend of increased concentration in
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Fmt 4702
Sfmt 4702
the financial industry. As shown in
Table 8, Industry Factors for Credit
Unions, above, the number of Credit
Unions decreased by 40 percent and
their total assets more than doubled
between 1995 and 2011. The average
firm size, four-firm statistics, and Gini
coefficient for Credit Unions also
indicated increased concentration.
For all the six industries in NAICS
Subsector 522 that have the $175
million assets based size standard,
Federal contracting dollars averaged
only about $22 million per year during
fiscal years 2008–2010. Thus, under
SBA’s methodology, Federal contracting
was not a significant factor for
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Federal Register / Vol. 77, No. 176 / Tuesday, September 11, 2012 / Proposed Rules
establishing a size standard for these
industries.
Besides the industry structure, SBA
also reviewed the relevant literature and
information to determine if total assets
are a suitable measure of bank size given
the current structure of the banking
industry. SBA has found that total assets
are still the commonly accepted
measure of bank size. For example, the
Federal Reserve Board, Federal Deposit
Insurance Corporation, and U.S.
Treasury Department all use total assets
to measure bank size for their regulatory
and program purposes. Accordingly,
SBA proposes to retain total assets to
measure the size of financial
institutions.
The current structure of the financial
industry relative to that for the 1980s
and 1990s, as discussed above, strongly
supports increasing the current $175
million assets based size standard. The
changes in industry factors for all
financial institutions in Table 6 as well
as the results for the minority owned
institutions in Table 7 and Credit
Unions in Table 8 support a size
standard in the range of $500 million to
$1 billion in total assets. SBA is
proposing $500 million as it would
include about 82 percent of the financial
institutions and 7 percent of total assets
of all financial institutions as compared
to 54 percent of institutions and only
about 3 percent of total assets under the
current $175 million. It would include
about 82 percent of institutions and onethird of the total assets of all minority
owned institutions, as compared to 58
percent of institutions and 14 percent of
total assets under the current $175
million. Similarly, the $500 million size
standard would include nearly 95
percent of all Credit Unions and 36
percent of their total assets, compared to
87 percent of all Credit Unions and 19
percent of their total assets under the
current $175 million size standard. SBA
considered proposing $1 billion in total
assets, but that would include all but
the five largest minority owned banks,
some of which may not be in need of
Federal assistance.
The proposed $500 million assets
based size standard would apply to the
following five industries within NAICS
Subsector 522, Credit Intermediation
and Related Activities: NAICS 522110
(Commercial Banking), NAICS 522120
(Savings Institutions), NAICS 522130
(Credit Unions), NAICS 522190 (Other
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depository Credit Intermediation), and
NAICS 522210 (Credit Card Issuing).
Special Considerations
NAICS 522293, International Trade
Financing
NAICS 522293, International Trade
Financing, currently has the $175
million assets based size standard.
However, there are no assets data
available to evaluate this industry.
Furthermore, most of the receipts and
employment data for this industry are
suppressed in the 2007 Economic
Census special tabulation due to the
disclosure limitation. In terms of
average size and distribution of firms by
receipts and employment size based on
SBA’s estimated values for missing data,
firms primarily engaged in NAICS
522293 are much more similar to those
primarily engaged in other industries
within NAICS Industry Group 5222
(except for NAICS 522210) that have
receipts based size standards than firms
primarily engaged in industries in
NAICS Industry Group 5221 and NAICS
522210 that have assets based sized
standards. Accordingly, for NAICS
522293 SBA is proposing the same
$35.5 million receipts based size
standard that it has proposed for all
industries in NAICS Industry Group
5222 (except for NAICS 522210). SBA
welcomes feedback on this proposal.
NAICS Subsector 525, Funds, Trusts,
and Other Financial Vehicles
As noted earlier, the 2007 Economic
Census special tabulation includes data
only for two NAICS codes within
NAICS Subsector 525: (1) NAICS
525910, Open-End Investment Funds:
and (2) NAICS 525990, Other Financial
Vehicles. Because all industries in that
Subsector currently share the same $7
million receipts based size standard,
SBA applies the results based on data
for NAICS 525910 and 525990 to all
remaining industries within this
Subsector and proposes the same
common size standard of $30 million in
average annual receipts for all industries
in the Subsector. SBA seeks comments
on this proposal as well as suggestions
on alternative data sources, if any, to
evaluate those industries.
NAICS 524126, Direct Property and
Causality Insurance Carriers
The current size standard for NAICS
524126, Direct Property and Causality
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55747
Insurance, is 1,500 employees, which
SBA has not reviewed in this proposed
rule. SBA will review this size standard
together with other employee based size
standards at a later date. Until then,
SBA proposes to retain the current
1,500-employee size standard for NAICS
524126.
Evaluation of SBA Loan Data
Before deciding on an industry’s size
standard, SBA also considers the impact
of new or revised size standards on
SBA’s loan programs. Accordingly, SBA
examined its 7(a) and 504 Loan Program
data for fiscal years 2008–2010 to assess
whether the proposed size standards
need further adjustments to ensure
credit opportunities for small businesses
through those programs. For the
industries reviewed in this rule, the data
show that it is mostly businesses much
smaller than the current size standards
that use SBA’s 7(a) and 504 loans.
Furthermore, the Jobs Act established
an alternative size standard for SBA’s
7(a) and 504 Loan Programs.
Specifically, an applicant exceeding an
NAICS industry size standard may still
be eligible if its maximum tangible net
worth does not exceed $15 million and
its average net income after Federal
income taxes (excluding any carry-over
losses) for the 2 full fiscal years before
the date of the application is not more
than $5 million.
Therefore, no size standard in NAICS
Sectors 52 and 55 needs an adjustment
based on this factor.
Proposed Changes to Size Standards
Table 9, Summary of Size Standards
Analysis, below, summarizes the results
of SBA’s analyses of industry specific
size standards from Table 3, the results
of common size standards analysis from
Table 5, and the results of the analysis
of the assets based size standard. With
the proposed change of an assets based
size standard to a receipts based size
standard for NAICS 522293,
International Trade Financing, the
results show increases in size standards
for 37 industries, a decrease for one, and
no change for one industry in NAICS
Sector 52. The results also show
increases in size standards for both
industries in NAICS Sector 55.
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TABLE 9—SUMMARY OF SIZE STANDARDS ANALYSIS
NAICS title
Current size standard
($ million)
Calculated industry-specific
size standard
($ million)
Calculated common size
standard
($ million)
Commercial Banking ...................................................
Savings Institutions ......................................................
Credit Unions ...............................................................
Other Depository Credit intermediation .......................
Credit Card Issuing ......................................................
Sales Financing ...........................................................
Consumer Lending ......................................................
Real Estate Credit .......................................................
International Trade Financing ......................................
Secondary Market Financing .......................................
All Other Nondepository Credit Intermediation ...........
Mortgage and Nonmortgage Loan Brokers .................
Financial Transactions, Reserve, and Clearinghouse
Activities.
Other Activities Related to Credit Intermediation ........
Investment Banking and Securities Dealing ...............
Securities Brokerage ...................................................
Commodity Contracts Dealing .....................................
Commodity Contracts Brokerage ................................
Securities and Commodity Exchanges .......................
Miscellaneous Intermediation ......................................
Portfolio Management .................................................
Investment Advice .......................................................
Trust, Fiduciary and Custody Activities .......................
Miscellaneous Financial Investment Activities ............
Direct Life Insurance Carriers .....................................
Direct Health and Medical Insurance Carriers ............
Direct Title Insurance Carriers ....................................
Other Direct Insurance (except Life, Health and Medical) Carriers.
Reinsurance Carriers ...................................................
Insurance Agencies and Brokerages ..........................
Claims Adjusting ..........................................................
Third Party Administration of Insurance and Pension
Funds.
All Other Insurance Related Activities .........................
Pension Funds .............................................................
Health and Welfare Funds ..........................................
Other insurance Funds ................................................
Open-End Investment Funds ......................................
Trusts, Estates and Agency Accounts ........................
Real Estate Investment Trusts ....................................
Other Financial Vehicles .............................................
Offices of Bank Holding Companies ...........................
Offices of Other Holding Companies ..........................
175 million in assets ......
175 million in assets ......
175 million in assets ......
175 million in assets ......
175 million in assets ......
7.0 ..................................
7.0 ..................................
7.0 ..................................
175 million in assets ......
7.0 ..................................
7.0 ..................................
7.0 ..................................
7.0 ..................................
........................
........................
........................
........................
........................
$35.5
35.5
35.5
........................
35.5
35.5
7.0
35.5
$500 million in assets.
500 million in assets.
500 million in assets.
500 million in assets.
500 million in assets.
35.5.
35.5.
35.5.
35.5.
35.5.
35.5.
NAICS code
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
522390
523110
523120
523130
523140
523210
523910
523920
523930
523991
523999
524113
524114
524127
524128
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
524130
524210
524291
524292
..............
..............
..............
..............
524298
525110
525120
525190
525910
525920
525930
525990
551111
551112
srobinson on DSK4SPTVN1PROD with PROPOSALS
522110
522120
522130
522190
522210
522220
522291
522292
522293
522294
522298
522310
522320
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
Although the results in Table 9,
Summary of Size Standards Analysis,
seem to support lowering the size
industry for one industry (NAICS
524210, Insurance Agencies and
Brokerages), SBA believes that lowering
small business size standards is not in
the best interest of small businesses in
the current economic environment. The
U.S. economy was in recession from
December 2007 to June 2009, the longest
and deepest of any recessions since
World War II. The economy lost more
than eight million non-farm jobs during
2008–2009. In response, Congress
passed and the President signed into
law the American Recovery and
Reinvestment Act of 2009 (Recovery
Act) to promote economic recovery and
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to preserve and create jobs. Although
the recession officially ended in June
2009, the unemployment rate is still
high at 8.2 percent in June 2012 and is
forecast to remain around this level at
least through the end of 2012. Recently,
Congress passed and the President
signed the Jobs Act to promote small
business job creation. The Jobs Act puts
more capital into the hands of
entrepreneurs and small business
owners; strengthens small businesses’
ability to compete for contracts;
includes recommendations from the
President’s Task Force on Federal
Contracting Opportunities for Small
Business; creates a better playing field
for small businesses; promotes small
business exporting, building on the
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President’s National Export Initiative;
expands training and counseling; and
provides $12 billion in tax relief to help
small businesses invest in their firms
and create jobs. A proposal to reduce
size standards will have an immediate
impact on jobs, and it would be contrary
to the expressed will of the President
and the Congress.
Lowering size standards would
decrease the number of firms that
participate in Federal financial and
procurement assistance programs for
small businesses. It would also affect
small businesses that are now exempt
from or receive some form of relief from
myriad other Federal regulations that
use SBA’s size standards. That impact
could take the form of increased fees,
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paperwork, or other compliance
requirements for small businesses.
Furthermore, size standards based
solely on analytical results without any
other considerations can cut off
currently eligible small firms from those
programs and benefits. That would run
counter to what SBA and the Federal
government are doing to help small
businesses. Reducing size eligibility for
Federal procurement opportunities,
especially under current economic
conditions, would not preserve or create
more jobs; rather, it would have the
opposite effect. Therefore, in this
proposed rule, SBA does not intend to
reduce size standards for any industries.
For one industry where analysis might
seem to support lowering the size
standard, SBA proposes to retain the
current size standard.
Furthermore, as stated previously, the
Small Business Act requires the
Administrator to ‘‘* * * consider other
factors deemed to be relevant * * *’’ to
establishing small business size
standards. The current economic
conditions and the impact on job
creation are quite relevant factors when
establishing small business size
standards. SBA nevertheless invites
comments and suggestions on whether
it should lower the size standard for
NAICS 524210, Insurance Agencies and
Brokerages, to $5 million, or retain the
current $7 million, which is the anchor
standard for receipts based standards.
Comparing industry specific size
standards and common size standards
within each Industry Group or
Subsector, SBA finds that for several
industries, as shown in Tables 4 and 5
above, common size standards are more
appropriate for several reasons. First,
analyzing industries at the more
aggregated Industry Group or Subsector
levels simplifies size standards analysis,
and the results will be more consistent
among related industries. Second, in
NAICS Sector 52 most industries within
each Industry Group or Subsector
currently have the same size standards
and SBA believes it is better to keep the
revised size standards also same unless
industries are significantly different.
Third, within each Industry Group or
Subsector many of the same businesses
tend to operate in the same multiple
industries. Thus, SBA believes that
common size standards would reflect
the Federal marketplace in those
industries better than different size
standards for each industry.
For industries where both industry
specific size standards and common size
standards have been calculated, for the
above reasons, SBA proposes to apply
common size standards. For industries
for which SBA has not estimated
common size standards it proposes to
apply industry specific size standards.
As discussed above, lowering small
business size standards is inconsistent
with what the Federal government is
doing to stimulate the economy and
would discourage job growth for which
Congress established the Recovery Act
and Jobs Act. In addition, it would be
inconsistent with the Small Business
Act requiring the Administrator to
establish size standards based on
industry analysis and other relevant
factors such as current economic
conditions.
In addition, retaining current
standards when the analytical results
can suggest lowering them is consistent
with SBA’s prior actions for NAICS
Sector 44–45 (Retail Trade), NAICS
Sector 72 (Accommodation and Food
Services), and NAICS Sector 81 (Other
Services) that the Agency proposed (74
FR 53924, 74 FR 53913, and 74 FR
53941, October 21, 2009) and adopted in
its final rules (75 FR 61597, 75 FR
61604, and 75 FR 61591, October 6,
2010). It is also consistent with the
Agency’s proposed rule (76 FR 14323
(March 16, 2011)) and final rule (77 FR
7490 (February 10, 2012)) for NAICS
Sector 54, Professional, Technical, and
Scientific Services, the proposed rule
(76 FR 27935 (May 13, 2011)) and final
rule ((77 FR 10943 (February 24, 2012))
for NAICS Sector 48–49, Transportation
and Warehousing, and proposed rules
for NAICS Sector 51, Information (76 FR
63216 (October 12, 2011)), NAICS
Sector 56, Administrative and Support,
Waste Management and Remediation
Services (76 FR 63510 (October 12,
2011)), NAICS Sector 61, Educational
Services (76 FR 70667 (November 15,
2011)), NAICS Sector 53, Real Estate
and Rental and Leasing (76 FR 70680
(November 15, 2011)), NAICS Sector 62,
Health Care and Social Assistance
(forthcoming), NAICS Sector 71, Arts,
Entertainment and Recreation
(forthcoming), and NAICS Sector 23,
Construction (forthcoming). In each of
those final and proposed rules, SBA
opted not to reduce small business size
standards, for the same reasons it has
provided above in this proposed rule.
Thus, SBA proposes to increase size
standards for 37 industries, and retain
the current size standards for two
industries in NAICS Sector 52. In
addition, SBA proposes to change the
measure of size for NAICS 522293,
International Trade Financing, from
total assets to annual receipts. SBA also
proposes to increase size standards for
two industries in NAICS Sector 55. The
SBA’s proposed changes are
summarized in Table 10, Summary of
Proposed Size Standards Revisions,
below.
TABLE 10—SUMMARY OF PROPOSED SIZE STANDARDS REVISIONS
NAICS title
Current size standard
($ million)
Commercial Banking ...............................................................................
Savings Institutions ..................................................................................
Credit Unions ...........................................................................................
Other Depository Credit intermediation ...................................................
Credit Card Issuing ..................................................................................
Sales Financing .......................................................................................
Consumer Lending ..................................................................................
Real Estate Credit ...................................................................................
International Trade Financing ..................................................................
Secondary Market Financing ...................................................................
All Other Nondepository Credit Intermediation .......................................
Financial Transactions, Reserve, and Clearinghouse Activities .............
Other Activities Related to Credit Intermediation ....................................
Investment Banking and Securities Dealing ...........................................
Securities Brokerage ...............................................................................
Commodity Contracts Dealing .................................................................
Commodity Contracts Brokerage ............................................................
Securities and Commodity Exchanges ...................................................
175 million in assets ......
175 million in assets ......
175 million in assets ......
175 million in assets ......
175 million in assets ......
7.0 ..................................
7.0 ..................................
7.0 ..................................
175 million in assets ......
7.0 ..................................
7.0 ..................................
7.0 ..................................
7.0 ..................................
7.0 ..................................
7.0 ..................................
7.0 ..................................
7.0 ..................................
7.0 ..................................
srobinson on DSK4SPTVN1PROD with PROPOSALS
NAICS code
522110
522120
522130
522190
522210
522220
522291
522292
522293
522294
522298
522320
522390
523110
523120
523130
523140
523210
..............
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Proposed size standard
($ million)
500 million
500 million
500 million
500 million
500 million
35.5.
35.5.
35.5.
35.5.
35.5.
35.5.
35.5.
19.0.
35.5.
35.5.
35.5.
35.5.
35.5.
in
in
in
in
in
assets.
assets.
assets.
assets.
assets.
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Federal Register / Vol. 77, No. 176 / Tuesday, September 11, 2012 / Proposed Rules
TABLE 10—SUMMARY OF PROPOSED SIZE STANDARDS REVISIONS—Continued
NAICS code
523910
523920
523930
523991
523999
524113
524114
524127
524128
524130
524291
524292
524298
525110
525120
525190
525910
525920
525930
525990
551111
551112
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Miscellaneous Intermediation ..................................................................
Portfolio Management .............................................................................
Investment Advice ...................................................................................
Trust, Fiduciary and Custody Activities ...................................................
Miscellaneous Financial Investment Activities ........................................
Direct Life Insurance Carriers .................................................................
Direct Health and Medical Insurance Carriers ........................................
Direct Title Insurance Carriers ................................................................
Other Direct Insurance (except Life, Health and Medical) Carriers ........
Reinsurance Carriers ...............................................................................
Claims Adjusting ......................................................................................
Third Party Administration of Insurance and Pension Funds .................
All Other Insurance Related Activities .....................................................
Pension Funds .........................................................................................
Health and Welfare Funds ......................................................................
Other Insurance Funds ............................................................................
Open-End Investment Funds ..................................................................
Trusts, Estates, and Agency Funds ........................................................
Real Estate Investments Funds ..............................................................
Other Financial Vehicles .........................................................................
Offices of Bank Holding Companies .......................................................
Offices of Other Holding Companies ......................................................
Evaluation of Dominance in Field of
Operation
SBA has determined that for the
industries in NAICS Sectors 52 and 55
for which it has proposed to increase
size standards, no individual firm at or
below the proposed size standard will
be large enough to dominate its field of
operation. At the proposed size
standards for individual industries, if
adopted, the small business share of
total industry receipts among those
industries with receipts based size
standards is, in average, 0.3 percent,
varying from .01 percent to 1.3 percent
and the small business share among the
industries with assets based size
standards is .004 percent. These levels
of market shares effectively preclude a
firm at or below the proposed size
standards from exerting control on any
of the industries.
srobinson on DSK4SPTVN1PROD with PROPOSALS
Request for Comments
SBA invites public comments on this
proposed rule, especially on the
following issues:
1. Whether SBA’s proposal to simplify
size standards by using eight fixed
levels for receipts based size
standards—$5 million, $7 million, $10
million, $14 million, $19 million, $25.5
million, $30 million, and $35.5
million—is necessary and whether the
proposed fixed size levels are
appropriate. SBA welcomes suggestions
on alternative approaches to simplifying
small business size standards.
2. Whether SBA’s proposal to increase
32 receipts based and five assets based
size standards and to retain two receipts
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based size standards in NAICS Sector
52, is appropriate given the economic
characteristics of each industry.
3. Whether SBA’s proposal to increase
the two size standards in NAICS Sector
55 is appropriate given the economic
characteristics of each industry.
4. Whether SBA should change the
measure of size for NAICS 522293,
International Trade Financing, from
total assets to annual receipts.
5. SBA also seeks feedback and
suggestions on alternative size
standards, if they would be more
appropriate, including whether the
number of employees is a more suitable
measure of size for certain industries
and what that employee level should be.
6. SBA proposes common receipts
based size standards for industries
within NAICS Subsectors 523 and 525
as well as NAICS Industry Groups 5222
(except for NAICS 522210) and 5241
(except for NAICS 524126). Similarly,
SBA proposes a common assets based
size standard for three industries within
NAICS Industry Group 5221 (except for
NAICS 522130) and for NAICS 522210.
SBA invites comments or suggestions
along with supporting information with
respect to the following:
a. Whether SBA should adopt
common size standards for those
industries or establish a separate size
standard for each industry, and
b. Whether the proposed common size
standards for those industries are at the
correct levels or what would be more
appropriate if what SBA has proposed
are not appropriate.
7. For several industries in NAICS
Sectors 52 and 55, based on industry
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Proposed size standard
($ million)
35.5.
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35.5.
35.5.
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35.5.
35.5.
35.5.
35.5.
19.0.
30.0.
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30.0.
30.0.
30.0.
30.0.
30.0.
30.0.
30.0.
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19.0.
and program data, SBA proposes large
increases, while for others the proposed
increases are modest. The SBA seeks
feedback on whether, as a policy, it
should limit the increase to a size
standard or establish minimum or
maximum values for its size standards.
The SBA seeks suggestions on
appropriate levels of changes to size
standards and on their minimum or
maximum levels.
8. SBA’s proposed size standards are
based on five primary factors—average
firm size, average assets size (as a proxy
of startup costs and entry barriers), fourfirm concentration ratio, distribution of
firms by size and, the total share and
small business share of Federal
contracting dollars of the evaluated
industries. SBA welcomes comments on
these factors and/or suggestions of other
factors that it should consider when
evaluating or revising size standards.
SBA also seeks information on relevant
data sources, other than what it uses, if
available.
9. SBA gives equal weight to each of
the five primary factors in all industries.
SBA seeks feedback on whether it
should continue giving equal weight to
each factor or whether it should give
more weight to one or more factors for
certain industries. Recommendations to
weigh some factors more than others
should include suggested weights for
each factor along with supporting
information.
10. For analytical simplicity and
efficiency, in this proposed rule, SBA
has refined its size standard
methodology to obtain a single value as
a proposed size standard instead of a
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Federal Register / Vol. 77, No. 176 / Tuesday, September 11, 2012 / Proposed Rules
range of values, as in its past size
regulations. SBA welcomes any
comments on this procedure and
suggestions on alternative methods.
Public comments on the above issues
are very valuable to SBA for validating
its size standard methodology and its
proposed size standards revisions in
this proposed rule. This will help SBA
to move forward with its review of size
standards for other NAICS Sectors.
Commenters addressing size standards
for a specific industry or a group of
industries should include relevant data
and/or other information supporting
their comments. If comments relate to
using size standards for Federal
procurement programs, SBA suggests
that commenters provide information on
the size of contracts in their industries,
the size of businesses that can undertake
the contracts, start-up costs, equipment
and other asset requirements, the
amount of subcontracting, other direct
and indirect costs associated with the
contracts, the use of mandatory sources
of supply for products and services, and
the degree to which contractors can
mark up those costs.
Compliance With Executive Orders
12866, 13563, 12988 and 13132, the
Paperwork Reduction Act (44 U.S.C.
Ch. 35) and the Regulatory Flexibility
Act (5 U.S.C. 601–612)
Executive Order 12866
The Office of Management and Budget
(OMB) has determined that this
proposed rule is not a ‘‘significant
regulatory action’’ for purposes of
Executive Order 12866. In order to help
explain the need of this rule and the
rule’s potential benefits and costs, SBA
is providing a Cost Benefit Analysis in
this section of the rule. This is also not
a ‘‘major rule’’ under the Congressional
Review Act, 5 U.S.C. 800.
srobinson on DSK4SPTVN1PROD with PROPOSALS
Cost Benefit Analysis
1. Is there a need for the regulatory
action?
SBA believes that proposed size
standards revisions in NAICS Sector 52,
Finance and Insurance, and NAICS
Sector 55, Management of Companies
and Enterprises, will better reflect the
economic characteristics of small
businesses in this Sector and the
Federal government marketplace. SBA’s
mission is to aid and assist small
businesses through a variety of
financial, procurement, business
development, and advocacy programs.
To determine the intended beneficiaries
of these programs, SBA establishes
distinct definitions of which businesses
are deemed small businesses. The Small
Business Act (15 U.S.C. 632(a))
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delegates to SBA’s Administrator the
responsibility for establishing small
business definitions. The Act also
requires that small business definitions
vary to reflect industry differences. The
recently enacted Jobs Act also requires
SBA to review all size standards and
make necessary adjustments to reflect
market conditions. The supplementary
information section of this proposed
rule explains SBA’s methodology for
analyzing a size standard for a particular
industry.
2. What are the potential benefits and
costs of this regulatory action?
The most significant benefit to
businesses obtaining small business
status because of this rule is gaining
eligibility for Federal small business
assistance programs. These include
SBA’s financial assistance programs,
economic injury disaster loans, and
Federal procurement programs intended
for small businesses. Federal
procurement programs provide targeted
opportunities for small businesses
under SBA’s business development
programs, such as 8(a), Small
Disadvantaged Businesses (SDB), small
businesses located in Historically
Underutilized Business Zones
(HUBZone), women-owned small
businesses (WOSB), and servicedisabled veteran-owned small
businesses (SDVOSB). Federal agencies
may also use SBA’s size standards for a
variety of other regulatory and program
purposes. These programs help small
businesses become more
knowledgeable, stable, and competitive.
SBA estimates that in the 34 industries
for which it proposes to increase
receipts based size standards in NAICS
Sectors 52 and 55, more than 5,400
firms, not small under the existing size
standards, will become small under the
proposed size standards and therefore
eligible for these programs. That is
about 2.2 percent of all firms classified
as small under the current receipts
based size standards in NAICS Sector 52
and 55. If adopted as proposed, this will
increase the small business share of
total receipts of all industries with
receipts based size standards within
NAICS Sectors 52 and 55 from 5.1
percent to 7.5 percent. Additionally,
due to the proposed increase to the
assets based size standard from $175
million to $500 million for four
industries in NAICS Sector 52 (i.e.,
NAICS 522110, 522120, 522190 and
522210), approximately 2,000 additional
depository institutions, including about
25 minority owned financial
institutions, will qualify as small. This
will increase the small business share of
total assets in those industries from 2.5
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55751
percent under the current assets based
size standard to 7 percent for all
financial institutions and from 14.4
percent to 33 percent for minority
owned institutions. This would also
include about 550 additional Credit
Unions, but they would not qualify as
small business concerns for Federal
programs intended for small businesses
because they are not-for profit entities.
However, they may qualify as small
entities for other Federal programs and
regulatory purposes.
The following groups will benefit
from the proposed size standards
revisions in this rule, if adopted as
proposed: (1) Some businesses that are
above the current size standards may
gain small business status under the
higher size standards, thereby enabling
them to participate in Federal small
business assistance programs; (2)
growing small businesses that are close
to exceeding the current size standards
will be able to retain their small
business status under the higher size
standards, thereby enabling them to
continue their participation in the
programs; (3) Federal agencies will have
a larger pool of small businesses from
which to draw for their small business
procurement programs; (4) prime
contractors that could benefit from
agreements with the minority owned
depository institutions in meeting their
subcontracting goals and credits; and (5)
potentially small business communities
could benefit from increased banking
activities in the area.
SBA estimates that firms gaining
small business status under the
proposed receipts based size standards
could receive Federal contracts totaling
$8 million to $10 million annually
under SBA’s small business, 8(a), SDB,
HUBZone, WOSB, and SDVOSB
Programs, and other unrestricted
procurements. The added competition
for many of these procurements can also
result in lower prices to the Government
for procurements reserved for small
businesses, but SBA cannot quantify
this benefit.
Under SBA’s 7(a) and 504 Loan
Programs, based on the fiscal years
2008–2010 data, SBA estimates up to 30
additional loans totaling about $4
million to $5 million in Federal loan
guarantees could be made to these
newly defined small businesses under
the proposed size standards. Increasing
the size standards will likely result in
more small business guaranteed loans to
businesses in these industries, but it is
be impractical to try to estimate exactly
the number and total amount of loans.
There are two reasons for this: (1) Under
the Jobs Act, SBA can now guarantee
substantially larger loans than in the
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Federal Register / Vol. 77, No. 176 / Tuesday, September 11, 2012 / Proposed Rules
past; and, (2) as described above, the
Jobs Act established an alternative size
standard ($15 million in tangible net
worth and $5 million in net income
after income taxes) for business
concerns that do not meet the size
standards for their industry. Therefore,
SBA finds it difficult to quantify the
actual impact of these proposed size
standards on its 7(a) and 504 Loan
Programs.
Newly defined small businesses will
also benefit from SBA’s Economic Injury
Disaster Loan (EIDL) Program. Since this
program is contingent on the occurrence
and severity of a disaster, SBA cannot
make a meaningful estimate of this
impact.
To the extent that those 7,400 newly
defined firms (including 5,400 firms
under the receipts based size standards
in 34 industries and 2,000 firms under
the assets based size standards in four
industries) could become active in
Federal procurement programs, the
proposed changes, if adopted, may
entail some additional administrative
costs to the government associated with
there being more bidders on small
business procurement opportunities. In
addition, there will be more firms
seeking SBA’s guaranteed loans, more
firms eligible for enrollment in the
Central Contractor Registration (CCR)’s
Dynamic Small Business Search
database, and more firms seeking
certification as 8(a) or HUBZone firms
or qualifying for small business, WOSB,
SDVOSB, and SDB status. Among those
newly defined small businesses seeking
SBA assistance, there could be some
additional costs associated with
compliance and verification of small
business status and protests of small
business status. SBA believes that these
added administrative costs will be
minimal because mechanisms are
already in place to handle these
requirements.
Additionally, Federal government
contracts may have higher costs. With a
greater number of businesses defined as
small, Federal agencies may choose to
set aside more contracts for competition
among small businesses rather than
using full and open competition. The
movement from unrestricted to small
business set-aside contracting might
result in competition among fewer total
bidders, although there will be more
small businesses eligible to submit
offers. However, the additional costs
associated with fewer bidders are
expected to be minor since, by law,
procurements may be set aside for small
businesses or reserved for the 8(a),
HUBZone, WOSB, or SDVOSB Programs
only if awards are expected to be made
at fair and reasonable prices. In
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addition, there may be higher costs
when more full and open contracts are
awarded to HUBZone businesses that
receive price evaluation preferences.
The proposed size standards
revisions, if adopted, may have some
distributional effects among large and
small businesses. Although SBA cannot
estimate with certainty the actual
outcome of the gains and losses among
small and large businesses, it can
identify several probable impacts. There
may be a transfer of some Federal
contracts to small businesses from large
businesses. Large businesses may have
fewer Federal contract opportunities as
Federal agencies decide to set aside
more Federal contracts for small
businesses. In addition, some Federal
contracts may be awarded to HUBZone
concerns instead of large businesses
since these firms may be eligible for a
price evaluation preference for contracts
when they compete on a full and open
basis.
Similarly, currently defined small
businesses may obtain fewer Federal
contracts due to the increased
competition from more businesses
defined as small. This transfer may be
offset by a greater number of Federal
procurements set aside for all small
businesses. The number of newly
defined and expanding small businesses
that are willing and able to sell to the
Federal Government will limit the
potential transfer of contracts from large
and currently defined small businesses.
SBA cannot estimate the potential
distributional impacts of these transfers
with any degree of precision. The
proposed revisions to the existing size
standards in NAICS Sectors 52 and 55
are consistent with SBA’s statutory
mandate to assist small business. This
regulatory action promotes the
Administration’s objectives. One of
SBA’s goals in support of the
Administration’s objectives is to help
individual small businesses succeed
through fair and equitable access to
capital and credit, Government
contracts, and management and
technical assistance. Reviewing and
modifying size standards, when
appropriate, ensures that intended
beneficiaries have access to small
business programs designed to assist
them.
Executive Order 13563
A description of the need for this
regulatory action and benefits and costs
associated with this action including
possible distributional impacts that
relate to Executive Order 13563 is
included above in the Cost Benefit
Analysis under Executive Order 12866.
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In an effort to engage interested
parties in this action, SBA has presented
its size standards methodology
(discussed above under SUPPLEMENTARY
INFORMATION) to various industry
associations and trade groups. SBA also
met with a number of industry groups
to get their feedback on its methodology
and other size standards issues. In
addition, SBA presented its size
standards methodology to businesses in
13 cities in the U.S. and sought their
input as part of Jobs Act tours. The
presentation also included information
on the latest status of the
comprehensive size standards review
and on how interested parties can
provide SBA with input and feedback
on size standards review.
Additionally, SBA sent letters to the
Directors of the Offices of Small and
Disadvantaged Business Utilization
(OSDBU) at several Federal agencies
with considerable procurement
responsibilities requesting their
feedback on how the agencies use SBA’s
size standards and whether current size
standards meet their programmatic
needs (both procurement and nonprocurement). SBA gave appropriate
consideration to all input, suggestions,
recommendations, and relevant
information obtained from industry
groups, individual businesses, and
Federal agencies in preparing this
proposed rule.
The review of size standards in
NAICS Sectors 52 and 55 is consistent
with EO 13563, Section 6, calling for
retrospective analyses of existing rules.
The last comprehensive review of size
standards occurred during the late
1970s and early 1980s. Since then,
except for periodic adjustments for
monetary based size standards, most
reviews of size standards were limited
to a few specific industries in response
to requests from the public and Federal
agencies. SBA recognizes that changes
in industry structure and the Federal
marketplace over time have rendered
existing size standards for some
industries no longer supportable by
current data. Accordingly, in 2007, SBA
began a comprehensive review of its
size standards to ensure that existing
size standards have supportable bases
and to revise them when necessary. In
addition, the Jobs Act requires SBA to
conduct a detailed review of all size
standards and to make appropriate
adjustments to reflect market
conditions. Specifically, the Jobs Act
requires SBA to conduct a detailed
review of at least one-third of all size
standards during every18-month period
from the date of its enactment and do a
complete review of all size standards
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Federal Register / Vol. 77, No. 176 / Tuesday, September 11, 2012 / Proposed Rules
not less frequently than once every 5
years thereafter.
Executive Order 12988
This action meets applicable
standards set forth in Sections 3(a) and
3(b)(2) of Executive Order 12988, Civil
Justice Reform, to minimize litigation,
eliminate ambiguity, and reduce
burden. The action does not have
retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order
13132, SBA has determined that this
proposed rule will not have substantial,
direct effects on the States, on the
relationship between the national
government and the States, or on the
distribution of power and
responsibilities among the various
levels of government. Therefore, SBA
has determined that this proposed rule
has no federalism implications
warranting preparation of a federalism
assessment.
Paperwork Reduction Act
For the purpose of the Paperwork
Reduction Act, 44 U.S.C. Ch. 35, SBA
has determined that this proposed rule
will not impose any new reporting or
recordkeeping requirements.
srobinson on DSK4SPTVN1PROD with PROPOSALS
Initial Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act
(RFA), this proposed rule, if adopted,
may have a significant impact on a
substantial number of small businesses
in NAICS Sector 52, Finance and
Insurance, and NAICS Sector 55,
Management of Companies and
Enterprises. As described above, this
rule may affect small businesses seeking
Federal contracts, loans under SBA’s
7(a), 504 and Economic Injury Disaster
Loan Programs, and assistance under
other Federal small business programs,
as well as subcontracting programs.
Immediately below, SBA sets forth an
initial regulatory flexibility analysis
(IRFA) of this proposed rule addressing
the following questions: (1) What are the
need for and objective of the rule? (2)
What are SBA’s description and
estimate of the number of small
businesses to which the rule will apply?
(3) What are the projected reporting,
recordkeeping, and other compliance
requirements of the rule? (4) What are
the relevant Federal rules that may
duplicate, overlap, or conflict with the
rule? and (5) What alternatives will
allow the Agency to accomplish its
regulatory objectives while minimizing
the impact on small businesses?
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1. What are the need for and objective
of the rule?
Changes in industry structure,
technological changes, productivity
growth, mergers and acquisitions, and
updated industry definitions have
changed the structure of many
industries in NAICS Sectors 52 and 55.
Such changes can be sufficient to
support revisions to current size
standards for some industries. Based on
the analysis of the latest data available,
SBA believes that the revised standards
in this proposed rule more
appropriately reflect the size of
businesses that need Federal assistance.
The recently enacted Jobs Act also
requires SBA to review all size
standards and make necessary
adjustments to reflect market
conditions.
2. What are SBA’s description and
estimate of the number of small
businesses to which the rule will apply?
If the proposed rule is adopted in its
present form, SBA estimates that more
than 5,400 additional firms will become
small because of proposed increases to
receipts based size standards for 36
industries in NAICS Sectors 52 and 55.
That represents 2.2 percent of total firms
that are small under current receipts
based size standards in all industries
within these Sectors. This will result in
an increase in the small business share
of total receipts in those industries from
5.1 percent under the current size
standards to 7.5 percent under the
proposed size standards. Additionally,
due to the proposed increase in the
asset-based size standard for four
industries within NAICS Sector 52
about 2,000 additional financial
institutions will qualify as small,
including about 25 minority owned
financial institutions that could be
eligible to participate in agreements
with prime contractors for
subcontracting goals and credits. In
addition, about 550 additional Credit
Unions would qualify as small under
the higher assets based size standard,
but they would not qualify for Federal
programs intended for small businesses
because they are not-for profit entities.
However, they may qualify as small
entities for other Federal programs and
regulatory purposes. The proposed size
standards, if adopted, will enable more
small businesses to retain their small
business status for a longer period.
Many firms may have lost their
eligibility and find it difficult to
compete at current size standards with
companies that are significantly larger
than they are. SBA believes the
competitive impact will be positive for
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55753
existing small businesses and for those
that exceed the size standards but are on
the very low end of those that are not
small. They might otherwise be called
or referred to as mid-sized businesses,
although SBA only defines what is
small; other entities are other than
small.
3. What are the projected reporting,
record keeping and other compliance
requirements of the rule?
The proposed size standard changes
impose no additional reporting or
record keeping requirements on small
businesses. However, qualifying for
Federal procurement and a number of
other programs requires that businesses
register in the CCR database and certify
in the Online Representations and
Certifications Application (ORCA) that
they are small at least once annually.
Therefore, businesses opting to
participate in those programs must
comply with CCR and ORCA
requirements. There are no costs
associated with either CCR registration
or ORCA certification. Changing size
standards alters the access to SBA’s
programs that assist small businesses,
but does not impose a regulatory burden
because they neither regulate nor
control business behavior.
4. What are the relevant Federal rules,
which may duplicate, overlap or
conflict with the rule?
Under § 3(a)(2)(C) of the Small
Business Act, 15 U.S.C. 632(a)(2)(c),
Federal agencies must use SBA’s size
standards to define a small business,
unless specifically authorized by statute
to do otherwise. In 1995, SBA published
in the Federal Register a list of statutory
and regulatory size standards that
identified the application of SBA’s size
standards as well as other size standards
used by Federal agencies (60 FR 57988
(November 24, 1995)). SBA is not aware
of any Federal rule that would duplicate
or conflict with establishing size
standards.
However, the Small Business Act and
SBA’s regulations allow Federal
agencies to develop different size
standards if they believe that SBA’s size
standards are not appropriate for their
programs, with the approval of SBA’s
Administrator (13 CFR 121.903). The
Regulatory Flexibility Act authorizes an
Agency to establish an alternative small
business definition, after consultation
with the Office of Advocacy of the U.S.
Small Business Administration (5 U.S.C.
601(3)).
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Federal Register / Vol. 77, No. 176 / Tuesday, September 11, 2012 / Proposed Rules
5. What alternatives will allow the
agency to accomplish its regulatory
objectives while minimizing the impact
on small entities?
By law, SBA is required to develop
numerical size standards for
establishing eligibility for Federal small
business assistance programs. Other
than varying size standards by industry
and changing the size measures, no
practical alternative exists to the
systems of numerical size standards.
List of Subjects in 13 CFR Part 121
Administrative practice and
procedure, Government procurement,
Government property, Grant programs—
business, Individuals with disabilities,
Loan programs—business, Reporting
and recordkeeping requirements, Small
businesses.
For the reasons set forth in the
preamble, SBA proposes to amend part
13 CFR Part 121 as follows:
PART 121—SMALL BUSINESS SIZE
REGULATIONS
1. The authority citation for part 121
continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 662,
and 694a(9).
2. In § 121.201, amend the table
‘‘Small Business Size Standards by
NAICS Industry’’ as follows:
a. In § 121.201, in the table, revise the
entries for ‘‘522110’’, ‘‘522120’’,
‘‘522130’’, ‘‘522190’’, ‘‘522210’’,
‘‘522220’’, ‘‘522291’’, ‘‘522292’’,
‘‘522293’’, ‘‘522294’’, ‘‘522298’’,
‘‘522320’’, ‘‘522390’’, ‘‘523110’’,
‘‘523120’’, ‘‘523130’’, ‘‘523140’’,
‘‘523210’’, ‘‘523910’’, ‘‘523920’’,
‘‘523930’’, ‘‘523991’’, ‘‘523999’’,
‘‘524113’’, ‘‘524114’’, ‘‘524127’’,
‘‘524128’’, ‘‘524130’’, ‘‘524291’’,
‘‘524292’’, ‘‘524298’’, ‘‘525110’’,
‘‘525120’’, ‘‘525190’’, ‘‘525910’’,
‘‘525920’’, ‘‘525930’’, ‘‘525990’’,
‘‘551111’’, and ‘‘551112’’
b. Revise footnote 8 as shown below
after the table.
The revisions read as follows:
§ 121.201 What size standards has SBA
identified by North American Industry
Classification System codes?
*
*
*
*
*
SMALL BUSINESS SIZE STANDARDS BY NAICS INDUSTRY
NAICS U.S.
industry title
Size standards in millions
of dollars
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
Commercial Banking 8 ...................................................................
Savings Institutions 8 .....................................................................
Credit Unions ......................................................................................
Other Depository Credit Intermediation 8 ......................................
Credit Card Issuing 8 .....................................................................
Sales Financing ..................................................................................
Consumer Lending ..............................................................................
Real Estate Credit ...............................................................................
International Trade Financing .............................................................
Secondary Market Financing ..............................................................
All Other Nondepository Credit Intermediation ...................................
500 million in assets 8 ......
500 million in assets 8 ......
500 million in assets 8 ......
500 million in assets 8 ......
500 million in assets 8 ......
35.5 ...................................
35.5 ...................................
35.5 ...................................
35.5 ...................................
35.5 ...................................
35.5 ...................................
*
522320 .............
522390 .............
*
*
*
Financial Transactions, Reserve, and Clearing House Activities .......
Other Activities Related to Credit Intermediation ...............................
*
*
35.5 ...................................
19.0 ...................................
*
*
.............
.............
.............
.............
.............
.............
.............
.............
.............
.............
*
*
*
Investment Banking and Securities Dealing .......................................
Securities Brokerage ...........................................................................
Commodity Contracts Dealing ............................................................
Commodity Contracts Brokerage ........................................................
Securities and Commodity Exchanges ...............................................
Miscellaneous Intermediation .............................................................
Portfolio Management .........................................................................
Investment Advice ...............................................................................
Trust, Fiduciary and Custody Activities ..............................................
Miscellaneous Financial Investment Activities ....................................
*
*
35.5 ...................................
35.5 ...................................
35.5 ...................................
35.5 ...................................
35.5 ...................................
35.5 ...................................
35.5 ...................................
35.5 ...................................
35.5 ...................................
35.5 ...................................
*
*
524113 .............
524114 .............
*
*
*
Direct Life Insurance Carriers .............................................................
Direct Health and Medical Insurance Carriers ...................................
*
*
35.5 ...................................
35.5 ...................................
*
*
524127 .............
524128 .............
524130 .............
*
*
*
Direct Title Insurance Carriers ............................................................
Other Direct Insurance (except Life, Health and Medical) Carriers ...
Reinsurance Carriers ..........................................................................
*
*
35.5 ...................................
35.5 ...................................
35.5 ...................................
*
*
524291 .............
524292 .............
524298 .............
*
*
*
Claims Adjusting .................................................................................
Third Party Administration of Insurance and Pension Funds .............
All Other Insurance Related Activities ................................................
*
*
19.0 ...................................
30.0 ...................................
14.0 ...................................
*
*
.............
.............
.............
.............
.............
.............
*
*
*
Pension Funds ....................................................................................
Health and Welfare Funds ..................................................................
Other Insurance Funds .......................................................................
Open-End Investment Funds ..............................................................
Trusts, Estates, and Agency Funds ...................................................
Real Estate Investments Trusts ..........................................................
*
*
30.0 ...................................
30.0 ...................................
30.0 ...................................
30.0 ...................................
30.0 ...................................
30.0 ...................................
*
NAICS codes
522110
522120
522130
522190
522210
522220
522291
522292
522293
522294
522298
srobinson on DSK4SPTVN1PROD with PROPOSALS
523110
523120
523130
523140
523210
523910
523920
523930
523991
523999
525110
525120
525190
525910
525920
525930
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Size standards in number
of employees
55755
Federal Register / Vol. 77, No. 176 / Tuesday, September 11, 2012 / Proposed Rules
SMALL BUSINESS SIZE STANDARDS BY NAICS INDUSTRY—Continued
NAICS codes
NAICS U.S.
industry title
Size standards in millions
of dollars
525990 .............
Other Financial Vehicles .....................................................................
30.0 ...................................
*
551111 .............
551112 .............
*
*
*
Offices of Bank Holding Companies ...................................................
Offices of Other Holding Companies ..................................................
*
*
19.0 ...................................
19.0 ...................................
Size standards in number
of employees
*
*
*
*
*
*
*
*
Footnotes
8. NAICS Codes 522110, 522120, 522130, 522190, and 522210—A financial Institution’s assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding year. ‘‘Assets’’ for the purposes of this size standard means the assets defined
according to the Federal Financial Institutions Examination Council 041 call report form for NAICS codes 522110, 522120, 522190, and 522210
and the National Credit Union Administration 5300 call report form for NAICS code 522130.
*
*
*
*
*
*
*
Dated, June 22, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012–22258 Filed 9–10–12; 8:45 am]
BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
Small Business Size Standards:
Agriculture, Forestry, Fishing, and
Hunting
U.S. Small Business
Administration.
ACTION: Proposed rule.
AGENCY:
The U.S. Small Business
Administration (SBA) proposes to
increase small business size standards
for 11 industries in North American
Industry Classification System (NAICS)
Sector 11, Agriculture, Forestry, Fishing
and Hunting. As part of its ongoing
comprehensive size standards review,
SBA evaluated receipts based size
standards for 16 industries and two subindustries in NAICS Sector 11 to
determine whether they should be
retained or revised. SBA did not review
size standards for 46 industries in
NAICS Sector 11 that are currently set
by statute at $750,000 in average annual
receipts. SBA also did not review the
500-employee based size standard for
NAICS 113310, Logging, but will review
it in the near future with other
employee based size standards. This
proposed rule is one of a series of
proposed rules that will review size
standards of industries grouped by
NAICS Sector. SBA issued a White
Paper entitled ‘‘Size Standards
Methodology’’ and published a notice in
the October 21, 2009 issue of the
Federal Register to advise the public
that the document is available on its
Web site at www.sba.gov/size for public
review and comments. The ‘‘Size
srobinson on DSK4SPTVN1PROD with PROPOSALS
SUMMARY:
19:34 Sep 10, 2012
SBA must receive comments to
this proposed rule on or before
November 13, 2012.
ADDRESSES: Identify your comments by
RIN 3245–AG43 and submit them by
one of the following methods: (1)
Federal eRulemaking Portal:
www.regulations.gov, following the
instructions for submitting comments;
or (2) Mail/Hand Delivery/Courier:
Khem R. Sharma, Ph.D., Chief, Size
Standards Division, 409 Third Street
SW., Mail Code 6530, Washington, DC
20416. SBA will not accept comments to
this proposed rule submitted by email.
SBA will post all comments to this
proposed rule on www.regulations.gov.
If you wish to submit confidential
business information (CBI) as defined in
the User Notice at www.regulations.gov,
you must submit such information to
U.S. Small Business Administration,
Khem R. Sharma, Ph.D., Chief, Size
Standards Division, 409 Third Street
SW., Mail Code 6530, Washington, DC
20416, or send an email to
sizestandards@sba.gov. Highlight the
information that you consider to be CBI
and explain why you believe SBA
should hold this information as
confidential. SBA will review your
information and determine whether it
will make the information public.
FOR FURTHER INFORMATION CONTACT:
Jorge Laboy-Bruno, Ph.D., Economist,
Size Standards Division, (202) 205–6618
or sizestandards@sba.gov.
SUPPLEMENTARY INFORMATION: To
determine eligibility for Federal small
business assistance, SBA establishes
small business size definitions (referred
DATES:
RIN 3245–AG43
VerDate Mar<15>2010
Standards Methodology’’ White Paper
explains how SBA establishes, reviews,
and modifies its receipts based and
employee based small business size
standards. In this proposed rule, SBA
has applied its methodology that
pertains to establishing, reviewing, and
modifying a receipts based size
standard.
Jkt 226001
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to as size standards) for private sector
industries in the United States. SBA
uses two primary measures of business
size—average annual receipts and
average number of employees. SBA uses
financial assets, electric output, and
refining capacity to measure the size of
a few specialized industries. In
addition, SBA’s Small Business
Investment Company (SBIC), Certified
Development Company (504), and 7(a)
Loan Programs use either the industry
based size standards, or net worth and
net income based alternative size
standards to determine eligibility for
those programs. At the beginning of the
current comprehensive size standards
review, there were 41 different size
standards covering 1,141 NAICS
industries and 18 sub-industry activities
(‘‘exceptions’’ in SBA’s table of size
standards). Thirty-one of these size
levels were based on average annual
receipts, seven were based on average
number of employees, and three were
based on other measures.
Over the years, SBA has received
comments that its size standards have
not kept up with changes in the
economy, in particular the changes in
the Federal contracting marketplace and
industry structure. The last time SBA
conducted a comprehensive review of
all size standards was during the late
1970s and early 1980s. Since then, most
reviews of size standards were limited
to a few specific industries in response
to requests from the public and Federal
agencies. SBA also adjusts all monetary
based size standards (except for
statutorily set size standards in NAICS
Sector 11) for inflation at least once
every five years. SBA’s latest inflation
adjustment to size standards was
published in the Federal Register on
July 18, 2008 (73 FR 41237).
NAICS 11, Agriculture, Forestry,
Fishing and Hunting, includes 46
industries within NAICS Subsector 111
(Agricultural Crop Production) and
NAICS Subsector 112 (Animal
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Agencies
[Federal Register Volume 77, Number 176 (Tuesday, September 11, 2012)]
[Proposed Rules]
[Pages 55737-55755]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-22258]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 77, No. 176 / Tuesday, September 11, 2012 /
Proposed Rules
[[Page 55737]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG45
Small Business Size Standards: Finance and Insurance and
Management of Companies and Enterprises
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Small Business Administration (SBA) proposes to
increase small business size standards for 37 industries in North
American Industry Classification System (NAICS) Sector 52, Finance and
Insurance, and for two industries in NAICS Sector 55, Management of
Companies and Enterprises. In addition, SBA proposes to change the
measure of size from average assets to average receipts for NAICS
522293, International Trade Financing. As part of its ongoing
comprehensive size standards review, SBA evaluated all receipts based
and assets based size standards in NAICS Sectors 52 and 55 to determine
whether they should be retained or revised. This proposed rule is one
of a series of proposed rules that will review size standards of
industries grouped by NAICS Sector. SBA issued a White Paper entitled
``Size Standards Methodology'' and published a notice in the October
21, 2009 issue of the Federal Register to advise the public that the
document is available on its Web site at www.sba.gov/size for public
review and comments. The ``Size Standards Methodology'' White Paper
explains how SBA establishes, reviews, and modifies its receipts based
and employee based small business size standards. In this proposed
rule, SBA has applied its methodology that pertains to establishing,
reviewing, and modifying a receipts based size standard.
DATES: SBA must receive comments to this proposed rule on or before
November 13, 2012.
ADDRESSES: Identify your comments by RIN 3245-AG45 and submit them by
one of the following methods: (1) Federal eRulemaking Portal:
www.regulations.gov, following the instructions for submitting
comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D.,
Chief, Size Standards Division, 409 Third Street SW., Mail Code 6530,
Washington, DC 20416. SBA will not accept comments to this proposed
rule submitted by email.
SBA will post all comments to this proposed rule on
www.regulations.gov.. If you wish to submit confidential business
information (CBI) as defined in the User Notice at www.regulations.gov,
you must submit such information to U.S. Small Business Administration,
Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third Street
SW., Mail Code 6530, Washington, DC 20416, or send an email to
sizestandards@sba.gov. Highlight the information that you consider to
be CBI and explain why you believe SBA should hold this information as
confidential. SBA will review your information and determine whether it
will make the information public.
FOR FURTHER INFORMATION CONTACT: Khem R. Sharma, Ph.D., Chief, Size
Standards Division, (202) 205-6618 or sizestandards@sba.gov.
SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small
business assistance, SBA establishes small business size definitions
(referred to as size standards) for private sector industries in the
United States. SBA uses two primary measures of business size--average
annual receipts and average number of employees. SBA uses financial
assets, electric output, and refining capacity to measure the size of a
few specialized industries. For example, currently six size standards
in NAICS Sector 52 are based on total assets. In addition, SBA's Small
Business Investment Company (SBIC), Certified Development Company
(504), and 7(a) Loan Programs use either the industry based size
standards or net worth and net income based alternative size standards
to determine eligibility for those programs. At the beginning of the
current comprehensive size standards review, there were 41 different
size standards covering 1,141 NAICS industries and 18 sub-industry
activities (``exceptions'' in SBA's table of size standards). Thirty-
one of these size levels were based on average annual receipts, seven
were based on average number of employees, and three were based on
other measures.
Over the years, SBA has received comments that its size standards
have not kept up with changes in the economy, in particular the changes
in the Federal contracting marketplace and industry structure. The last
time SBA conducted a comprehensive review of all size standards was
during the late 1970s and early 1980s. Since then, most reviews of size
standards were limited to a few specific industries in response to
requests from the public and Federal agencies. SBA also adjusts its
monetary based size standards for inflation at least once every five
years. SBA's latest inflation adjustment to size standards was
published in the Federal Register on July 18, 2008 (73 FR 41237).
Because of changes in the Federal marketplace and industry
structure since the last comprehensive size standards review, SBA
recognizes that current data may no longer support some of its existing
size standards. Accordingly, in 2007, SBA began a comprehensive review
of all size standards to determine if they are consistent with current
data, and to adjust them when necessary. In addition, on September 27,
2010, the President of the United States signed the Small Business Jobs
Act of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed
review of all size standards and to make appropriate adjustments to
reflect market conditions. Specifically, the Jobs Act requires SBA to
conduct a detailed review of at least one-third of all size standards
during every 18-month period from the date of its enactment. In
addition, the Jobs Act requires that SBA conduct a review of all size
standards at least once every five years thereafter. Reviewing existing
small business size standards and making appropriate adjustments based
on current data are also consistent with Executive Order 13563 on
improving regulation and regulatory review.
Rather than review all size standards at one time, SBA is reviewing
size standards on a Sector by Sector basis. A NAICS Sector generally
includes 25 to 75 industries, except for NAICS Sector
[[Page 55738]]
31-33, Manufacturing, which has considerably more industries. Once SBA
completes its review of size standards for industries in a given NAICS
Sector, it issues a proposed rule to revise size standards for those
industries for which it believes currently available data and other
relevant factors support doing so.
Below is a discussion of SBA's size standards methodology for
establishing receipts based size standards that SBA applied to this
proposed rule, including analyses of industry structure, Federal
procurement trends and other relevant factors for industries reviewed
in this proposed rule, the impact of the proposed revisions to size
standards on Federal small business assistance, and the evaluation of
whether a revised size standard would exclude dominant firms from being
considered small.
Size Standards Methodology
SBA has recently developed a ``Size Standards Methodology'' for
developing, reviewing, and modifying size standards when necessary. SBA
published the document on its Web site at www.sba.gov/size for public
review and comments, and has included it as a supporting document in
the electronic docket of this proposed rule at www.regulations.gov, SBA
does not apply all features of its ``Size Standards Methodology'' to
all industries because not all features are appropriate for every
industry. For example, since 36 of the 42 industries in NAICS Sectors
52 and 55 reviewed in this rule have receipts based size standards, the
methodology described in this proposed rule applies only to
establishing receipts based size standards. For those interested in
SBA's overall approach to establishing, evaluating, and modifying small
business size standards, the methodology is available on SBA's Web site
at www.sba.gov/size. SBA always explains its analysis in individual
proposed and final rules relating to size standards for specific
industries.
SBA welcomes comments from the public on a number of issues
concerning its ``Size Standards Methodology,'' such as whether there
are other approaches to establishing and modifying size standards;
whether there are alternative or additional factors that SBA should
consider; whether SBA's approach to small business size standards makes
sense in the current economic environment; whether SBA's use of anchor
size standards is appropriate; whether there are gaps in SBA's
methodology because the data it uses are not current or sufficiently
comprehensive; and whether there are other data, facts, and/or issues
that SBA should consider. Comments on SBA's size standards methodology
should be submitted via (1) the Federal eRulemaking Portal:
www.regulations.gov, following the instructions for submitting
comments; the docket number is SBA-2009-0008, or (2) Mail/Hand
Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Size Standards
Division, 409 Third Street SW., Mail Code 6530, Washington, DC 20416.
As it will do with comments to this and other proposed rules, SBA will
post all comments on its methodology on www.regulations.gov. As of May
31, 2012, SBA has received 14 comments to its ``Size Standards
Methodology.'' The comments are available to the public at
www.regulations.gov. SBA continues to welcome comments on its
methodology from interested parties. SBA will not accept comments to
its ``Size Standards Methodology'' submitted by email.
Congress granted SBA's Administrator discretion to establish
detailed small business size standards. 15 U.S.C. 632(a)(2).
Specifically, Section 3(a)(3) of the Small Business Act (15 U.S.C.
632(a)(3)) requires that ``* * * the [SBA] Administrator shall ensure
that the size standard varies from industry to industry to the extent
necessary to reflect the differing characteristics of the various
industries and consider other factors deemed to be relevant by the
Administrator.'' Accordingly, the economic structure of an industry is
the basis for developing and modifying small business size standards.
SBA identifies the small business segment of an industry by examining
data on the economic characteristics defining the industry structure
(as described below). In addition, SBA considers current economic
conditions, its mission and program objectives, the Administration's
current policies, suggestions from industry groups and Federal
agencies, and public comments on the proposed rule. SBA also examines
whether a size standard based on industry and other relevant data
successfully excludes businesses that are dominant in the industry.
This proposed rule includes information regarding the factors SBA
evaluated and the criteria it used to propose adjustments to size
standards in NAICS Sectors 52 and 55. This proposed rule affords the
public an opportunity to review and to comment on SBA's proposals to
revise size standards in NAICS Sectors 52 and 55, as well as on the
data and methodology it used to evaluate and revise the size standards.
Industry Analysis
For the current comprehensive size standards review, SBA has
established three ``base'' or ``anchor'' size standards--$7.0 million
in average annual receipts for industries that have receipts based size
standards, 500 employees for manufacturing and other industries that
have employee based size standards (except for Wholesale Trade), and
100 employees for industries in the Wholesale Trade Sector. SBA
established 500 employees as the anchor size standard for manufacturing
industries at its inception in 1953. Shortly thereafter, SBA
established $1 million in average annual receipts as the anchor size
standard for nonmanufacturing industries. SBA has periodically
increased the receipts based anchor size standard for inflation, and
today it is $7 million. Since 1986, the size standard for all
industries in the Wholesale Trade Sector for SBA financial assistance
and for most Federal programs has been 100 employees. However, NAICS
codes for the Wholesale Trade Sector and their 100 employee size
standards do not apply to Federal procurement programs. Rather, for
Federal procurement the size standard for all industries in Wholesale
Trade (NAICS Sector 42) and for all industries in Retail Trade (NAICS
Sector 44-45), is 500 employees under SBA's nonmanufacturer rule (13
CFR 121.406(b)).
These long-standing anchor size standards have stood the test of
time and gained legitimacy through practice and general public
acceptance. An anchor is neither a minimum nor a maximum size standard.
It is a common size standard for a large number of industries that have
similar economic characteristics and serves as a reference point in
evaluating size standards for individual industries. SBA uses the
anchor in lieu of trying to establish precise small business size
standards for each industry. Otherwise, theoretically, the number of
size standards might be as high as the number of industries for which
SBA establishes size standards (1,141). Furthermore, the data SBA
analyzes are static, while the U.S. economy is not. Hence, absolute
precision is impossible. SBA presumes an anchor size standard is
appropriate for a particular industry unless that industry displays
economic characteristics that are considerably different from other
industries with the same anchor size standard.
When evaluating a size standard, SBA compares the economic
characteristics of the industry under review to the average
characteristics of industries with one of the three anchor size
standards (referred to as the ``anchor comparison group''). This allows
SBA to assess the industry structure and to
[[Page 55739]]
determine whether the industry is appreciably different from the other
industries in the anchor comparison group. If the characteristics of a
specific industry under review are similar to the average
characteristics of the anchor comparison group, the anchor size
standard is generally appropriate for that industry. SBA may consider
adopting a size standard below the anchor when (1) all or most of the
industry characteristics are significantly smaller than the average
characteristics of the anchor comparison group, or (2) other industry
considerations strongly suggest that the anchor size standard would be
an unreasonably high size standard for the industry.
If the specific industry's characteristics are significantly higher
than those of the anchor comparison group, then a size standard higher
than the anchor size standard may be appropriate. The larger the
differences are between the characteristics of the industry under
review and those in the anchor comparison group, the larger will be the
difference between the appropriate industry size standard and the
anchor size standard. To determine a size standard above the anchor
size standard, SBA analyzes the characteristics of a second comparison
group. For industries with receipts based size standards, including
those in NAICS Sectors 52 and 55, SBA has developed a second comparison
group consisting of industries that have the highest of receipts based
size standards. To determine a size standard above the anchor size
standard, SBA analyzes the characteristics of this second comparison
group. The size standards for this group of industries range from $23
million to $35.5 million in average annual receipts; the weighted
average size standard for the group is $29 million. SBA refers to this
comparison group as the ``higher level receipts based size standard
group.''
The primary factors that SBA evaluates to examine industry
structure include average firm size, startup costs and entry barriers,
industry competition, and distribution of firms by size. SBA evaluates,
as an additional primary factor, the impact that revised size standards
might have on Federal contracting assistance to small businesses. These
are, generally, the five most important factors SBA examines when
establishing or revising a size standard for an industry. However, SBA
will also consider and evaluate other information that it believes is
relevant to a particular industry (such as technological changes,
growth trends, SBA financial assistance, other program factors, etc.).
SBA also considers possible impacts of size standard revisions on
eligibility for Federal small business assistance, current economic
conditions, the Administration's policies, and suggestions from
industry groups and Federal agencies. Public comments on a proposed
rule also provide important additional information. SBA thoroughly
reviews all public comments before making a final decision on its
proposed size standards. Below are brief descriptions of each of the
five primary factors that SBA has evaluated for each industry in NAICS
Sectors 52 and 55 that has a receipts based size standard. A more
detailed description of this analysis is provided in SBA's ``Size
Standards Methodology,'' available at https://www.sba.gov/size.
1. Average firm size. SBA computes two measures of average firm
size: Simple average and weighted average. For industries with receipts
based size standards, the Simple average is the total receipts of the
industry divided by the total number of firms in the industry. The
weighted average firm size is the sum of weighted simple averages in
different receipts based size classes, where weights are the shares of
total industry receipts for respective size classes. The simple average
weighs all firms within an industry equally regardless of their size.
The weighted average overcomes that limitation by giving more weight to
larger firms.
If the average firm size of an industry is significantly higher
than the average firm size of industries in the anchor comparison
industry group, this will generally support a size standard higher than
the anchor size standard. Conversely, if the industry's average firm
size is similar to or significantly lower than that of the anchor
comparison industry group, it will be a basis to adopt the anchor size
standard, or, in rare cases, a standard lower than the anchor.
2. Startup costs and entry barriers. Startup costs reflect a firm's
initial size in an industry. New entrants to an industry must have
sufficient capital and other assets to start and maintain a viable
business. If new firms entering a particular industry have greater
capital requirements than firms in industries in the anchor comparison
group, this can be a basis for establishing a size standard higher than
the anchor size standard. In lieu of actual startup cost data, SBA uses
average assets as a proxy to measure the capital requirements for new
entrants to an industry.
To calculate average assets, SBA begins with the sales to total
assets ratio for an industry from the Risk Management Association's
Annual Statement Studies. SBA then applies these ratios to the average
receipts of firms in that industry. An industry with average assets
that are significantly higher than those of the anchor comparison group
is likely to have higher startup costs; this in turn will support a
size standard higher than the anchor. Conversely, an industry with
average assets that are similar to or lower than those of the anchor
comparison group is likely to have lower startup costs; this will
support the anchor standard or one lower than the anchor.
3. Industry competition. Industry competition is generally measured
by the share of total industry receipts generated by the largest firms
in an industry. SBA generally evaluates the share of industry receipts
generated by the four largest firms in each industry. This is referred
to as the ``four-firm concentration ratio,'' a commonly used economic
measure of market competition. SBA compares the four-firm concentration
ratio for an industry to the average four-firm concentration ratio for
industries in the anchor comparison group. If a significant share of
economic activity within the industry is concentrated among a few
relatively large companies, all else being equal, SBA will establish a
size standard higher than the anchor size standard. SBA does not
consider the four-firm concentration ratio as an important factor in
assessing a size standard if its share of economic activity within the
industry is less than 40 percent. For an industry with a four-firm
concentration ratio of 40 percent or more, SBA examines the average
size of the four largest firms to determine a size standard.
4. Distribution of firms by size. SBA examines the shares of
industry total receipts accounted for by firms of different receipts
and employment size classes in an industry. This is an additional
factor in assessing industry competition. If most of an industry's
economic activity is attributable to smaller firms, this generally
indicates that small businesses are competitive in that industry. This
can support adopting the anchor size standard. If most of an industry's
economic activity is attributable to larger firms, this indicates that
small businesses are not competitive in that industry. This can support
adopting a size standard above the anchor.
Concentration is a measure of inequality of distribution. To
determine the degree of inequality of distribution in an industry, SBA
computes the Gini coefficient, using the Lorenz curve. The Lorenz curve
presents the cumulative
[[Page 55740]]
percentages of units (firms) along the horizontal axis and the
cumulative percentages of receipts (or other measures of size) along
the vertical axis. (For further detail, please refer to SBA's ``Size
Standards Methodology'' on its Web site at www.sba.gov/size.) Gini
coefficient values vary from zero to one. If receipts are distributed
equally among all the firms in an industry, the value of the Gini
coefficient will equal zero. If an industry's total receipts are
attributed to a single firm, the Gini coefficient will equal one.
SBA compares the Gini coefficient value for an industry with that
for industries in the anchor comparison group. If the Gini coefficient
value for an industry is higher than it is for industries in the anchor
comparison industry group this may, all else being equal, warrant a
size standard higher than the anchor. Conversely, if an industry's Gini
coefficient is similar to or lower than that for the anchor group, the
anchor standard, or in some cases a standard lower than the anchor, may
be adopted.
5. Impact on Federal contracting and SBA loan programs. SBA
examines the possible impact a size standard change may have on Federal
small business assistance. This most often focuses on the share of
Federal contracting dollars awarded to small businesses in the industry
in question. In general, if the small business share of Federal
contracting in an industry with significant Federal contracting is
appreciably less than the small business share of the industry's total
receipts, this could justify considering a size standard higher than
the existing size standard. The disparity between the small business
Federal market share and industry-wide small business share may be due
to various factors, such as extensive administrative and compliance
requirements associated with Federal contracts, the different skill set
required for Federal contracts as compared to typical commercial
contracting work, and the size of Federal contracts. These, as well as
other factors, are likely to influence the type of firms within an
industry that compete for Federal contracts. By comparing the small
business Federal contracting share with the industry-wide small
business share, SBA includes in its size standards analysis the latest
Federal contracting trends. This analysis may support a size standard
larger than the current size standard.
SBA considers Federal contracting trends in the size standards
analysis only if (1) the small business share of Federal contracting
dollars is at least 10 percent lower than the small business share of
total industry receipts, and (2) the amount of total Federal
contracting averages $100 million or more during the latest three
fiscal years. These thresholds reflect significant levels of
contracting where a revision to a size standard may have an impact on
contracting opportunities to small businesses.
Besides the impact on small business Federal contracting, SBA also
evaluates the impact of a proposed size standard revision on SBA's loan
programs. For this, SBA examines the data on volume and number of its
guaranteed loans within an industry and the size of firms obtaining
those loans. This allows SBA to assess whether the existing or the
proposed size standard for a particular industry may restrict the level
of financial assistance to small firms. If current size standards have
impeded financial assistance to small businesses, higher size standards
may be supportable. However, if small businesses under current size
standards have been receiving significant amounts of financial
assistance through SBA's loan programs, or if the financial assistance
has been provided mainly to businesses that are much smaller than the
existing size standards, SBA does not consider this factor when
determining the size standard.
Sources of Industry and Program Data
The primary source of industry data that SBA used in evaluating
industries in NAICS Sectors 52 and 55 that have receipts based size
standards is a special tabulation of the 2007 Economic Census (see
www.census.gov/econ/census07/) prepared by the U.S. Bureau of the
Census (Census Bureau) for SBA. The 2007 Economic Census data are the
latest available. The special tabulation provides SBA with data on the
number of firms, number of establishments, number of employees, annual
payroll, and annual receipts of companies by Industry (6-digit level),
Industry Group (4-digit level), Subsector (3-digit level), and Sector
(2-digit level). These data are arrayed by various classes of firms'
size based on the overall number of employees and receipts of the
entire enterprise (all establishments and affiliated firms) from all
industries. The special tabulation enables SBA to evaluate average firm
size, four-firm concentration ratio, and distribution of firms by
various receipts and employment size classes.
In some cases, where data were not available due to disclosure
prohibitions in the Census Bureau's tabulation, SBA either estimated
missing values using available relevant data or examined data at a
higher level of industry aggregation, such as at the NAICS 2-digit
(Sector), 3-digit (Subsector), or 4-digit (Industry Group) level. In
some instances, SBA's analysis was based only on those factors for
which data were available or estimates of missing values were possible.
Five of the seven industries within NAICS Subsector 525 (Funds,
Trusts and Other Financial Vehicles) are not covered by the 2007
Economic Census. All industries in that Subsector currently have a
common size standard. To maintain the common size standard, in this
proposed rule, SBA applies the results for the two industries (NAICS
525910, Open End Investment Funds, and NAICS 525990, Other Financial
Vehicles) for which the Economic Census data are available to those
five industries.
To evaluate industries in NAICS Sector 52 that have assets based
size standards, as discussed below, SBA obtained the data from the
Statistics on Depository institutions (SDI) database of the Federal
Depository Insurance Corporation (FDIC) between 1984 and 2011 (https://www2.fdic.gov/sdi/main.asp). SDI does not include a field to classify
the institutions by the NAICS definition. However, it has a field that
identifies an institution's primary specialization in terms of asset
concentration and another field that identifies each institution as a
bank or thrift. Since the SDI database does not identify minority owned
financial institutions from others, SBA identified them using data on
financial institutions that participate in the Department of the
Treasury's Minority Bank Deposit Program, compiled by the Federal
Reserve Board (FRB) (https://www.federalreserve.gov/releases/mob/). To
examine characteristics of minority owned financial institutions, SBA
merged the FRB data with SDI database using the common identification
number for each institution.
The SDI database does not include Credit Unions, NAICS 522130,
while the FRB data is limited to minority-owned credit unions only. The
data to evaluate the Credit Unions industry were based on call reports
for the fourth quarters of 1994 and 2011 from the National Credit Union
Administration (NCUA) Web site (https://www.ncua.gov/DataApps/QCallRptData/Pages/CallRptData.aspx). The earliest year for which these
data were available on the NCUA Web site is 1994.
To calculate average assets, SBA used sales to total assets ratios
from the Risk Management Association's Annual Statement Studies, 2008-
2010.
[[Page 55741]]
To evaluate Federal contracting trends, SBA examined data on
Federal contract awards for fiscal years 2008-2010. The data are
available from the U.S. General Service Administration's Federal
Procurement Data System--Next Generation (FPDS-NG).
To assess the impact on financial assistance to small businesses,
SBA examined data on its own guaranteed loan programs for fiscal years
2008-2010.
Data sources and estimation procedures SBA uses in its size
standards analysis are documented in detail in SBA's ``Size Standards
Methodology'' White Paper, which is available at www.sba.gov/size.
Dominance in Field of Operation
Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a
small business concern as one that is (1) independently owned and
operated, (2) not dominant in its field of operation, and (3) within a
specific small business definition or size standard established by SBA
Administrator. SBA considers as part of its evaluation whether a
business concern at a proposed size standard would be dominant in its
field of operation. For this, SBA generally examines the industry's
market share of firms at the proposed standard. Market share and other
factors may indicate whether a firm can exercise a major controlling
influence on a national basis in an industry where a significant number
of business concerns are engaged. If a contemplated size standard
includes a dominant firm, SBA will consider a lower size standard to
exclude the dominant firm from being defined as small.
Selection of Size Standards
To simplify receipts based size standards, SBA has proposed to
select size standards from a limited number of levels. For many years,
SBA has been concerned about the complexity of determining small
business status caused by a large number of varying receipts based size
standards (see 69 FR 13130 (March 4, 2004) and 57 FR 62515 (December
31, 1992)). At the beginning of the current comprehensive size
standards review, there were 31 different levels of receipts based size
standards. They ranged from $0.75 million to $35.5 million, and many
applied to one or only a few industries. SBA believes that such a large
number of different small business size standards are unnecessary and
difficult to justify analytically. To simplify managing and using size
standards, SBA proposes that there be fewer size standard levels. This
will produce more common size standards for businesses operating in
related industries. This will also result in greater consistency among
the size standards for industries that have similar economic
characteristics.
The SBA proposes, therefore, to apply one of eight receipts based
size standards to each industry in NAICS Sectors 52 and 55 that has a
receipts based standard. The eight ``fixed'' receipts based size
standard levels are $5 million, $7 million, $10 million, $14 million,
$19 million, $25.5 million, $30 million, and $35.5 million. SBA
established these eight receipts based size standard based on the
current minimum, the current maximum, and the most commonly used
current receipts based size standards. At the start of the current
comprehensive review, the most commonly used receipts based size
standards clustered around the following--$2.5 million to $4.5 million,
$7 million, $9 million to $10 million, $12.5 million to $14.0 million,
$25 million to $25.5 million, and $33.5 million to $35.5 million. SBA
selected $7 million as one of eight fixed levels of receipts based size
standards because it is an anchor standard. The lowest or minimum
receipts based size level will be $5 million. Other than the size
standards for agriculture that are statutorily set at $0.75 million and
those based on commissions (such as real estate brokers and travel
agents), $5 million includes those industries with the lowest receipts
based standards, which ranged from $2 million to $4.5 million. Among
the higher level size clusters, SBA has set four fixed levels: $10
million, $14 million, $25.5 million, and $35.5 million. Because of the
large intervals between some of the fixed levels, SBA established two
intermediate levels, namely $19 million between $14 million and $25.5
million, and $30 million between $25.5 million and $35.5 million. These
two intermediate levels reflect roughly the same proportional
differences as between the other two successive levels.
To simplify size standards further, SBA may propose a common size
standard for closely related industries. Although the size standard
analysis may support a separate size standard for each industry, SBA
believes that establishing different size standards for closely related
industries may not always be appropriate. For example, in cases where
many of the same businesses operate in the same multiple industries, a
common size standard for those industries might better reflect the
Federal marketplace. This might also make size standards among related
industries more consistent than separate size standards for each of
those industries. This led SBA to establish a common size standard for
the information technology (IT) services (NAICS 541511, NAICS 541112,
NAICS 541513, NAICS 541519, and NAICS 811212), even though the industry
data might support a distinct size standard for each industry (57 FR
27906 (June 23, 1992)). More recently SBA adopted common size standards
for some of the industries in NAICS Sector 44-45, Retail Trade (75 FR
61597 (October 6, 2010)), NAICS Sector 54, Professional, Scientific and
Technical Services (77 FR 7490 (February 10, 2012)), and NAICS Sector
48-49, Transportation and Warehousing (77 FR 10943 (February 24,
2012)).
In NAICS Sector 52, currently all industries in NAICS Industry
Group 5221 and NAICS Industries 522210 and 522293 have a common size
standard of $175 million in total assets. Similarly, all other
industries in NAICS Sector 52, with an exception of NAICS Industry
524126 which has a size standard of 1,500 employees, have a common size
standard of $7 million in average annual receipts. Based on the
characteristics of those industries, SBA proposes to retain common size
standards for all industries within NAICS Industry Group 5222 (with the
exception of NAICS 522210, Credit Card Issuing). NAICS 522210 currently
has an assets based size standard and based on the evaluation of
business operations and characteristics of firms in this industry SBA
proposes to maintain the assets based size standard for this industry.
NAICS 522293, International Trade Financing, also has an assets based
size standard currently, but based on the evaluation of business
operations and characteristics of firms involved in this industry, SBA
proposes to replace the assets based size standard with a receipts
based size standard for this industry. In addition, SBA proposes to
apply the same common receipts based size standard for NAICS 522293 as
that for NAICS Industry Group 5222 (except for NAICS 522210). SBA also
proposes common size standards for industries within NAICS Subsector
523, NAICS Industry Group 5241 (with exception of NAICS 524126), and
NAICS Subsector 525. Whenever SBA proposes a common size standard for
closely related industries it will provide its justification.
Evaluation of Industry Structure
SBA evaluated 29 industries in NAICS Sector 52, Finance and
Insurance, and two industries in NAICS Sector 55, Management of
Companies and Enterprises (for which industry data were available from
the 2007 Economic Census), to assess the appropriateness of
[[Page 55742]]
the current receipts based size standards. For this, as described
above, SBA compared data on the economic characteristics of each of
those industries to the average characteristics of industries in two
comparison groups. The first comparison group consists of all
industries with $7 million size standards and is referred to as the
``receipts based anchor comparison group.'' Because the goal of SBA's
review is to assess whether a specific industry's size standard should
be the same as or different from the anchor size standard, this is the
most logical group of industries to analyze. In addition, this group
includes a sufficient number of firms to provide a meaningful
assessment and comparison of industry characteristics.
If the characteristics of an industry are similar to the average
characteristics of industries in the anchor comparison group, the
anchor size standard is generally appropriate for that industry. If an
industry's structure is significantly different from industries in the
anchor group, a size standard lower or higher than the anchor size
standard might be appropriate. The proposed new size standard is based
on the difference between the characteristics of the anchor comparison
group and a second industry comparison group. As described above, the
second comparison group for receipts based standards consists of
industries with the highest receipts based size standards, ranging from
$23 million to $35.5 million. The average size standard for this group
is $29 million. SBA refers to this group of industries as the ``higher
level receipts based size standard comparison group.'' SBA determines
differences in industry structure between an industry under review and
the industries in the two comparison groups by comparing data on each
of the industry factors, including average firm size, average assets
size, the four-firm concentration ratio, and the Gini coefficient of
distribution of firms by size. Table 1, Average Characteristics of
Receipts Based Comparison Groups, shows the average firm size (both
simple and weighted), average assets size, four-firm concentration
ratio, average receipts of the four largest firms, and the Gini
coefficient for both anchor level and higher level comparison groups
for receipts based size standards.
Table 1--Average Characteristics of Receipts Based Comparison Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average firm size ($ million) Average
-------------------------------- Average Four-firm receipts of
Receipts based comparison group assets size concentration four largest Gini
Simple Weighted ($ million) ratio (%) firms ($ coefficient
average average million) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anchor Level............................................ 1.32 19.63 0.84 16.6 196.4 0.693
Higher Level............................................ 5.07 116.84 3.20 32.1 1,376.0 0.830
--------------------------------------------------------------------------------------------------------------------------------------------------------
* To be used for industries with a four-firm concentration ratio of 40% or greater.
Derivation of Size Standards Based on Industry Factors
For each industry factor in Table 1, SBA derives a separate size
standard based on the differences between the values for an industry
under review and the values for the two comparison groups. If the
industry value for a particular factor is near the corresponding factor
for the anchor comparison group, the $7 million anchor size standard is
appropriate for that factor.
An industry factor significantly above or below the anchor
comparison group will generally imply a size standard for that industry
above or below the $7 million anchor. The new size standard in these
cases is based on the proportional difference between the industry
value and the values for the two comparison groups.
For example, if an industry's simple average receipts are $3.3
million, that can support a $19 million size standard. The $3.3 million
level is 52.8 percent between $1.32 million for the anchor comparison
group and $5.07 million for the higher level comparison group (($3.30
million-$1.32 million) / ($5.07 million - $1.32 million) = 0.528 or
52.8%). This proportional difference is applied to the difference
between the $7 million anchor size standard and average size standard
of $29 million for the higher level size standard group and then added
to $7.0 million to estimate a size standard of $18.61 million ([{$29.0
million - $7.0 million{time} * 0.528] + $7.0 million = $18.61
million). The final step is to round the estimated $18.61 million size
standard to the nearest fixed size standard, which in this example is
$19 million.
SBA applies the above calculation to derive a size standard for
each industry factor. Detailed formulas involved in these calculations
are presented in SBA's ``Size Standards Methodology'' which is
available on its Web site at www.sba.gov/size. (However, it should be
noted that figures in the ``Size Standards Methodology'' White Paper
are based on 2002 Economic Census data and are different from those
presented in this proposed rule. That is because when SBA prepared its
``Size Standards Methodology,'' the 2007 Economic Census data were not
yet available). Table 2, Values of Industry Factors and Supported Size
Standards, (below) shows ranges of values for each industry factor and
the levels of size standards supported by those values.
Table 2--Values of Industry Factors and Supported Size Standards
----------------------------------------------------------------------------------------------------------------
Or if avg.
Or if weighted Or if avg. receipts of Then implied
If simple avg. receipts avg. receipts assets size ($ largest four Or if Gini size standard
size ($ million) size ($ million) firms ($ coefficient is ($
million) million) million)
----------------------------------------------------------------------------------------------------------------
<1.15....................... <15.22......... <0.73.......... <142.8......... <0.686......... 5.0
1.15 to 1.57................ 15.22 to 26.26. 0.73 to 1.00... 142.8 to 276.9. 0.686 to 0.702. 7.0
1.58 to 2.17................ 26.27 to 41.73. 1.01 to 1.37... 277.0 to 464.5. 0.703 to 0.724. 10.0
2.18 to 2.94................ 41.74 to 61.61. 1.38 to 1.86... 464.6 to 705.8. 0.725 to 0.752. 14.0
2.95 to 3.92................ 61.62 to 87.02. 1.87 to 2.48... 705.9 to 0.753 to 0.788. 19.0
1,014.1.
3.93 to 4.86................ 87.03 to 111.32 2.49 to 3.07... 1,014.2 to 0.789 to 0.822. 25.5
1,309.0.
[[Page 55743]]
4.87 to 5.71................ 111.33 to 3.08 to 3.61... 1,309.1 to 0.823 to 0.853. 30.0
133.41. 1,577.1.
>5.71....................... >133.41........ >3.61.......... >1,577.1....... >0.853......... 35.5
----------------------------------------------------------------------------------------------------------------
Derivation of Size Standard Based on Federal Contracting Factor
Besides industry structure, SBA also evaluates Federal contracting
data to assess the success of small businesses in getting Federal
contracts under the existing size standards. For industries where the
small business share of total Federal contracting dollars is 10 to 30
percent lower than the small business share of total industry receipts,
SBA has designated a size standard one level higher than their current
size standard. For industries where the small business share of total
Federal contracting dollars is more than 30 percent lower than the
small business share of total industry receipts, SBA has designated a
size standard two levels higher than the current size standard.
Because of the complex relationships among several variables
affecting small business participation in the Federal marketplace, SBA
has chosen not to designate a size standard for the Federal contracting
factor alone that is more than two levels above the current size
standard. SBA believes that a larger adjustment to size standards based
on Federal contracting activity should be based on a more detailed
analysis of the impact of any subsequent revision to the current size
standard. In limited situations, however, SBA may conduct a more
extensive examination of Federal contracting experience. This may
support a different size standard than indicated by this general rule
and take into consideration significant and unique aspects of small
business competitiveness in the Federal contract market. SBA welcomes
comments on its methodology for incorporating the Federal contracting
factor in its size standard analysis and suggestions for alternative
methods and other relevant information on small business experience in
the Federal contract market that SBA should consider.
Eight of the 29 industries in NAICS Sector 52 that have receipts
based size standards averaged $100 million or more annually in Federal
contracting during fiscal years 2008-2010. The Federal contracting
factor was significant (i.e., the difference between the small business
share of total industry receipts and small business share of Federal
contracting dollars was 10 percentage points or more) in three of those
eight industries and a separate size standard was derived for that
factor for each of them. Federal contracting averaged less than $100
million annually for both industries in NAICS Sector 55 and was not
included in the calculations of new size standards for them.
New Size Standards Based on Industry and Federal Contracting Factors
Table 3, Size Standards Supported by Each Factor for Each Industry
(millions of dollars), shows the results of analyses of industry and
Federal contracting factors for each industry covered by this proposed
rule. Many NAICS industries in columns 2, 3, 4, 6, 7, and 8 show two
numbers. The upper number is the value for the industry or federal
contracting factor shown on the top of the column and the lower number
is the size standard supported by that factor. For the four-firm
concentration ratio, SBA estimates a size standard only if its value is
40 percent or more. If the four-firm concentration ratio is 40 percent
or more, SBA indicates in column 6 the average size of the industry's
four largest firms together with a size standard based on that average.
Column 9 shows a calculated new size standard for each industry. This
is the average of the size standards supported by each factor, rounded
to the nearest fixed size level. Analytical details involved in the
averaging procedure are described in SBA's ``Size Standard
Methodology.'' For comparison with the new standards, the current size
standards are in column 10 of Table 3.
Table 3--Size Standards Supported by Each Factor for Each Industry
[Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal
Simple Weighted Average Four-firm Four-firm Gini contract New size Current
NAICS code/title average average assets ratio (%) average coefficient factor standard size
firm size firm size size size (%) standard
--------------------------------------------------------------------------------------------------------------------------------------------------------
522220............................................. $48.8 $434.1 $162.7 42.1 $13,199.9 0.880 ......... ......... .........
Sales Financing.................................... 35.5 35.5 35.5 ......... 35.5 $35.5 ......... 35.5 $7.0
522291............................................. 11.8 364.4 35.4 61.2 6,874.4 0.940 ......... ......... .........
Consumer Lending................................... 35.5 35.5 35.5 ......... 35.5 $35.5 ......... 35.5 7.0
522292............................................. 11.5 279.0 31.4 38.5 9,127.3 0.930 ......... ......... .........
Real Estate Credit................................. 35.5 35.5 35.5 ......... ......... $35.5 ......... 35.5 7.0
522294............................................. 796.6 6,175.9 2,987.1 97.9 25,931.0 0.871 ......... ......... .........
Secondary Market Financing......................... 35.5 35.5 35.5 ......... 35.5 $35.5 ......... 35.5 7.0
522298............................................. 16.6 750.8 62.4 ......... ......... 0.959 ......... ......... .........
All Other Nondepository Credit Intermediation...... 35.5 35.5 35.5 ......... ......... $35.5 ......... 35.5 7.0
522310............................................. 0.6 6.2 1.2 5.2 186.3 0.583 ......... 7.0 .........
Mortgage and Nonmortgage Loan Brokers.............. 5.0 5.0 10.0 ......... ......... $5.0 ......... ......... 7.0
522320............................................. 18.9 387.6 12.9 33.1 3,624.7 0.934 1.9 ......... .........
Financial Transactions, Reserve, and Clearinghouse 35.5 35.5 35.5 ......... ......... $35.5 ......... 35.5 7.0
Activities........................................
522390............................................. 1.9 47.2 1.9 19.6 602.8 0.834 -17.0 ......... .........
Other Activities Related to Credit Intermediation.. 10.0 14.0 19.0 ......... ......... $30.0 10.0 19.0 7.0
523110............................................. 74.9 1,453.1 86.4 51.7 26,248.4 0.941 -1.1 ......... .........
Investment Banking and Securities Dealing.......... 35.5 35.5 35.5 ......... 35.5 $35.5 ......... 35.5 7.0
523120............................................. 17.4 581.4 9.7 36.9 14,369.4 0.952 ......... ......... .........
Securities Brokerage............................... 35.5 35.5 35.5 ......... ......... $35.5 ......... 35.5 7.0
[[Page 55744]]
523130............................................. 8.4 118.6 13.3 43.4 756.7 0.903 ......... ......... .........
Commodity Contracts Dealing........................ 35.5 30.0 35.5 ......... 19.0 $35.5 ......... 30.0 7.0
523140............................................. 4.5 120.3 1.0 46.9 654.9 0.886 ......... ......... .........
Commodity Contracts Brokerage...................... 25.5 30.0 7.0 ......... 14.0 $35.5 ......... 19.0 7.0
523210............................................. 467.4 852.8 ......... ......... ......... 0.454 ......... ......... .........
Securities and Commodity Exchanges................. 35.5 35.5 ......... ......... ......... $5.0 ......... 19.0 7.0
523910............................................. 2.0 16.6 6.1 15.0 636.0 0.797 -27.7 ......... .........
Miscellaneous Intermediation....................... 10.0 7.0 35.5 ......... ......... $25.5 10.0 19.0 7.0
523920............................................. 10.2 212.6 6.5 12.0 5,350.2 0.914 ......... ......... .........
Portfolio Management............................... 35.5 35.5 35.5 ......... ......... $35.5 ......... 35.5 7.0
523930............................................. 1.5 40.3 0.6 26.7 1,531.6 0.815 ......... ......... .........
Investment Advice.................................. 7.0 10.0 5.0 ......... ......... $25.5 ......... 14.0 7.0
523991............................................. 5.3 64.8 8.9 35.2 887.0 0.876 ......... ......... .........
Trust, Fiduciary and Custody Activities............ 30.0 19.0 35.5 ......... ......... $35.5 ......... 30.0 7.0
523999............................................. 6.7 124.9 28.8 ......... ......... 0.909 7.0 ......... .........
Miscellaneous Financial Investment Activities...... 35.5 30.0 35.5 ......... ......... $35.5 ......... 35.5 7.0
524113............................................. 635.4 2,977.0 1,003.3 26.8 35,953.1 0.787 ......... ......... .........
Direct Life Insurance Carriers..................... 35.5 35.5 35.5 ......... ......... $19.0 ......... 30.0 7.0
524114............................................. 554.7 1,746.5 256.0 36.9 45,842.3 0.684 -0.1 ......... .........
Direct Health and Medical Insurance Carriers....... 35.5 35.5 35.5 ......... ......... $5.0 ......... 25.5 7.0
524127............................................. 8.9 493.1 4.1 84.3 3,628.8 0.954 ......... ......... .........
Direct Title Insurance Carriers.................... 35.5 35.5 35.5 ......... 35.5 $35.5 ......... 35.5 7.0
524128............................................. 13.7 152.5 19.6 50.9 755.9 0.890 ......... 30.0 7.0
Other Direct Insurance (except Life, Health and 35.5 35.5 35.5 ......... 19.0 $35.5 ......... 30.0 7.0
Medical) Carriers.................................
524130............................................. 214.5 771.1 ......... 50.9 5,405.7 0.724 ......... ......... .........
Reinsurance Carriers............................... 35.5 35.5 ......... ......... 35.5 $14.0 ......... 30.0 7.0
524210............................................. 0.8 26.0 0.5 10.3 2,729.8 0.667 ......... 5.0 .........
Insurance Agencies and Brokerages.................. 5.0 7.0 5.0 ......... ......... $5.0 ......... ......... 7.0
524291............................................. 2.0 73.7 ......... 46.7 841.7 0.840 ......... ......... .........
Claims Adjusting................................... 10.0 19.0 ......... ......... 19.0 $30.0 ......... 19.0 7.0
524292............................................. 8.7 76.2 4.1 21.7 1,622.9 0.847 -4.0 ......... .........
Third Party Administration of Insurance and Pension 35.5 19.0 35.5 ......... ......... $30.0 ......... 30.0 7.0
Funds.............................................
524298............................................. 1.9 25.5 0.8 30.6 278.7 0.817 -24.4 ......... .........
All Other Insurance Related Activities............. 10.0 7.0 7.0 ......... ......... $25.5 $10.0 14.0 7.0
525910............................................. 10.0 90.3 ......... ......... ......... 0.865 ......... ......... .........
Open-End Investment Funds.......................... 35.5 25.5 ......... ......... ......... $35.5 ......... 35.5 7.0
525990............................................. 2.1 21.4 ......... ......... ......... 0.811 ......... ......... .........
Other Financial Vehicles........................... 10.0 7.0 ......... ......... ......... $25.5 ......... 19.0 7.0
551111............................................. 9.6 30.1 32.2 ......... ......... 0.644 ......... ......... .........
Offices of Bank Holding Companies.................. 35.5 10.0 35.5 ......... ......... $5.0 ......... 19.0 7.0
551112............................................. 9.4 27.1 35.4 ......... ......... 0.668 ......... ......... .........
Offices of Other Holding Companies................. 35.5 10.0 35.5 ......... ......... $5.0 ......... 19.0 7.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Common Size Standards
When many of the same businesses operate in several closely related
industries, SBA believes that a common size standard can be more
appropriate for these industries even if the industry and relevant
program data might suggest different size standards. For instance, in
past rules, SBA established a common size standard for Computer Systems
Design and Related Services (NAICS 541511, NAICS 541112, NAICS 541513,
NAICS 541519 (excluding the ``exception'' for Information Technology
Value Added Resellers), and NAICS 811212). Another example is the
common size standard for certain Architectural, Engineering and Related
Services. These include NAICS 541310, NAICS 541330 (excluding the
``exceptions''), Map Drafting (an ``exception'' under NAICS 541340),
NAICS 541360, and NAICS 541370 (64 FR 28275 (May 25, 1999)). As stated
previously, more recently SBA adopted common size standards for the
industries in NAICS Sector 44-45, Retail Trade (75 FR 61597 (October 6,
2010)), NAICS Sector 54, Professional, Scientific and Technical
Services (77 FR 7490 (February 10, 2012)), and NAICS Sector 48-49,
Transportation and Warehousing (77 FR 10943 (February 24, 2012)).
Similarly, SBA proposed common size standards for several other
industries in NAICS Sector 56, Administrative and Support, Waste
Management and Remediation Services (76 FR 63510 (October 12, 2011)),
NAICS Sector 53, Real Estate and Rental and Leasing (76 FR 70680
(November 15, 2011)), and NAICS Sector 62, Health Care and Social
Assistance (77 FR 11001 (February 24, 2012)).
For NAICS Sector 52, SBA proposes, as an alternative to a separate
size standard for each industry, common size standards for industries
in two NAICS Subsectors and two NAICS Industry Groups, as shown in
Table 4, NAICS Subsectors and Industry Groups for Common Size
Standards. SBA evaluated industry and Federal contracting factors and
derived a common size standard for each NAICS Subsector and Industry
Group using the same method as described above. The results are in
Table 5, Size Standards Supported by Each Factor for Subsectors and
Industry Groups, which immediately follows Table 4, below.
[[Page 55745]]
Table 4--NAICS Subsectors and Industry Groups for Common Size Standards
------------------------------------------------------------------------
Subsectors/industry groups: Subsector/industry Industries: 6-digit
NAICS codes group title NAICS codes
------------------------------------------------------------------------
5222 \a\ (except NAICS Nondepository Credit 522220, 522291,
522210). Intermediation. 522292, 522293,
522294, 522298.
523......................... Securities, 523110, 523120,
Commodity 523130, 523140,
Contracts, and 523210, 523910,
Other Financial 523920, 523930,
Investments and 523991, 523999.
Related Activities.
5241 \b\ (except NAICS Insurance Carriers.. 524113, 524114,
524126). 524127, 524128,
524130.
525 \c\..................... Funds, Trusts, and 525110, 525120,
Other Financial 525190, 525910,
Vehicles. 525920, 525930,
525990.
------------------------------------------------------------------------
\a\ NAICS 522210 is excluded from this Industry Group as that industry
currently has an asset based size standard. NAICS 522293 also has an
assets based size standard currently, but SBA proposes to replace it
with the same common size standard that SBA is proposing for NAICS
Industry Group 5222 (except NAICS 522210).
\b\ NAICS 524126 is excluded from this Industry Group as that industry
currently has an employee based size standard. This will be reviewed
at a later date along with other employee based size standards.
\c\ The 2007 Economic Census special tabulation includes data only for
two NAICS codes within NAICS Subsector 525, namely 525910 (Open-End
Investment Funds) and 525990 (Other Financial Vehicles). Consequently,
SBA proposes to apply the results from NAICS 525910 and 525990 to all
remaining industries within this Subsector because they all share the
same size standard currently.
Table 5--Size Standards Supported by Each Factor for Subsectors and Industry Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted Calculated
average average Average Four-firm Federal size Current
NAICS code/Subsector or Industry Group title firm size firm size assets Four-firm average Gini contract standard size
($ ($ size ($ ratio (%) size ($ coefficient factor ($ standard
million) million) million) million) (%) million) ($million)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
5222 (except NAICS 522210)....................... $23.0 $550.3 $75.8 ......... ......... 0.944 ......... .......... ..........
Nondepository Credit Intermediation.............. 35.5 35.5 35.5 ......... ......... 35.5 ......... 35.5 7.0
523.............................................. 10.6 319.1 7.7 24.6 37,547.5 0. 938 4.5 .......... ..........
Securities, Commodity Contracts, and Other 35.5 35.5 35.5 ......... ......... 35.5 ......... 35.5 7.0
Financial Investments and Related Activities....
5241 (except NAICS 524126)....................... 256.0 1,907.7 185.6 ......... ......... 0.866 -0.2 .......... ..........
Insurance Carriers............................... 35.5 35.5 35.5 ......... ......... 35. 5 ......... 35.5 7.0
525.............................................. 3.6 43.8 14.7 ......... ......... 0. 860 ......... .......... ..........
Funds, Trusts, and Other Financial Vehicles...... 19.0 14.0 35.5 ......... ......... 35.5 ......... 30.0 7.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Evaluation of the Assets Based Size Standard
In 1984, SBA published a notice of policy allowing financial
services that prime contractors procure from small minority owned and
controlled financial institutions to qualify as subcontracts for
purposes of meeting subcontracting goals and credits (see 49 FR 13091-
01 (April 2, 1984)). Concurrently, SBA also published a proposed rule
that a financial institution with total assets of not more than $100
million would be considered small (see 49 FR 13052-01 (April 2, 1984)).
SBA adopted the $100 million in total assets as the size standard for
financial institutions (see 49 FR 49398-01 (October 16, 1984)). Over
time, the definition of small depository institution was extended to
other financial institutions, such as Credit Cards Issuing and
International Trade Financing. Since then, along with other monetary
based size standards, SBA has periodically adjusted the assets based
size standard for inflation, with the latest adjustment increasing it
to $175 million (see 73 FR 41237 (July 18, 2008)).
Currently, the $175 million assets based size standard applies to
four industries within NAICS Industry Group 5221, Depository Credit
Intermediation, and two industries within NAICS Industry Group 5222,
Non-depository Credit Intermediation. These are NAICS 522110
(Commercial Banking), NAICS 522120 (Savings Institutions), NAICS 522130
(Credit Unions), NAICS 522190 (Other Depository Credit Intermediation),
NAICS 522210 (Credit Card Issuing), and NAICS 522293 (International
Trade Financing).
Because only a small number of industries have assets based size
standards, no comparison groups could be developed to assess differing
characteristics of individual industries based on total assets. Thus,
most of the SBA's size standards methodology is not applicable to
analyzing the assets based size standards for financial institutions.
Consequently, in this proposed rule, SBA has examined trends on
financial industry factors since 1984 to assess whether the current
$175 million assets based size standard should be modified to reflect
today's financial industry structure. Specifically, SBA evaluated
changes in average firm size, industry concentration, and distribution
of firms by size (i.e., Gini coefficient) for financial institutions.
Similarly in the 1984 proposed and final rules, SBA both evaluated
depository institutions as a whole and the minority owned and
controlled depository institutions separately.
SBA evaluated all depository institutions (except for Credit
Unions, NAICS 522130 which were evaluated using the NCUA data) using
SDI data. SDI does not provide the NAICS definition for every firm
included in the database. However, it has a field called Asset
Concentration Hierarchy, which can be used to identify each
institution's primary specialization in terms of asset concentration,
such as credit card services. Another field, Bank Charter Class,
identifies the institutions as banks or thrifts. Because the data are
not separated by NAICS code, and also the differences among services
offered by different financial instructions (such as commercial banks,
saving institutions, and credit card issuing companies) have greatly
diminished over the recent decades, SBA has analyzed these financial
institutions as one industry group.
Since the SDI database does not distinguish minority owned
financial institutions from others, SBA identified them using the data
on financial institutions that participate in the
[[Page 55746]]
Department of the Treasury's Minority Bank Deposit Program, compiled by
the Federal Reserve Board (FRB) (https://www.federalreserve.gov/releases/mob/) for the 3rd quarter of 2011, and examined their
characteristics using the assets data from the SDI database. The
earliest period the FRB data are available is the 2nd quarter of 2003.
Thus, to fully capture the changes in industry structure of minority
owned financial institutions since 1984, SBA has compared the results
based on the FRB and SDI data with those based on the data for minority
owned banks from the 1984 proposed and final rules.
SBA evaluated the changes in the industry structure of Credit
Unions (NAICS 522130) between 1994 and 2011, using the data from the
5300 Call Reports available on the NCUA Web site (https://www.ncua.gov/DataApps/QCallRptData/Pages/default.aspx).
The number of all depository institutions (excluding Credit
Unions), total assets and calculated industry factors for 1984 and 2011
are shown in Table 6, Industry Factors for All Depository Institutions
(excluding Credit Unions). Similar calculations for the minority owned
depository institutions (excluding Credit Unions) are shown in Table 7,
Industry Factors for Minority Owned Depository Institutions (excluding
Credit Unions). The number of Credit Unions, total assets and
calculated industry factors for 1995 and 2011 are shown in Table 8,
Industry Factors for Credit Unions. For comparability, all monetary
values are expressed in 2011 dollars.
Table 6--Industry Factors for All Depository Institutions (Excluding Credit Unions)
[All monetary values are in millions of 2011 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted
Year Number of Total assets average firm average firm Four-firm Four-firm Gini
institutions size size ratio (%) average size coefficient
--------------------------------------------------------------------------------------------------------------------------------------------------------
1984*................................... 17,901 $6,702,968 $374 $12,319 10.1 $168,843 0.798
2011.................................... 7,445 13,843,140 1,859 81,690 41.4 1,433,933 0.907
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: SDI/FDIC (https://www2.fdic.gov/sdi/main.asp).
\*\ 1984 dataset is not available online, but is available from FDIC on request.
Table 7--Industry Factors for Minority Owned Depository Institutions (excluding Credit Unions).
[All monetary values are in millions of 2011 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted
Year Number of Total assets average firm average firm Four-firm Four-firm Gini
institutions size size ratio (%) average size coefficient
--------------------------------------------------------------------------------------------------------------------------------------------------------
1984 \a\................................ 96 $7,556 $79 $274 N/A N/A 0.491
2011 \b\................................ 108 39,138 362 1,662 40.0 $3,917 0.626
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: a. 1984 proposed (49 FR 13052-01 (April 2, 1984)) and final (49 FR 49398-01 (October 16, 1984)) rules.
b. FRB (https://www.federalreserve.gov/releases/mob/) and FDIC.
Table 8--Industry Factors for Credit Unions
[All monetary values are in millions of 2011 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted
Year Number of Total assets average firm average firm Four-firm Four-firm Gini
institutions size size ratio (%) average size coefficient
--------------------------------------------------------------------------------------------------------------------------------------------------------
1994.................................... 12,201 $420,606 $34 $733 5.5 $5,742 0.793
2011.................................... 7,240 974,187 135 3,543 9.8 3,907 0.829
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: NCUA, https://www.ncua.gov/DataApps/QCallRptData/Pages/CallRptData.aspx.
During the 1984 to 2011 span, as shown in Table 6, Industry Factors
for All Depository Institutions (excluding Credit Unions), above, the
financial industry saw a large drop in the total number of financial
institutions, but at the same time it saw a significant increase in
asset concentration among fewer of them. The total number of all
financial institutions decreased more than half from 17,901 in 1984 to
7,445 in 2011, while their total assets (measured in 2011 dollars) more
than doubled during the same period. The average firm size (measured in
total assets) also showed significant increase from 1984 to 2011, with
their simple average firm size increasing by a factor of 5 and the
weighted average firm size increasing by a factor of nearly 7. The four
largest institutions' share of total assets (also referred to as four-
firm concentration ratio) more than quadrupled (from 10.1% to 41.4%)
and their average size increased more than 8 times. The Gini
coefficient value also increased from 0.798 in 1984 to 0.907 in 2011,
thereby further confirming the trend of increased concentration in the
financial industry. The average firm size and Gini coefficient value
for the minority owned banks in Table 7, Industry Factors for Minority
Owned Depository Institutions (excluding Credit Unions), also strongly
confirmed the trend of increased concentration in the financial
industry. As shown in Table 8, Industry Factors for Credit Unions,
above, the number of Credit Unions decreased by 40 percent and their
total assets more than doubled between 1995 and 2011. The average firm
size, four-firm statistics, and Gini coefficient for Credit Unions also
indicated increased concentration.
For all the six industries in NAICS Subsector 522 that have the
$175 million assets based size standard, Federal contracting dollars
averaged only about $22 million per year during fiscal years 2008-2010.
Thus, under SBA's methodology, Federal contracting was not a
significant factor for
[[Page 55747]]
establishing a size standard for these industries.
Besides the industry structure, SBA also reviewed the relevant
literature and information to determine if total assets are a suitable
measure of bank size given the current structure of the banking
industry. SBA has found that total assets are still the commonly
accepted measure of bank size. For example, the Federal Reserve Board,
Federal Deposit Insurance Corporation, and U.S. Treasury Department all
use total assets to measure bank size for their regulatory and program
purposes. Accordingly, SBA proposes to retain total assets to measure
the size of financial institutions.
The current structure of the financial industry relative to that
for the 1980s and 1990s, as discussed above, strongly supports
increasing the current $175 million assets based size standard. The
changes in industry factors for all financial institutions in Table 6
as well as the results for the minority owned institutions in Table 7
and Credit Unions in Table 8 support a size standard in the range of
$500 million to $1 billion in total assets. SBA is proposing $500
million as it would include about 82 percent of the financial
institutions and 7 percent of total assets of all financial
institutions as compared to 54 percent of institutions and only about 3
percent of total assets under the current $175 million. It would
include about 82 percent of institutions and one-third of the total
assets of all minority owned institutions, as compared to 58 percent of
institutions and 14 percent of total assets under the current $175
million. Similarly, the $500 million size standard would include nearly
95 percent of all Credit Unions and 36 percent of their total assets,
compared to 87 percent of all Credit Unions and 19 percent of their
total assets under the current $175 million size standard. SBA
considered proposing $1 billion in total assets, but that would include
all but the five largest minority owned banks, some of which may not be
in need of Federal assistance.
The proposed $500 million assets based size standard would apply to
the following five industries within NAICS Subsector 522, Credit
Intermediation and Related Activities: NAICS 522110 (Commercial
Banking), NAICS 522120 (Savings Institutions), NAICS 522130 (Credit
Unions), NAICS 522190 (Other depository Credit Intermediation), and
NAICS 522210 (Credit Card Issuing).
Special Considerations
NAICS 522293, International Trade Financing
NAICS 522293, International Trade Financing, currently has the $175
million assets based size standard. However, there are no assets data
available to evaluate this industry. Furthermore, most of the receipts
and employment data for this industry are suppressed in the 2007
Economic Census special tabulation due to the disclosure limitation. In
terms of average size and distribution of firms by receipts and
employment size based on SBA's estimated values for missing data, firms
primarily engaged in NAICS 522293 are much more similar to those
primarily engaged in other industries within NAICS Industry Group 5222
(except for NAICS 522210) that have receipts based size standards than
firms primarily engaged in industries in NAICS Industry Group 5221 and
NAICS 522210 that have assets based sized standards. Accordingly, for
NAICS 522293 SBA is proposing the same $35.5 million receipts based
size standard that it has proposed for all industries in NAICS Industry
Group 5222 (except for NAICS 522210). SBA welcomes feedback on this
proposal.
NAICS Subsector 525, Funds, Trusts, and Other Financial Vehicles
As noted earlier, the 2007 Economic Census special tabulation
includes data only for two NAICS codes within NAICS Subsector 525: (1)
NAICS 525910, Open-End Investment Funds: and (2) NAICS 525990, Other
Financial Vehicles. Because all industries in that Subsector currently
share the same $7 million receipts based size standard, SBA applies the
results based on data for NAICS 525910 and 525990 to all remaining
industries within this Subsector and proposes the same common size
standard of $30 million in average annual receipts for all industries
in the Subsector. SBA seeks comments on this proposal as well as
suggestions on alternative data sources, if any, to evaluate those
industries.
NAICS 524126, Direct Property and Causality Insurance Carriers
The current size standard for NAICS 524126, Direct Property and
Causality Insurance, is 1,500 employees, which SBA has not reviewed in
this proposed rule. SBA will review this size standard together with
other employee based size standards at a later date. Until then, SBA
proposes to retain the current 1,500-employee size standard for NAICS
524126.
Evaluation of SBA Loan Data
Before deciding on an industry's size standard, SBA also considers
the impact of new or revised size standards on SBA's loan programs.
Accordingly, SBA examined its 7(a) and 504 Loan Program data for fiscal
years 2008-2010 to assess whether the proposed size standards need
further adjustments to ensure credit opportunities for small businesses
through those programs. For the industries reviewed in this rule, the
data show that it is mostly businesses much smaller than the current
size standards that use SBA's 7(a) and 504 loans.
Furthermore, the Jobs Act established an alternative size standard
for SBA's 7(a) and 504 Loan Programs. Specifically, an applicant
exceeding an NAICS industry size standard may still be eligible if its
maximum tangible net worth does not exceed $15 million and its average
net income after Federal income taxes (excluding any carry-over losses)
for the 2 full fiscal years before the date of the application is not
more than $5 million.
Therefore, no size standard in NAICS Sectors 52 and 55 needs an
adjustment based on this factor.
Proposed Changes to Size Standards
Table 9, Summary of Size Standards Analysis, below, summarizes the
results of SBA's analyses of industry specific size standards from
Table 3, the results of common size standards analysis from Table 5,
and the results of the analysis of the assets based size standard. With
the proposed change of an assets based size standard to a receipts
based size standard for NAICS 522293, International Trade Financing,
the results show increases in size standards for 37 industries, a
decrease for one, and no change for one industry in NAICS Sector 52.
The results also show increases in size standards for both industries
in NAICS Sector 55.
[[Page 55748]]
Table 9--Summary of Size Standards Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
Calculated
industry-
NAICS code NAICS title Current size standard ($ million) specific size Calculated common size standard ($
standard ($ million)
million)
--------------------------------------------------------------------------------------------------------------------------------------------------------
522110....................... Commercial Banking...... 175 million in assets.................. .............. $500 million in assets.
522120....................... Savings Institutions.... 175 million in assets.................. .............. 500 million in assets.
522130....................... Credit Unions........... 175 million in assets.................. .............. 500 million in assets.
522190....................... Other Depository Credit 175 million in assets.................. .............. 500 million in assets.
intermediation.
522210....................... Credit Card Issuing..... 175 million in assets.................. .............. 500 million in assets.
522220....................... Sales Financing......... 7.0.................................... $35.5 35.5.
522291....................... Consumer Lending........ 7.0.................................... 35.5 35.5.
522292....................... Real Estate Credit...... 7.0.................................... 35.5 35.5.
522293....................... International Trade 175 million in assets.................. .............. 35.5.
Financing.
522294....................... Secondary Market 7.0.................................... 35.5 35.5.
Financing.
522298....................... All Other Nondepository 7.0.................................... 35.5 35.5.
Credit Intermediation.
522310....................... Mortgage and Nonmortgage 7.0.................................... 7.0 ......................................
Loan Brokers.
522320....................... Financial Transactions, 7.0.................................... 35.5 ......................................
Reserve, and
Clearinghouse
Activities.
522390....................... Other Activities Related 7.0.................................... 19.0 ......................................
to Credit
Intermediation.
523110....................... Investment Banking and 7.0.................................... 35.5 35.5.
Securities Dealing.
523120....................... Securities Brokerage.... 7.0.................................... 35.5 35.5.
523130....................... Commodity Contracts 7.0.................................... 30.0 35.5.
Dealing.
523140....................... Commodity Contracts 7.0.................................... 19.0 35.5.
Brokerage.
523210....................... Securities and Commodity 7.0.................................... 19.0 35.5.
Exchanges.
523910....................... Miscellaneous 7.0.................................... 19.0 35.5.
Intermediation.
523920....................... Portfolio Management.... 7.0.................................... 35.5 35.5.
523930....................... Investment Advice....... 7.0.................................... 14.0 35.5.
523991....................... Trust, Fiduciary and 7.0.................................... 30.0 35.5.
Custody Activities.
523999....................... Miscellaneous Financial 7.0.................................... 35.5 35.5.
Investment Activities.
524113....................... Direct Life Insurance 7.0.................................... 30.0 35.5.
Carriers.
524114....................... Direct Health and 7.0.................................... 25.5 35.5.
Medical Insurance
Carriers.
524127....................... Direct Title Insurance 7.0.................................... 35.5 35.5.
Carriers.
524128....................... Other Direct Insurance 7.0.................................... 30.0 35.5.
(except Life, Health
and Medical) Carriers.
524130....................... Reinsurance Carriers.... 7.0.................................... 30.0 35.5.
524210....................... Insurance Agencies and 7.0.................................... 5.0 ......................................
Brokerages.
524291....................... Claims Adjusting........ 7.0.................................... 19.0 ......................................
524292....................... Third Party 7.0.................................... 30.0 ......................................
Administration of
Insurance and Pension
Funds.
524298....................... All Other Insurance 7.0.................................... 14.0 ......................................
Related Activities.
525110....................... Pension Funds........... 7.0.................................... .............. 30.0.
525120....................... Health and Welfare Funds 7.0.................................... .............. 30.0.
525190....................... Other insurance Funds... 7.0.................................... .............. 30.0.
525910....................... Open[dash]End Investment 7.0.................................... 35.5 30.0.
Funds.
525920....................... Trusts, Estates and 7.0.................................... .............. 30.0.
Agency Accounts.
525930....................... Real Estate Investment 7.0.................................... .............. 30.0.
Trusts.
525990....................... Other Financial Vehicles 7.0.................................... 19.0 30.0.
551111....................... Offices of Bank Holding 7.0.................................... 19.0 ......................................
Companies.
551112....................... Offices of Other Holding 7.0.................................... 19.0 ......................................
Companies.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Although the results in Table 9, Summary of Size Standards
Analysis, seem to support lowering the size industry for one industry
(NAICS 524210, Insurance Agencies and Brokerages), SBA believes that
lowering small business size standards is not in the best interest of
small businesses in the current economic environment. The U.S. economy
was in recession from December 2007 to June 2009, the longest and
deepest of any recessions since World War II. The economy lost more
than eight million non-farm jobs during 2008-2009. In response,
Congress passed and the President signed into law the American Recovery
and Reinvestment Act of 2009 (Recovery Act) to promote economic
recovery and to preserve and create jobs. Although the recession
officially ended in June 2009, the unemployment rate is still high at
8.2 percent in June 2012 and is forecast to remain around this level at
least through the end of 2012. Recently, Congress passed and the
President signed the Jobs Act to promote small business job creation.
The Jobs Act puts more capital into the hands of entrepreneurs and
small business owners; strengthens small businesses' ability to compete
for contracts; includes recommendations from the President's Task Force
on Federal Contracting Opportunities for Small Business; creates a
better playing field for small businesses; promotes small business
exporting, building on the President's National Export Initiative;
expands training and counseling; and provides $12 billion in tax relief
to help small businesses invest in their firms and create jobs. A
proposal to reduce size standards will have an immediate impact on
jobs, and it would be contrary to the expressed will of the President
and the Congress.
Lowering size standards would decrease the number of firms that
participate in Federal financial and procurement assistance programs
for small businesses. It would also affect small businesses that are
now exempt from or receive some form of relief from myriad other
Federal regulations that use SBA's size standards. That impact could
take the form of increased fees,
[[Page 55749]]
paperwork, or other compliance requirements for small businesses.
Furthermore, size standards based solely on analytical results without
any other considerations can cut off currently eligible small firms
from those programs and benefits. That would run counter to what SBA
and the Federal government are doing to help small businesses. Reducing
size eligibility for Federal procurement opportunities, especially
under current economic conditions, would not preserve or create more
jobs; rather, it would have the opposite effect. Therefore, in this
proposed rule, SBA does not intend to reduce size standards for any
industries. For one industry where analysis might seem to support
lowering the size standard, SBA proposes to retain the current size
standard.
Furthermore, as stated previously, the Small Business Act requires
the Administrator to ``* * * consider other factors deemed to be
relevant * * *'' to establishing small business size standards. The
current economic conditions and the impact on job creation are quite
relevant factors when establishing small business size standards. SBA
nevertheless invites comments and suggestions on whether it should
lower the size standard for NAICS 524210, Insurance Agencies and
Brokerages, to $5 million, or retain the current $7 million, which is
the anchor standard for receipts based standards.
Comparing industry specific size standards and common size
standards within each Industry Group or Subsector, SBA finds that for
several industries, as shown in Tables 4 and 5 above, common size
standards are more appropriate for several reasons. First, analyzing
industries at the more aggregated Industry Group or Subsector levels
simplifies size standards analysis, and the results will be more
consistent among related industries. Second, in NAICS Sector 52 most
industries within each Industry Group or Subsector currently have the
same size standards and SBA believes it is better to keep the revised
size standards also same unless industries are significantly different.
Third, within each Industry Group or Subsector many of the same
businesses tend to operate in the same multiple industries. Thus, SBA
believes that common size standards would reflect the Federal
marketplace in those industries better than different size standards
for each industry.
For industries where both industry specific size standards and
common size standards have been calculated, for the above reasons, SBA
proposes to apply common size standards. For industries for which SBA
has not estimated common size standards it proposes to apply industry
specific size standards. As discussed above, lowering small business
size standards is inconsistent with what the Federal government is
doing to stimulate the economy and would discourage job growth for
which Congress established the Recovery Act and Jobs Act. In addition,
it would be inconsistent with the Small Business Act requiring the
Administrator to establish size standards based on industry analysis
and other relevant factors such as current economic conditions.
In addition, retaining current standards when the analytical
results can suggest lowering them is consistent with SBA's prior
actions for NAICS Sector 44-45 (Retail Trade), NAICS Sector 72
(Accommodation and Food Services), and NAICS Sector 81 (Other Services)
that the Agency proposed (74 FR 53924, 74 FR 53913, and 74 FR 53941,
October 21, 2009) and adopted in its final rules (75 FR 61597, 75 FR
61604, and 75 FR 61591, October 6, 2010). It is also consistent with
the Agency's proposed rule (76 FR 14323 (March 16, 2011)) and final
rule (77 FR 7490 (February 10, 2012)) for NAICS Sector 54,
Professional, Technical, and Scientific Services, the proposed rule (76
FR 27935 (May 13, 2011)) and final rule ((77 FR 10943 (February 24,
2012)) for NAICS Sector 48-49, Transportation and Warehousing, and
proposed rules for NAICS Sector 51, Information (76 FR 63216 (October
12, 2011)), NAICS Sector 56, Administrative and Support, Waste
Management and Remediation Services (76 FR 63510 (October 12, 2011)),
NAICS Sector 61, Educational Services (76 FR 70667 (November 15,
2011)), NAICS Sector 53, Real Estate and Rental and Leasing (76 FR
70680 (November 15, 2011)), NAICS Sector 62, Health Care and Social
Assistance (forthcoming), NAICS Sector 71, Arts, Entertainment and
Recreation (forthcoming), and NAICS Sector 23, Construction
(forthcoming). In each of those final and proposed rules, SBA opted not
to reduce small business size standards, for the same reasons it has
provided above in this proposed rule.
Thus, SBA proposes to increase size standards for 37 industries,
and retain the current size standards for two industries in NAICS
Sector 52. In addition, SBA proposes to change the measure of size for
NAICS 522293, International Trade Financing, from total assets to
annual receipts. SBA also proposes to increase size standards for two
industries in NAICS Sector 55. The SBA's proposed changes are
summarized in Table 10, Summary of Proposed Size Standards Revisions,
below.
Table 10--Summary of Proposed Size Standards Revisions
----------------------------------------------------------------------------------------------------------------
Current size standard ($ Proposed size standard ($
NAICS code NAICS title million) million)
----------------------------------------------------------------------------------------------------------------
522110................. Commercial Banking 175 million in assets............ 500 million in assets.
522120................. Savings 175 million in assets............ 500 million in assets.
Institutions.
522130................. Credit Unions..... 175 million in assets............ 500 million in assets.
522190................. Other Depository 175 million in assets............ 500 million in assets.
Credit
intermediation.
522210................. Credit Card 175 million in assets............ 500 million in assets.
Issuing.
522220................. Sales Financing... 7.0.............................. 35.5.
522291................. Consumer Lending.. 7.0.............................. 35.5.
522292................. Real Estate Credit 7.0.............................. 35.5.
522293................. International 175 million in assets............ 35.5.
Trade Financing.
522294................. Secondary Market 7.0.............................. 35.5.
Financing.
522298................. All Other 7.0.............................. 35.5.
Nondepository
Credit
Intermediation.
522320................. Financial 7.0.............................. 35.5.
Transactions,
Reserve, and
Clearinghouse
Activities.
522390................. Other Activities 7.0.............................. 19.0.
Related to Credit
Intermediation.
523110................. Investment Banking 7.0.............................. 35.5.
and Securities
Dealing.
523120................. Securities 7.0.............................. 35.5.
Brokerage.
523130................. Commodity 7.0.............................. 35.5.
Contracts Dealing.
523140................. Commodity 7.0.............................. 35.5.
Contracts
Brokerage.
523210................. Securities and 7.0.............................. 35.5.
Commodity
Exchanges.
[[Page 55750]]
523910................. Miscellaneous 7.0.............................. 35.5.
Intermediation.
523920................. Portfolio 7.0.............................. 35.5.
Management.
523930................. Investment Advice. 7.0.............................. 35.5.
523991................. Trust, Fiduciary 7.0.............................. 35.5.
and Custody
Activities.
523999................. Miscellaneous 7.0.............................. 35.5.
Financial
Investment
Activities.
524113................. Direct Life 7.0.............................. 35.5.
Insurance
Carriers.
524114................. Direct Health and 7.0.............................. 35.5.
Medical Insurance
Carriers.
524127................. Direct Title 7.0.............................. 35.5.
Insurance
Carriers.
524128................. Other Direct 7.0.............................. 35.5.
Insurance (except
Life, Health and
Medical) Carriers.
524130................. Reinsurance 7.0.............................. 35.5.
Carriers.
524291................. Claims Adjusting.. 7.0.............................. 19.0.
524292................. Third Party 7.0.............................. 30.0.
Administration of
Insurance and
Pension Funds.
524298................. All Other 7.0.............................. 14.0.
Insurance Related
Activities.
525110................. Pension Funds..... 7.0.............................. 30.0.
525120................. Health and Welfare 7.0.............................. 30.0.
Funds.
525190................. Other Insurance 7.0.............................. 30.0.
Funds.
525910................. Open-End 7.0.............................. 30.0.
Investment Funds.
525920................. Trusts, Estates, 7.0.............................. 30.0.
and Agency Funds.
525930................. Real Estate 7.0.............................. 30.0.
Investments Funds.
525990................. Other Financial 7.0.............................. 30.0.
Vehicles.
551111................. Offices of Bank 7.0.............................. 19.0.
Holding Companies.
551112................. Offices of Other 7.0.............................. 19.0.
Holding Companies.
----------------------------------------------------------------------------------------------------------------
Evaluation of Dominance in Field of Operation
SBA has determined that for the industries in NAICS Sectors 52 and
55 for which it has proposed to increase size standards, no individual
firm at or below the proposed size standard will be large enough to
dominate its field of operation. At the proposed size standards for
individual industries, if adopted, the small business share of total
industry receipts among those industries with receipts based size
standards is, in average, 0.3 percent, varying from .01 percent to 1.3
percent and the small business share among the industries with assets
based size standards is .004 percent. These levels of market shares
effectively preclude a firm at or below the proposed size standards
from exerting control on any of the industries.
Request for Comments
SBA invites public comments on this proposed rule, especially on
the following issues:
1. Whether SBA's proposal to simplify size standards by using eight
fixed levels for receipts based size standards--$5 million, $7 million,
$10 million, $14 million, $19 million, $25.5 million, $30 million, and
$35.5 million--is necessary and whether the proposed fixed size levels
are appropriate. SBA welcomes suggestions on alternative approaches to
simplifying small business size standards.
2. Whether SBA's proposal to increase 32 receipts based and five
assets based size standards and to retain two receipts based size
standards in NAICS Sector 52, is appropriate given the economic
characteristics of each industry.
3. Whether SBA's proposal to increase the two size standards in
NAICS Sector 55 is appropriate given the economic characteristics of
each industry.
4. Whether SBA should change the measure of size for NAICS 522293,
International Trade Financing, from total assets to annual receipts.
5. SBA also seeks feedback and suggestions on alternative size
standards, if they would be more appropriate, including whether the
number of employees is a more suitable measure of size for certain
industries and what that employee level should be.
6. SBA proposes common receipts based size standards for industries
within NAICS Subsectors 523 and 525 as well as NAICS Industry Groups
5222 (except for NAICS 522210) and 5241 (except for NAICS 524126).
Similarly, SBA proposes a common assets based size standard for three
industries within NAICS Industry Group 5221 (except for NAICS 522130)
and for NAICS 522210. SBA invites comments or suggestions along with
supporting information with respect to the following:
a. Whether SBA should adopt common size standards for those
industries or establish a separate size standard for each industry, and
b. Whether the proposed common size standards for those industries
are at the correct levels or what would be more appropriate if what SBA
has proposed are not appropriate.
7. For several industries in NAICS Sectors 52 and 55, based on
industry and program data, SBA proposes large increases, while for
others the proposed increases are modest. The SBA seeks feedback on
whether, as a policy, it should limit the increase to a size standard
or establish minimum or maximum values for its size standards. The SBA
seeks suggestions on appropriate levels of changes to size standards
and on their minimum or maximum levels.
8. SBA's proposed size standards are based on five primary
factors--average firm size, average assets size (as a proxy of startup
costs and entry barriers), four-firm concentration ratio, distribution
of firms by size and, the total share and small business share of
Federal contracting dollars of the evaluated industries. SBA welcomes
comments on these factors and/or suggestions of other factors that it
should consider when evaluating or revising size standards. SBA also
seeks information on relevant data sources, other than what it uses, if
available.
9. SBA gives equal weight to each of the five primary factors in
all industries. SBA seeks feedback on whether it should continue giving
equal weight to each factor or whether it should give more weight to
one or more factors for certain industries. Recommendations to weigh
some factors more than others should include suggested weights for each
factor along with supporting information.
10. For analytical simplicity and efficiency, in this proposed
rule, SBA has refined its size standard methodology to obtain a single
value as a proposed size standard instead of a
[[Page 55751]]
range of values, as in its past size regulations. SBA welcomes any
comments on this procedure and suggestions on alternative methods.
Public comments on the above issues are very valuable to SBA for
validating its size standard methodology and its proposed size
standards revisions in this proposed rule. This will help SBA to move
forward with its review of size standards for other NAICS Sectors.
Commenters addressing size standards for a specific industry or a group
of industries should include relevant data and/or other information
supporting their comments. If comments relate to using size standards
for Federal procurement programs, SBA suggests that commenters provide
information on the size of contracts in their industries, the size of
businesses that can undertake the contracts, start-up costs, equipment
and other asset requirements, the amount of subcontracting, other
direct and indirect costs associated with the contracts, the use of
mandatory sources of supply for products and services, and the degree
to which contractors can mark up those costs.
Compliance With Executive Orders 12866, 13563, 12988 and 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35) and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is not a ``significant regulatory action'' for purposes
of Executive Order 12866. In order to help explain the need of this
rule and the rule's potential benefits and costs, SBA is providing a
Cost Benefit Analysis in this section of the rule. This is also not a
``major rule'' under the Congressional Review Act, 5 U.S.C. 800.
Cost Benefit Analysis
1. Is there a need for the regulatory action?
SBA believes that proposed size standards revisions in NAICS Sector
52, Finance and Insurance, and NAICS Sector 55, Management of Companies
and Enterprises, will better reflect the economic characteristics of
small businesses in this Sector and the Federal government marketplace.
SBA's mission is to aid and assist small businesses through a variety
of financial, procurement, business development, and advocacy programs.
To determine the intended beneficiaries of these programs, SBA
establishes distinct definitions of which businesses are deemed small
businesses. The Small Business Act (15 U.S.C. 632(a)) delegates to
SBA's Administrator the responsibility for establishing small business
definitions. The Act also requires that small business definitions vary
to reflect industry differences. The recently enacted Jobs Act also
requires SBA to review all size standards and make necessary
adjustments to reflect market conditions. The supplementary information
section of this proposed rule explains SBA's methodology for analyzing
a size standard for a particular industry.
2. What are the potential benefits and costs of this regulatory action?
The most significant benefit to businesses obtaining small business
status because of this rule is gaining eligibility for Federal small
business assistance programs. These include SBA's financial assistance
programs, economic injury disaster loans, and Federal procurement
programs intended for small businesses. Federal procurement programs
provide targeted opportunities for small businesses under SBA's
business development programs, such as 8(a), Small Disadvantaged
Businesses (SDB), small businesses located in Historically
Underutilized Business Zones (HUBZone), women-owned small businesses
(WOSB), and service-disabled veteran-owned small businesses (SDVOSB).
Federal agencies may also use SBA's size standards for a variety of
other regulatory and program purposes. These programs help small
businesses become more knowledgeable, stable, and competitive. SBA
estimates that in the 34 industries for which it proposes to increase
receipts based size standards in NAICS Sectors 52 and 55, more than
5,400 firms, not small under the existing size standards, will become
small under the proposed size standards and therefore eligible for
these programs. That is about 2.2 percent of all firms classified as
small under the current receipts based size standards in NAICS Sector
52 and 55. If adopted as proposed, this will increase the small
business share of total receipts of all industries with receipts based
size standards within NAICS Sectors 52 and 55 from 5.1 percent to 7.5
percent. Additionally, due to the proposed increase to the assets based
size standard from $175 million to $500 million for four industries in
NAICS Sector 52 (i.e., NAICS 522110, 522120, 522190 and 522210),
approximately 2,000 additional depository institutions, including about
25 minority owned financial institutions, will qualify as small. This
will increase the small business share of total assets in those
industries from 2.5 percent under the current assets based size
standard to 7 percent for all financial institutions and from 14.4
percent to 33 percent for minority owned institutions. This would also
include about 550 additional Credit Unions, but they would not qualify
as small business concerns for Federal programs intended for small
businesses because they are not-for profit entities. However, they may
qualify as small entities for other Federal programs and regulatory
purposes.
The following groups will benefit from the proposed size standards
revisions in this rule, if adopted as proposed: (1) Some businesses
that are above the current size standards may gain small business
status under the higher size standards, thereby enabling them to
participate in Federal small business assistance programs; (2) growing
small businesses that are close to exceeding the current size standards
will be able to retain their small business status under the higher
size standards, thereby enabling them to continue their participation
in the programs; (3) Federal agencies will have a larger pool of small
businesses from which to draw for their small business procurement
programs; (4) prime contractors that could benefit from agreements with
the minority owned depository institutions in meeting their
subcontracting goals and credits; and (5) potentially small business
communities could benefit from increased banking activities in the
area.
SBA estimates that firms gaining small business status under the
proposed receipts based size standards could receive Federal contracts
totaling $8 million to $10 million annually under SBA's small business,
8(a), SDB, HUBZone, WOSB, and SDVOSB Programs, and other unrestricted
procurements. The added competition for many of these procurements can
also result in lower prices to the Government for procurements reserved
for small businesses, but SBA cannot quantify this benefit.
Under SBA's 7(a) and 504 Loan Programs, based on the fiscal years
2008-2010 data, SBA estimates up to 30 additional loans totaling about
$4 million to $5 million in Federal loan guarantees could be made to
these newly defined small businesses under the proposed size standards.
Increasing the size standards will likely result in more small business
guaranteed loans to businesses in these industries, but it is be
impractical to try to estimate exactly the number and total amount of
loans. There are two reasons for this: (1) Under the Jobs Act, SBA can
now guarantee substantially larger loans than in the
[[Page 55752]]
past; and, (2) as described above, the Jobs Act established an
alternative size standard ($15 million in tangible net worth and $5
million in net income after income taxes) for business concerns that do
not meet the size standards for their industry. Therefore, SBA finds it
difficult to quantify the actual impact of these proposed size
standards on its 7(a) and 504 Loan Programs.
Newly defined small businesses will also benefit from SBA's
Economic Injury Disaster Loan (EIDL) Program. Since this program is
contingent on the occurrence and severity of a disaster, SBA cannot
make a meaningful estimate of this impact.
To the extent that those 7,400 newly defined firms (including 5,400
firms under the receipts based size standards in 34 industries and
2,000 firms under the assets based size standards in four industries)
could become active in Federal procurement programs, the proposed
changes, if adopted, may entail some additional administrative costs to
the government associated with there being more bidders on small
business procurement opportunities. In addition, there will be more
firms seeking SBA's guaranteed loans, more firms eligible for
enrollment in the Central Contractor Registration (CCR)'s Dynamic Small
Business Search database, and more firms seeking certification as 8(a)
or HUBZone firms or qualifying for small business, WOSB, SDVOSB, and
SDB status. Among those newly defined small businesses seeking SBA
assistance, there could be some additional costs associated with
compliance and verification of small business status and protests of
small business status. SBA believes that these added administrative
costs will be minimal because mechanisms are already in place to handle
these requirements.
Additionally, Federal government contracts may have higher costs.
With a greater number of businesses defined as small, Federal agencies
may choose to set aside more contracts for competition among small
businesses rather than using full and open competition. The movement
from unrestricted to small business set-aside contracting might result
in competition among fewer total bidders, although there will be more
small businesses eligible to submit offers. However, the additional
costs associated with fewer bidders are expected to be minor since, by
law, procurements may be set aside for small businesses or reserved for
the 8(a), HUBZone, WOSB, or SDVOSB Programs only if awards are expected
to be made at fair and reasonable prices. In addition, there may be
higher costs when more full and open contracts are awarded to HUBZone
businesses that receive price evaluation preferences.
The proposed size standards revisions, if adopted, may have some
distributional effects among large and small businesses. Although SBA
cannot estimate with certainty the actual outcome of the gains and
losses among small and large businesses, it can identify several
probable impacts. There may be a transfer of some Federal contracts to
small businesses from large businesses. Large businesses may have fewer
Federal contract opportunities as Federal agencies decide to set aside
more Federal contracts for small businesses. In addition, some Federal
contracts may be awarded to HUBZone concerns instead of large
businesses since these firms may be eligible for a price evaluation
preference for contracts when they compete on a full and open basis.
Similarly, currently defined small businesses may obtain fewer
Federal contracts due to the increased competition from more businesses
defined as small. This transfer may be offset by a greater number of
Federal procurements set aside for all small businesses. The number of
newly defined and expanding small businesses that are willing and able
to sell to the Federal Government will limit the potential transfer of
contracts from large and currently defined small businesses. SBA cannot
estimate the potential distributional impacts of these transfers with
any degree of precision. The proposed revisions to the existing size
standards in NAICS Sectors 52 and 55 are consistent with SBA's
statutory mandate to assist small business. This regulatory action
promotes the Administration's objectives. One of SBA's goals in support
of the Administration's objectives is to help individual small
businesses succeed through fair and equitable access to capital and
credit, Government contracts, and management and technical assistance.
Reviewing and modifying size standards, when appropriate, ensures that
intended beneficiaries have access to small business programs designed
to assist them.
Executive Order 13563
A description of the need for this regulatory action and benefits
and costs associated with this action including possible distributional
impacts that relate to Executive Order 13563 is included above in the
Cost Benefit Analysis under Executive Order 12866.
In an effort to engage interested parties in this action, SBA has
presented its size standards methodology (discussed above under
Supplementary Information) to various industry associations and trade
groups. SBA also met with a number of industry groups to get their
feedback on its methodology and other size standards issues. In
addition, SBA presented its size standards methodology to businesses in
13 cities in the U.S. and sought their input as part of Jobs Act tours.
The presentation also included information on the latest status of the
comprehensive size standards review and on how interested parties can
provide SBA with input and feedback on size standards review.
Additionally, SBA sent letters to the Directors of the Offices of
Small and Disadvantaged Business Utilization (OSDBU) at several Federal
agencies with considerable procurement responsibilities requesting
their feedback on how the agencies use SBA's size standards and whether
current size standards meet their programmatic needs (both procurement
and non-procurement). SBA gave appropriate consideration to all input,
suggestions, recommendations, and relevant information obtained from
industry groups, individual businesses, and Federal agencies in
preparing this proposed rule.
The review of size standards in NAICS Sectors 52 and 55 is
consistent with EO 13563, Section 6, calling for retrospective analyses
of existing rules. The last comprehensive review of size standards
occurred during the late 1970s and early 1980s. Since then, except for
periodic adjustments for monetary based size standards, most reviews of
size standards were limited to a few specific industries in response to
requests from the public and Federal agencies. SBA recognizes that
changes in industry structure and the Federal marketplace over time
have rendered existing size standards for some industries no longer
supportable by current data. Accordingly, in 2007, SBA began a
comprehensive review of its size standards to ensure that existing size
standards have supportable bases and to revise them when necessary. In
addition, the Jobs Act requires SBA to conduct a detailed review of all
size standards and to make appropriate adjustments to reflect market
conditions. Specifically, the Jobs Act requires SBA to conduct a
detailed review of at least one-third of all size standards during
every18-month period from the date of its enactment and do a complete
review of all size standards
[[Page 55753]]
not less frequently than once every 5 years thereafter.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this
proposed rule will not have substantial, direct effects on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Therefore, SBA has determined that this proposed
rule has no federalism implications warranting preparation of a
federalism assessment.
Paperwork Reduction Act
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this proposed rule will not impose any new
reporting or recordkeeping requirements.
Initial Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), this proposed rule, if
adopted, may have a significant impact on a substantial number of small
businesses in NAICS Sector 52, Finance and Insurance, and NAICS Sector
55, Management of Companies and Enterprises. As described above, this
rule may affect small businesses seeking Federal contracts, loans under
SBA's 7(a), 504 and Economic Injury Disaster Loan Programs, and
assistance under other Federal small business programs, as well as
subcontracting programs.
Immediately below, SBA sets forth an initial regulatory flexibility
analysis (IRFA) of this proposed rule addressing the following
questions: (1) What are the need for and objective of the rule? (2)
What are SBA's description and estimate of the number of small
businesses to which the rule will apply? (3) What are the projected
reporting, recordkeeping, and other compliance requirements of the
rule? (4) What are the relevant Federal rules that may duplicate,
overlap, or conflict with the rule? and (5) What alternatives will
allow the Agency to accomplish its regulatory objectives while
minimizing the impact on small businesses?
1. What are the need for and objective of the rule?
Changes in industry structure, technological changes, productivity
growth, mergers and acquisitions, and updated industry definitions have
changed the structure of many industries in NAICS Sectors 52 and 55.
Such changes can be sufficient to support revisions to current size
standards for some industries. Based on the analysis of the latest data
available, SBA believes that the revised standards in this proposed
rule more appropriately reflect the size of businesses that need
Federal assistance. The recently enacted Jobs Act also requires SBA to
review all size standards and make necessary adjustments to reflect
market conditions.
2. What are SBA's description and estimate of the number of small
businesses to which the rule will apply?
If the proposed rule is adopted in its present form, SBA estimates
that more than 5,400 additional firms will become small because of
proposed increases to receipts based size standards for 36 industries
in NAICS Sectors 52 and 55. That represents 2.2 percent of total firms
that are small under current receipts based size standards in all
industries within these Sectors. This will result in an increase in the
small business share of total receipts in those industries from 5.1
percent under the current size standards to 7.5 percent under the
proposed size standards. Additionally, due to the proposed increase in
the asset-based size standard for four industries within NAICS Sector
52 about 2,000 additional financial institutions will qualify as small,
including about 25 minority owned financial institutions that could be
eligible to participate in agreements with prime contractors for
subcontracting goals and credits. In addition, about 550 additional
Credit Unions would qualify as small under the higher assets based size
standard, but they would not qualify for Federal programs intended for
small businesses because they are not-for profit entities. However,
they may qualify as small entities for other Federal programs and
regulatory purposes. The proposed size standards, if adopted, will
enable more small businesses to retain their small business status for
a longer period. Many firms may have lost their eligibility and find it
difficult to compete at current size standards with companies that are
significantly larger than they are. SBA believes the competitive impact
will be positive for existing small businesses and for those that
exceed the size standards but are on the very low end of those that are
not small. They might otherwise be called or referred to as mid-sized
businesses, although SBA only defines what is small; other entities are
other than small.
3. What are the projected reporting, record keeping and other
compliance requirements of the rule?
The proposed size standard changes impose no additional reporting
or record keeping requirements on small businesses. However, qualifying
for Federal procurement and a number of other programs requires that
businesses register in the CCR database and certify in the Online
Representations and Certifications Application (ORCA) that they are
small at least once annually. Therefore, businesses opting to
participate in those programs must comply with CCR and ORCA
requirements. There are no costs associated with either CCR
registration or ORCA certification. Changing size standards alters the
access to SBA's programs that assist small businesses, but does not
impose a regulatory burden because they neither regulate nor control
business behavior.
4. What are the relevant Federal rules, which may duplicate, overlap or
conflict with the rule?
Under Sec. 3(a)(2)(C) of the Small Business Act, 15 U.S.C.
632(a)(2)(c), Federal agencies must use SBA's size standards to define
a small business, unless specifically authorized by statute to do
otherwise. In 1995, SBA published in the Federal Register a list of
statutory and regulatory size standards that identified the application
of SBA's size standards as well as other size standards used by Federal
agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any
Federal rule that would duplicate or conflict with establishing size
standards.
However, the Small Business Act and SBA's regulations allow Federal
agencies to develop different size standards if they believe that SBA's
size standards are not appropriate for their programs, with the
approval of SBA's Administrator (13 CFR 121.903). The Regulatory
Flexibility Act authorizes an Agency to establish an alternative small
business definition, after consultation with the Office of Advocacy of
the U.S. Small Business Administration (5 U.S.C. 601(3)).
[[Page 55754]]
5. What alternatives will allow the agency to accomplish its regulatory
objectives while minimizing the impact on small entities?
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance
programs. Other than varying size standards by industry and changing
the size measures, no practical alternative exists to the systems of
numerical size standards.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Reporting and recordkeeping
requirements, Small businesses.
For the reasons set forth in the preamble, SBA proposes to amend
part 13 CFR Part 121 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
1. The authority citation for part 121 continues to read as
follows:
Authority: 15 U.S.C. 632, 634(b)(6), 662, and 694a(9).
2. In Sec. 121.201, amend the table ``Small Business Size
Standards by NAICS Industry'' as follows:
a. In Sec. 121.201, in the table, revise the entries for
``522110'', ``522120'', ``522130'', ``522190'', ``522210'', ``522220'',
``522291'', ``522292'', ``522293'', ``522294'', ``522298'', ``522320'',
``522390'', ``523110'', ``523120'', ``523130'', ``523140'', ``523210'',
``523910'', ``523920'', ``523930'', ``523991'', ``523999'', ``524113'',
``524114'', ``524127'', ``524128'', ``524130'', ``524291'', ``524292'',
``524298'', ``525110'', ``525120'', ``525190'', ``525910'', ``525920'',
``525930'', ``525990'', ``551111'', and ``551112''
b. Revise footnote 8 as shown below after the table.
The revisions read as follows:
Sec. 121.201 What size standards has SBA identified by North American
Industry Classification System codes?
* * * * *
Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
NAICS U.S. Size standards in millions of Size standards in number of
NAICS codes industry title dollars employees
----------------------------------------------------------------------------------------------------------------
522110................ Commercial 500 million in assets \8\......... .................................
Banking \ 8\.
522120................ Savings 500 million in assets \8\......... .................................
Institutions \
8\.
522130................ Credit Unions.... 500 million in assets \8\......... .................................
522190................ Other Depository 500 million in assets \8\......... .................................
Credit
Intermediation \
8\.
522210................ Credit Card 500 million in assets \8\......... .................................
Issuing \ 8\.
522220................ Sales Financing.. 35.5.............................. .................................
522291................ Consumer Lending. 35.5.............................. .................................
522292................ Real Estate 35.5.............................. .................................
Credit.
522293................ International 35.5.............................. .................................
Trade Financing.
522294................ Secondary Market 35.5.............................. .................................
Financing.
522298................ All Other 35.5.............................. .................................
Nondepository
Credit
Intermediation.
* * * * * * *
522320................ Financial 35.5.............................. .................................
Transactions,
Reserve, and
Clearing House
Activities.
522390................ Other Activities 19.0.............................. .................................
Related to
Credit
Intermediation.
* * * * * * *
523110................ Investment 35.5.............................. .................................
Banking and
Securities
Dealing.
523120................ Securities 35.5.............................. .................................
Brokerage.
523130................ Commodity 35.5.............................. .................................
Contracts
Dealing.
523140................ Commodity 35.5.............................. .................................
Contracts
Brokerage.
523210................ Securities and 35.5.............................. .................................
Commodity
Exchanges.
523910................ Miscellaneous 35.5.............................. .................................
Intermediation.
523920................ Portfolio 35.5.............................. .................................
Management.
523930................ Investment Advice 35.5.............................. .................................
523991................ Trust, Fiduciary 35.5.............................. .................................
and Custody
Activities.
523999................ Miscellaneous 35.5.............................. .................................
Financial
Investment
Activities.
* * * * * * *
524113................ Direct Life 35.5.............................. .................................
Insurance
Carriers.
524114................ Direct Health and 35.5.............................. .................................
Medical
Insurance
Carriers.
* * * * * * *
524127................ Direct Title 35.5.............................. .................................
Insurance
Carriers.
524128................ Other Direct 35.5.............................. .................................
Insurance
(except Life,
Health and
Medical)
Carriers.
524130................ Reinsurance 35.5.............................. .................................
Carriers.
* * * * * * *
524291................ Claims Adjusting. 19.0.............................. .................................
524292................ Third Party 30.0.............................. .................................
Administration
of Insurance and
Pension Funds.
524298................ All Other 14.0.............................. .................................
Insurance
Related
Activities.
* * * * * * *
525110................ Pension Funds.... 30.0.............................. .................................
525120................ Health and 30.0.............................. .................................
Welfare Funds.
525190................ Other Insurance 30.0.............................. .................................
Funds.
525910................ Open[dash]End 30.0.............................. .................................
Investment Funds.
525920................ Trusts, Estates, 30.0.............................. .................................
and Agency Funds.
525930................ Real Estate 30.0.............................. .................................
Investments
Trusts.
[[Page 55755]]
525990................ Other Financial 30.0.............................. .................................
Vehicles.
* * * * * * *
551111................ Offices of Bank 19.0.............................. .................................
Holding
Companies.
551112................ Offices of Other 19.0.............................. .................................
Holding
Companies.
----------------------------------------------------------------------------------------------------------------
* * * * * * *
Footnotes
\8.\ NAICS Codes 522110, 522120, 522130, 522190, and 522210--A financial Institution's assets are determined by
averaging the assets reported on its four quarterly financial statements for the preceding year. ``Assets''
for the purposes of this size standard means the assets defined according to the Federal Financial
Institutions Examination Council 041 call report form for NAICS codes 522110, 522120, 522190, and 522210 and
the National Credit Union Administration 5300 call report form for NAICS code 522130.
* * * * * * *
Dated, June 22, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012-22258 Filed 9-10-12; 8:45 am]
BILLING CODE 8025-01-P