Small Business Size Standards: Calculation of Number of Employees for All Programs and of Average Annual Receipts in the Business Loan, Disaster Loan, and Small Business Investment Company Programs, 60396-60416 [2021-23439]
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For USB–PD adaptive external power
supplies, at the lowest nameplate output
voltage, limit the contribution from each port
to 10W when calculating the derating factor.
(B) If D ≥1, then loading every bus to its
nameplate output current does not exceed
the overall maximum output power for the
power supply. In this case, load each output
bus to the percentages of its nameplate
output current listed in Table 4 of this
section. However, if D <1, it is an indication
that loading each bus to its nameplate output
current will exceed the overall maximum
output power for the power supply. In this
case, at each loading condition, load each
output bus to the appropriate percentage of
its nameplate output current listed in Table
4 of this section, multiplied by the derating
factor D.
(v) Minimum output current requirements.
Depending on their application, some
multiple-voltage adaptive external power
supplies may require a minimum output
current for each output bus of the power
supply for correct operation. In these cases,
ensure that the load current for each output
at Loading Condition 4 in Table 4 of this
section is greater than the minimum output
current requirement. Thus, if the test
method’s calculated load current for a given
voltage bus is smaller than the minimum
output current requirement, use the
minimum output current to load the bus.
Record this load current in any test report.
(vi) Efficiency calculation. Calculate and
record the efficiency at each loading point by
dividing the UUT’s measured active output
power at that loading condition by the active
AC input power measured at that loading
condition.
(A) Calculate and record average efficiency
of the UUT as the arithmetic mean of the
efficiency values calculated at Loading
Conditions 1, 2, 3, and 4 in Table 4 of this
section.
(B) If, when tested, a UUT cannot sustain
the output current at one or more of the
loading conditions as specified in Table 4,
the average active-mode efficiency is
calculated as the average of the loading
conditions for which it can sustain output.
(C) If the UUT can only sustain one output
current at any of the output busses, test it at
the loading condition that allows for the
maximum output power on that bus (i.e., the
highest output current possible at the highest
output voltage on that bus).
(vii) Power consumption calculation. The
power consumption of Loading Condition 5
(no-load) is equal to the active AC input
power at that loading condition.
(2) Off-mode Measurement—If the UUT
incorporates manual on-off switches, place
the UUT in off-mode, and measure and
record its power consumption at Loading
Condition 5 in Table 4 of this section. The
measurement of the off-mode energy
consumption must conform to the
requirements specified in section (6)(b)(1) of
this appendix, except that all manual on-off
switches must be placed in the ‘‘off’’ position
for the off-mode measurement. The UUT is
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considered stable if, over 5 minutes with
samples taken at least once every second, the
AC input power does not drift from the
maximum value observed by more than 1%
or 50 milliwatts, whichever is greater.
Measure the off-mode power consumption of
a multiple-voltage adaptive external power
supply twice—once at the highest nameplate
output voltage and once at the lowest.
[FR Doc. 2021–23184 Filed 11–1–21; 8:45 am]
BILLING CODE 6450–01–P
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245–AH26
Small Business Size Standards:
Calculation of Number of Employees
for All Programs and of Average
Annual Receipts in the Business Loan,
Disaster Loan, and Small Business
Investment Company Programs
U.S. Small Business
Administration.
ACTION: Proposed rule.
AGENCY:
The U.S. Small Business
Administration (SBA or Agency) is
proposing to use a 24-month average to
calculate a business concern’s number
of employees for eligibility purposes in
all of SBA’s programs. SBA also
proposes to permit business concerns in
its Business Loan, Disaster Loan, and
Small Business Investment Company
(SBIC) Programs to use a 5-year
averaging period, in addition to the
existing 3-year averaging period, for the
purposes of calculating annual average
receipts. These proposed changes will
allow larger small businesses to retain
their small business size status for
longer, and some mid-sized businesses
to regain small business status.
DATES: SBA must receive comments to
this proposed rule on or before
December 2, 2021.
ADDRESSES: Identify your comments by
RIN 3245–AH26 and submit them by
one of the following methods: (1)
Federal eRulemaking Portal: https://
www.regulations.gov, follow the
instructions for submitting comments;
or (2) Mail/Hand Delivery/Courier:
Khem R. Sharma, Ph.D., Chief, Office of
Size Standards, U.S. Small Business
Administration, 409 Third Street SW,
Mail Code 6530, Washington, DC 20416.
SBA will post all comments to this
proposed rule on https://
www.regulations.gov. If you wish to
submit confidential business
information (CBI) as defined in the User
Notice at https://www.regulations.gov,
you must submit such information to
Khem R. Sharma, Ph.D., Chief, Office of
SUMMARY:
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Size Standards, U.S. Small Business
Administration, 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 withhold this
information as confidential. SBA will
review your information and determine
whether it will make it public.
FOR FURTHER INFORMATION CONTACT:
Khem R. Sharma, Ph.D., Chief, Office of
Size Standards, (202) 205–6618 or
sizestandards@sba.gov.
SUPPLEMENTARY INFORMATION:
I. Background Information
This proposal seeks to implement two
legislative enactments that affect how
SBA calculates a business concern’s size
to determine whether the business
qualifies as small for SBA’s contracting,
loan,1 and assistance programs. First,
section 863 of the National Defense
Authorization Act for Fiscal Year 2021,
Public Law 116–283 (‘‘NDAA’’),
changed the averaging period for SBA’s
employee-based size standards from 12
months to 24 months. Second, the Small
Business Runway Extension Act of
2018, Public Law 115–324 (‘‘SBREA’’)
amended section 3(a)(2)(C)(ii)(II) of the
Small Business Act, 15 U.S.C.
632(a)(2)(C)(ii)(II), to modify the
requirements for proposed small
business size standards prescribed by an
agency without separate statutory
authority to issue size standards.
A. Changes to Calculation of Number of
Employees
Section 863 of the NDAA amended
two provisions of section 3(a)(2) of the
Small Business Act, which sets forth
requirements for an agency that would
prescribe a proposed size standard.
First, the NDAA provides that those
requirements apply to the SBA when
the agency acts pursuant to the
authority in section 3(a)(2)(A) for SBA
to specify small business definitions or
size standards. Second, the NDAA
amends section 3(a)(2)(C)(ii)(I) such that
a proposed size standard for a
manufacturing concern must provide for
determining the size of the concern
based on the employment during each
of the concern’s pay periods for the
preceding 24 months. Previously, the
statute specified the use of a 12-month
period.
SBA proposes to implement the
change to a 24-month period by
amending 13 CFR 121.106. Section
121.106 currently provides that the size
1 These changes do not apply to the Paycheck
Protection Program because the authority for that
program expired on June 30, 2021.
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of a business concern under an
employee-based size standard is
calculated by averaging the concern’s
number of employees for each pay
period in the preceding completed 12
calendar months. Part-time and
temporary employees count as full-time
employees, and the concern aggregates
the employees of its domestic and
foreign affiliates. SBA proposes to
change the 12-month period in
§ 121.106 to a 24-month period. As a
result, a concern would average its
employees over all pay periods in the
preceding completed 24 months. If it
has not been in business for 24 months,
the concern would average its number
of employees for each pay period during
which it has been in business.
This change to § 121.106 would apply
to all employee-based size standards.
Those size standards predominantly
apply to manufacturers but not
exclusively. Firms also use SBA’s
employee-based size standards in
certain mining, utilities, transportation,
publishing, telecommunications,
insurance, research and development,
and environmental remediation
industries. Significant to government
contracting, nonmanufacturers also
qualify for small business status for
government procurement using an
employee-based size standard. Though
nonmanufacturers and the
nonmanufacturing industries are not
covered by the NDAA’s change to
proposed size standards, SBA believes
that it would be unworkable to use a 24month average for manufacturing
industries but retain a 12-month average
for other industries with employeebased size standards. Firms may
participate in multiple industries, and it
is burdensome to use different averaging
periods for different industries with
employee-based size standards. SBA
seeks comment on whether to include
nonmanufacturers and
nonmanufacturing industries in the
change to a 24-month average for
employee-based standards.
B. Changes to Calculation of Average
Annual Receipts
In a final rule published December 5,
2019 (84 FR 66561), SBA implemented
the SBREA by making changes to its
receipts-based size standards for all SBA
programs except the Business Loan and
Disaster Loan Programs. The excepted
programs include: (i) The 7(a) Loan
Program, the Microloan Program, the
Intermediary Lending Pilot Program,
and the Development Company Loan
Program (collectively, the ‘‘Business
Loan Programs’’); and (ii) the Physical
Disaster Business Loans, Economic
Injury Disaster Loans, Military Reservist
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Economic Injury Disaster Loans, and
Immediate Disaster Assistance Program
loans (collectively, the ‘‘Disaster Loan
Programs’’).
This proposed rule would extend the
changes to SBA’s receipts-based size
standards to the Business Loan and
Disaster Loan Programs. Currently,
applicants in those loan programs must
calculate their average annual receipts
using a 3-year average. Under this
proposal, applicants may choose to use
either a 3-year average or a 5-year
average. Thus, an applicant might be
eligible for assistance if its 5-year
average is equal to or less than the size
standard, even if it would otherwise be
ineligible because its 3-year average
exceeds that size standard.
SBA also proposes to use the same
treatment in SBA’s SBIC program by
SBIC applicants to choose to use either
a 3-year average or a 5-year average.
Recipients of SBIC assistance were not
specifically identified in the December
2019 rulemaking that applied to all
programs. Therefore, interested parties
likely were not attuned to the effect that
the December 2019 final rule might have
on SBIC participants. This proposed
rule invites SBICs and their portfolio
companies to comment on SBA’s
proposed changes to the size rules for
that program.
Like the changes in the December
2019 final rule, these proposed changes
will expand the eligibility for SBA
assistance to larger small businesses and
some mid-sized businesses. An
advanced small business may be able to
retain its small business status for a
longer period, if it is close to exceeding
the size standard. A mid-sized business
may be able to regain its small business
status, if it would otherwise have
exceeded the size standard.
These proposed changes differ in
some respects from what SBA
implemented in the earlier final rule. In
particular, this proposal does not use
the ‘‘transition period’’ that SBA
included with the December 2019 final
rule. That rule applied size-standard
changes to the SBA government
contracting programs and other nonloan programs. Starting on January 6,
2020, those programs began permitting
participants to elect whether to use a 3year average or a 5-year average to
calculate average annual receipts. That
election will end on January 6, 2022,
however, marking the end of the
transition period for those changes.
After January 6, 2022, all government
contractors will use a 5-year average for
average annual receipts.
Conversely, the changes here allow
for an election but do not have a
transition period. SBA intends to make
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60397
the election available indefinitely. This
recognizes the differences between the
loan programs and the government
contracting programs, where firms are
competing against one another. Where
there is competition, businesses should
be competing on an equal basis;
therefore, the December 2019 final rule
provided that, after the end of the
transition period, government
contractors all would use a 5-year
averaging period. By contrast, in the
loan programs, loan applicants are
evaluated on an applicant-by-applicant
basis. It is thus unnecessary to ensure
that applicants use the same size
criteria. As a result, SBA does not
believe it is necessary to limit the
election in the loan programs to a twoyear period.
In soliciting comment for the
December 2019 final rule, SBA received
some comments from participants in the
Business Loan programs. SBA has
considered those comments in
preparing this proposed rule.
Prior commenters asked that SBA use
the 5-year average only for calculating
average annual receipts, not for other
loan application purposes. Accordingly,
this proposal only authorizes the 3-or-5year election for the calculation of
receipts, not for any other purpose.
Other calculations remain unchanged.
Prior commenters also asked that SBA
authorize the Business Loan Programs to
continue to use a 3-year average.
Accordingly, this proposal uses an
election, not a mandate. For the most
part, lenders and applicants will
continue to be able to use a 3-year
average. The only exception will be
where the applicant would not qualify
as a small business using a 3-year
average. In that case, the applicant may
use a 5-year average if that would
qualify the applicant as small. The
applicant also might be able to qualify
for loan assistance using the alternative
size standard in section 3(a)(5)(B) of the
Small Business Act.
II. Section-by-Section Analysis
A. Section 121.104
In paragraphs (c)(1), (c)(2), and (c)(3),
SBA proposes to add the SBIC program
to the list of programs that are excepted
from SBA’s current rule on calculating
average annual receipts.
In paragraph (c)(4), SBA proposes to
amend the calculation of average annual
receipts for the Business Loan, Disaster
Loan, and SBIC Programs. A business in
those programs may calculate its
receipts using either a 3-year average or
a 5-year average for the purposes of
determining its size under a receiptsbased size standard. This change does
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not affect the calculation of any other
figures in SBA’s programs. In particular,
alternative size standards are not
affected by this change.
B. Section 121.106
In paragraphs (b)(1) and (b)(3), SBA
proposes to amend the current 12month averaging period to a 24-month
averaging period. Businesses that have
been in existence for more than 24
months would calculate their number of
employees by averaging the number of
employees for each pay period for the
preceding completed 24 months.
Businesses that have been in existence
for fewer than 24 months would average
their number of employees for each pay
period during their existence.
C. Section 121.903
In paragraph (a)(1)(i), SBA proposes to
amend the averaging period for size
standards proposed by other agencies
from a 12-month period to a 24-month
averaging period.
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III. Request for Comments
SBA invites comments, input, or
suggestions from interested parties on
its proposal to change the 12-month
averaging period for employee-based
size standards to a 24-month averaging
period.
SBA also invites comments, input, or
suggestions from interested parties on
its proposal to permit businesses in the
Business Loan, Disaster Loan, and SBIC
programs to use either a 3-year average
or a 5-year average for calculating
average annual receipts for the purposes
of qualifying as a small business. The
comments should address the following
specific issues pertaining to the SBA’s
proposal:
1. SBA invites input on its proposal
to allow for a 3-or-5-year election
indefinitely, rather than using a
transition period that would end the
election on a specified date.
2. SBA invites input on the effects
that this proposal would have on
applicants and lenders in the Business
Loan Program.
3. SBA invites input on the effects
that this proposal would have on SBICs.
4. SBA invites input on the effects
that this proposal would have on the
Disaster Loan Program.
Compliance With Executive Orders
12866, 12988, 13132, and 13563, the
Congressional Review Act (5 U.S.C.
801–808), the Regulatory Flexibility Act
(5 U.S.C. 601–612), and the Paperwork
Reduction Act (44 U.S.C. Ch. 35)
Executive Order 12866
The Office of Management and Budget
(OMB) has determined that this
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proposed rule is a significant regulatory
action for purposes of Executive Order
12866. Accordingly, below, SBA
provides a benefit-cost analysis of this
proposed rule, including: (1) A
statement of the need for the proposed
action, and (2) an evaluation of the
benefits and costs—both quantitative
and qualitative—of this regulatory
action.
Congressional Review Act
OIRA has determined that this is not
a major rule under 5 U.S.C. 804(2).
Subtitle E of the Small Business
Regulatory Enforcement Fairness Act of
1996 (codified at 5 U.S.C. 801–808), also
known as the Congressional Review Act
or CRA, generally provides that before a
rule may take effect, the agency
promulgating the rule must submit a
rule report, which includes a copy of
the rule, to each House of the Congress
and to the Comptroller General of the
United States. SBA will submit a report
containing this rule and other required
information to the U.S. Senate, the U.S.
House of Representatives, and the
Comptroller General of the United
States. A major rule under the CRA
cannot take effect until 60 days after it
is published in the Federal Register.
OIRA has determined that this rule is
not a ‘‘major rule’’ as defined by 5
U.S.C. 804(2).
Regulatory Impact Analysis
A. Benefit-Cost Analysis
1. What is the need for this regulatory
action?
As stated elsewhere, the Small
Business Act delegates to SBA’s
Administrator the responsibility for
establishing small business size
definitions (usually referred to as ‘‘size
standards’’). First, Public Law 116–283
changed the averaging period for SBA’s
employee-based size standards from 12
months to 24 months. Second, in 2018,
Public Law 115–324 modified the
requirements for proposed small
business size standards prescribed by an
agency without separate statutory
authority to issue size standards.
Specifically, Public Law 115–324
changed the averaging period for
receipts-based size standards for
services industries from 3 years to 5
years.
The need of this proposed rule is to
carry out the intent of Public Law 116–
283 and Public Law 115–324, and to
ensure consistency in the calculation of
average number of employees and
average annual receipts for size
standards across the Federal
Government. In addition to the
averaging requirements, size standards
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prescribed under section 3(a)(2)(C)(ii) of
the Small Business Act must meet two
other requirements: (1) Be proposed
with an opportunity for public notice
and comment, and (2) be approved by
the Administrator. Neither Public Law
116–283 nor Public Law 115–324
repeals these 2 requirements, and this
proposed rule satisfies these
requirements.
SBA’s mission is to aid and assist
small businesses through a variety of
financial, procurement, business
development and counseling, and
disaster assistance programs. This
regulatory action promotes the
Administration’s goals and objectives
and meets the SBA’s statutory
responsibility to implement a new law
impacting size definitions for small
businesses. One of SBA’s goals in
support of promoting the
Administration’s objectives is to help
small businesses succeed through access
to capital, Federal Government contracts
and purchases, and management,
technical and disaster assistance.
2. What are the potential effects of this
regulatory action?
i. Potential Effects of Changing the
Calculation of Employees
Changing the periods for calculating
average number of employees from 12
months to 24 months may enable some
mid-size businesses that have just
exceeded size standards to regain small
business status. Similarly, it could also
allow some advanced and larger small
businesses about to exceed size
standards to retain their small status for
a longer period. However, it could also
result in some advanced small
businesses having the 24-months
employee average that happens to be
higher than the 12-month employee
average, thus ejecting them out of their
small business status sooner. Detailed
impacts of the proposed change are
discussed below.
It is difficult to determine the actual
number of small and mid-size
businesses that would be impacted by
Public Law 116–283 and this regulatory
action because there is no data on
businesses’ employment by month or by
pay period. The employment data from
the Economic Census special tabulation
are only available once every 5 years.
Similarly, the System for Award
Management (SAM) only records the
data on the concern’s average number of
employees for each pay period in the
preceding completed 12 calendar
months, but not their employee counts
for each pay period or each month. For
example, the 12-month average
employee data for January 2020 is an
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average of number of employees for
each pay period during preceding
completed 12 calendar months (i.e.,
January 2019 to December 2019).
Similarly, the 24-month average
employee value for January 2020 is an
average of number of employees for
each pay period during preceding
completed 24 calendar months (i.e.,
January 2018 to December 2019).
Given the lack of employment data for
each pay period or each month, SBA
approximates a firm’s 24-month average
number of employees for January 2020
as follows:
To estimate the 24-month employee
average using the above formula, SBA
analyzed the 2019 SAM extracts (as of
September 1, 2019) and 2018 SAM
extracts (as of September 1, 2018). The
24-month average employee formula
would only work for businesses that
were present in both 2018 and 2019
SAM extracts. One challenge was that
some businesses found in 2019 SAM
could not be found in 2018 SAM and
vice versa. Excluding entities registered
in SAM for purposes other than
government contracting and entities
ineligible for small business
consideration (such as foreign
governments and state-controlled
institutions of higher learning), there
were a total of 152,450 unique business
concerns in 2019 SAM subject to at least
one employee-based size standard. Of
these concerns, 131,295 (or about 86.1
percent) were ‘‘small’’ in all North
American Industry Classification
System (NAICS) industries, 2,663 (or 1.7
percent) were ‘‘small’’ in some
industries and ‘‘not small’’ in other
industries, and 18,492 (or 12.1 percent)
were ‘‘not small’’ in any industry
subject to an employee-based size
standard.
Excluding entities with ‘‘null’’ or
‘‘zero’’ employee values, 128,599 firms
(or about 84.4 percent) appeared both in
2019 SAM and in 2018 SAM and were
included in the 24-month average
employee approximation and
calculation of number of businesses
impacted. Of those 128,599 matched
firms subject to an employee-based size
standard, 108,541 (or about 84.4
percent) were ‘‘small’’ in all NAICS
industries, 2,526 (or 2.0 percent) were
‘‘small’’ in some industries and other
than small (‘‘not small’’) in other
industries, and 17,532 (or about 13.6
percent) were ‘‘not small’’ in any
industry. In other words, 133,958 (or
87.9 percent) of 152,450 total concerns
in SAM 2019 and 111,067 (or 86.4
percent) of 128,599 total matched firms
were small in at least one NAICS
industry with an employee-based size
standard. These results are summarized
in Table 1, ‘‘Size Status of Businesses in
Industries Subject to Employee-Based
Size Standards,’’ below.
TABLE 1—SIZE STATUS OF BUSINESSES IN INDUSTRIES SUBJECT TO EMPLOYEE-BASED SIZE STANDARDS
Size status
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Number of
firms
Firms in both 2018 SAM and
2019 SAM (matched)
% matched
Number of
firms
%
Total to
matched ratio *
%
Small in at least one industry ..................
Small in all industries ...............................
Small in some and not small in others ....
Large in all industries ...............................
133,958
131,295
2,663
18,492
87.9
86.1
1.7
12.1
111,067
108,541
2,526
17,532
86.4
84.4
2.0
13.6
82.9
82.7
94.9
94.8
1.206
1.210
1.054
1.055
Total ..................................................
152,450
100.0
128,599
100.0
84.4
1.185
According to Table 2, ‘‘Distribution of
Business Concerns Subject to EmployeeBased Size Standards by Number of
NAICS Codes,’’ below, the distribution
of firms by the number of NAICS codes
in the matched data is very similar to
that for the overall 2019 SAM data.
About 45 percent of firms were in only
one NAICS code that has an employee-
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based size standard, about 40 percent in
2–5 NAICS codes, about 9 percent in 6–
10 NAICS codes, and about 5 percent in
more than 10 NAICS codes. In other
words, 55 percent of firms were in
multiple NAICS codes with employeebased size standards. Thus, it is quite
possible that the proposed change may
impact a firm’s small business status in
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multiple industries. For purposes of this
analysis, an impacted firm is defined as
one that would be impacted by the
change in terms of gaining, regaining,
extending, or losing small business
status in at least one industry with an
employee-based size standard.
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Total firms in 2019 SAM subject
to least one employee-based
size standard
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TABLE 2—DISTRIBUTION OF BUSINESS CONCERNS SUBJECT TO EMPLOYEE-BASED SIZE STANDARDS BY NUMBER OF
NAICS CODES
Total firms in 2019 SAM
with at least one
employee-based NAICS code
Number of NAICS codes
Count
Matched firms between
2019 and 2018 SAM
Count
%
%
1 NAICS code ..................................................................................................
2 to 5 NAICS codes .........................................................................................
6 to 10 NAICS codes .......................................................................................
>10 NAICS codes ............................................................................................
70,200
61,266
13,540
7,444
46.0
40.2
8.9
4.9
57,498
52,599
11,798
6,704
44.7
40.9
9.2
5.2
Total ..........................................................................................................
152,450
100.0
128,599
100.0
Note: A business concern is defined in terms of a unique local (vendor) DUNS number.
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A central premise of Public Law 116–
283 is that a 24-month employee
average (as opposed to a 12-month
employee average) would enable some
mid-size businesses who have recently
exceeded the size standard to regain
small business status and some
advanced small businesses close to
exceeding the size standard to retain
their small business status for a longer
period. However, this premise would
only hold true when businesses’
monthly employees are rising. When
businesses’ monthly employees are
declining, due to economic downturns
or other factors, the 24-month employee
average could be higher than the 12month employee average, thereby
causing small businesses close to their
size standards based on the 12-month
average to lose their small business
status sooner. In some cases where the
24-month employee average could be
higher than the size standard, thereby
forcing small businesses to lose their
small status immediately when the
longer 24-month averaging period
becomes effective. Additionally, such
businesses with declining employees
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would have to wait longer to regain
their small business status.
ii. Potential Effects of Changing the
Calculation of Receipts
Changing the periods for calculating
average annual receipts from 3 years to
5 years, pursuant to Public Law 115–
324, may enable some mid-size
businesses that have just exceeded size
standards to regain small business
status. Similarly, it could also allow
some advanced and larger small
businesses about to exceed size
standards to retain their small business
status for a longer period. However, it
could also result in some advanced
small businesses having a 5-year
receipts average that happens to be
higher than the 3-year receipts average,
thus ejecting them out of their small
business status sooner. To mitigate this
negative impact, SBA proposes to allow
applicants to its Business Loan, Disaster
Loan, and SBIC Programs to choose
either a 3-year average or a 5-year
average. Thus, an applicant might be
eligible for assistance if its 5-year
average is equal to or less than the size
standard, even if it would otherwise be
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ineligible under the 3-year average.
Detailed impacts of the proposed change
are discussed below.
It is difficult to determine the actual
number of small and mid-size
businesses that would be impacted by
Public Law 115–324 and this regulatory
action because there is no annual data
on receipts of businesses. The annual
receipts data from the Economic Census
special tabulation are only available
once every 5 years. Similarly, the
System for Award Management (SAM)
only records the data on 3-year average
annual receipts of businesses over their
3 preceding fiscal years, but not their
annual receipts for each fiscal year. For
example, the receipts data for year 2019
is an average of annual receipts for
2018, 2017, and 2016. Similarly, the
receipts data for 2018 is an average of
annual receipts for 2017, 2016, and
2015, and so on. A 5-year receipts
average for 2019 would be an average of
annual receipts for 2018, 2017, 2016,
2015, and 2014.
Given the lack of annual receipts for
each year, SBA approximated a firm’s 5year average annual revenue for 2019 as
follows:
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This result may slightly
underestimate the 5-year revenue
average when annual revenues are rising
(i.e., 2015 revenue >2014 revenue >2013
revenue) and overestimate it if annual
revenues are declining (i.e., 2015
revenue <2014 revenue <2013 revenue).
To estimate the 5-year receipts
average for 2019 using the above
formula, SBA analyzed the 2019 SAM
extracts (as of September 1, 2019) and
2016 SAM extracts (as of September 1,
2016). The above 5-year average annual
receipts formula would only work for
businesses that were present in both
2016 and 2018 SAM extracts. One
challenge was that some businesses
found in 2019 SAM could not be found
in 2016 SAM and vice versa. Excluding
entities registered in SAM for purposes
other than government contracting and
entities ineligible for small business
consideration (such as foreign
governments and state-controlled
institutions of higher learning), there
were a total of 334,990 unique business
concerns in 2019 SAM subject to at least
one receipts-based size standard. Of
these concerns, 282,671 (or about 84.4
percent) were ‘‘small’’ in all North
American Industry Classification
System (NAICS) industries, 9,783 (or 2.9
percent) were ‘‘small’’ in some
industries and ‘‘not small’’ in other
industries, and 42,536 (or 12.7 percent)
were ‘‘not small’’ in any industry.
Excluding entities with ‘‘null’’ or
‘‘zero’’ receipts values, 192,295 firms (or
about 57.4 percent) appeared both in
2019 SAM and in 2016 SAM and were
included in the 5-year average annual
receipts approximation and calculation
of number of businesses impacted. Of
those 192,295 matched firms subject to
a receipts-based size standard, 152,040
(or about 79 percent) were ‘‘small’’ in all
NAICS industries, 8,081 (or 4.2 percent)
were ‘‘small’’ in some industries and
other than small (‘‘not small’’) in other
industries, and 32,174 (or about 16.7
percent) were ‘‘not small’’ in any
industry. In other words, 292,454 (or
87.3 percent) of 334,990 total concerns
in SAM 2019 and 160,121 (or 83.3
percent) of 192,295 total matched firms
were small in at least one NAICS
industry with a receipts-based size
standard. These results are summarized
in Table 3, ‘‘Size Status of Businesses in
Industries Subject to Receipts-Based
Size Standards,’’ below.
TABLE 3—SIZE STATUS OF BUSINESSES IN INDUSTRIES SUBJECT TO RECEIPTS-BASED SIZE STANDARDS
Total firms in 2019 SAM subject
to least one receipts-based
standard
Size status
Number of
firms
Firms in both 2016 SAM and
2019 SAM (matched)
% Matched
Number of
firms
%
Total to
matched ratio *
%
Small in at least one industry ..................
Small in all industries ...............................
Small in some and not small in others ....
Large in all industries ...............................
292,454
282,671
9,783
42,536
87.3
84.4
2.9
12.7
160,121
152,040
8,081
32,174
83.3
79.1
4.2
16.7
54.8
53.8
82.6
75.6
1.826
1.859
1.211
1.322
Total ..................................................
334,990
100.0
192,295
100.0
57.4
1.742
According to Table 4, ‘‘Distribution of
Business Concerns Subject to ReceiptsBased Size Standards by Number of
NAICS Codes,’’ below, the distribution
of firms by the number of NAICS codes
in the matched data is very similar to
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that for the overall 2019 SAM data.
About 41–43 percent of firms were in
only one NAICS code that has a
receipts-based size standard, about 35
percent in 2–5 NAICS codes, about 12
percent in 6–10 NAICS codes, and about
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8–10 percent in more than 10 NAICS
codes. In other words, 57–59 percent of
firms were in multiple NAICS codes
with receipts-based size standards.
Thus, it is quite possible that the
proposed change may impact a firm’s
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* To be used to translate the results from the matched data to overall 2019 SAM data.
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small business status in multiple
industries. For purposes of this analysis,
an impacted firm is defined as one that
would be impacted by the change in
terms of gaining, regaining, extending,
or losing small business status in at least
one industry with a receipts-based size
standard.
TABLE 4—DISTRIBUTION OF BUSINESS CONCERNS SUBJECT TO RECEIPTS-BASED SIZE STANDARDS BY NUMBER OF
NAICS CODES
Total firms in 2019 SAM with at
least one receipts-based NAICS
code
Number of NAICS codes
Count
Matched firms between 2019
and 2016 SAM
Count
%
%
1 NAICS code ..................................................................................................
2 to 5 NAICS codes .........................................................................................
6 to 10 NAICS codes .......................................................................................
>10 NAICS codes ............................................................................................
145,267
120,078
40,595
29,050
43.4
35.8
12.1
8.7
79,701
68,168
24,461
19,965
41.4
35.4
12.7
10.4
Total ..........................................................................................................
334,990
100.0
192,295
100.0
Note: A business concern is defined in terms of a unique local (vendor) DUNS number.
A central premise of Public Law 115–
324 is that a 5-year annual receipts
average (as opposed to a 3-year annual
receipts average) would enable some
mid-size businesses who have recently
exceeded the size standard to regain
small business status and some
advanced small businesses close to
exceeding the size standard to retain
their small business status for a longer
period. However, this premise would
only hold true when businesses’ annual
revenues are rising. When businesses’
annual revenues are declining, due to
economic downturns or other factors,
the 5-year annual receipts average could
be higher than the 3-year annual
receipts average, thereby causing small
businesses close to their size standards
to lose their small business status
sooner. To mitigate such negative
impacts on small businesses, SBA
proposes, in consideration of public
comments on the prior proposed rule
and the results from its own analysis, to
permit businesses in the Business Loan,
Disaster Loan, and SBIC Programs to use
either a 3-year average or a 5-year
average for calculating average annual
receipts for the purposes of qualifying as
a small business.
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B. Impacts on Businesses From
Proposed Changes in Calculation of
Employees and Receipts for Size
Standards
1. Impacts on Businesses From
Changing the Averaging Period for
Employees From 12 Months to 24
Months
By comparing the approximated 24month employee average with the
current employee-based size standard
for each of the 128,599 matched
business concerns in each NAICS code
subject to an employee-based size
standard, SBA identifies the following 4
possible impacts from changing the
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averaging period for employees from 12
months to 24 months:
i. The number of mid-size businesses
that have exceeded the size standard
and would regain small business status
in at least one NAICS industry with an
employee-based size standard (i.e., 12month average > size standard ≥ 24month average)—expansive impact;
ii. The number of advanced small
businesses within 10 percent below the
size standard that would have their
small business status extended for a
longer period in at least one NAICS
industry with an employee-based
standard (24-month average < 12-month
average ≤ size standard and 0.9*size
standard < 12-month average ≤ size
standard)—expansive impact;
iii. The number of currently small
businesses that would lose their small
business status in at least one NAICS
industry subjected to an employeebased size standard (i.e., 12-month
average ≤ size standard < 24-month
average)—contractive impact; and
iv. The number of advanced small
businesses within 10 percent below the
size standard that would have their
small status shortened in at least one
NAICS industry subject to an employeebased standard (12-month average < 24month average ≤ size standard and
0.9*size standard < 12-month average ≤
size standard)—contractive impact.
In this proposed rule, SBA is
changing the period for calculation of
average employees for all of its
employee-based size standards from 12
months to 24 months. The purpose of
Public Law 116–283 is to allow small
businesses more time to grow and
develop competitiveness and
infrastructure so that they are better
prepared to succeed under full and open
competition once they outgrow the size
threshold. However, as stated
previously, a longer 24-month averaging
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period may not always and necessarily
provide relief to every small business
concern. As discussed previously, when
monthly employees are declining, the
24-month average would be higher than
the 12-month average, thereby ejecting
some advanced small businesses out of
their small business status sooner or
rendering some small businesses under
the 12-month average not small
immediately.
As discussed earlier, the change in the
averaging period for employees from 12
months to 24 months results in four
different types of impacts on small
businesses: (i) Enabling current large or
mid-size businesses to gain small
business status (impact i); (ii) enabling
current advanced small businesses to
lengthen their small business status
(impact ii); (iii) causing current small
businesses to lose their small business
status (impact iii); and (iv) causing
current small businesses to shorten their
small business status (impact iv). Table
5, ‘‘Percentage Distribution of Impacted
Firms with Employee Based Size
Standards by the Number of NAICS
Codes,’’ below, provides these results
based on the 2019 SAM—2018 SAM
matched firms.
It is highly notable that the
distribution of impacted firms by the
number of NAICS codes, as shown in
Table 5, is very different as compared to
a similar distribution based on the
overall matched and total 2019 SAM
data (see Table 2), especially with
respect to firms with only one NAICS
code and those with more than 5 NAICS
codes. For example, about 45 percent of
all firms in the overall data were
associated with only one NAICS code,
as compared only about 20 percent
among impacted firms. Similarly, firms
with more than 5 NAICS codes
accounted for about 13–14 percent of all
firms in the original data, as compared
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to 30–40 percent among impacted firms.
It is also notable that, among the
industries with employee-based size
standard, NAICS Sectors 31–33 and 42
together accounted for about 90 percent
of impacted firms (in terms of both
contractive and expansive impacts),
with Sector 31–33 (Manufacturing)
60403
accounting for about 65 percent and
Sector 42 (Wholesale Trade) about 25
percent.
TABLE 5—PERCENTAGE DISTRIBUTION OF IMPACTED FIRMS WITH EMPLOYEE BASED SIZE STANDARDS BY THE NUMBER OF
NAICS CODES
% Distribution of impacted firms by number of NAICS codes
Number of
impacted
firms
Impact *
1 NAICS code
2–5 NAICS
codes
6–10 NAICS
codes
>10 NAICS
codes
Total
Currently small in all NAICS codes
Impact (ii) .................................................
Impact (iii) ................................................
Impact (iv) ................................................
195
178
66
33.3
33.1
19.7
47.2
44.4
47.0
10.3
15.7
13.6
9.2
6.7
19.7
100
100
100
11.2
4.8
100
34.1
36.2
40.5
50
31.9
32.3
40.5
15
34.1
31.5
19.0
35
100
100
100
100
39.2
42.8
29.5
47.7
21.4
19.1
13.8
14.0
19.2
18.2
6.2
23.3
100
100
100
100
Currently large business in all NAICS codes
Impact (i) ..................................................
188
39.9
44.1
Currently small in some NAICS and not small in others
Impact
Impact
Impact
Impact
(i) ..................................................
(ii) .................................................
(iii) ................................................
(iv) ................................................
182
130
42
20
0
0
0
0
Total impact by impact type
Impact
Impact
Impact
Impact
(i) ..................................................
(ii) .................................................
(iii) ................................................
(iv) ................................................
370
325
220
86
20.3
20.0
18.2
15.1
Overall impact
Expansive .................................................
Contractive ...............................................
689
306
20.3
23.5
40.8
44.8
20.2
18.6
18.7
13.1
100
100
Total ..................................................
995
21.3
42.0
19.7
17.0
100
* Impact (i) = Current large businesses gaining small status; Impact (ii) = Current small businesses extending small status; Impact (iii) = Current small businesses losing small status; Impact (iv) = Current small businesses shortening small status.
jspears on DSK121TN23PROD with PROPOSALS1
Each of these impacts was then
multiplied by an applicable factor or
ratio, as shown in the last column of
Table 1, to obtain the respective impacts
corresponding to all firms in 2019 SAM
subject to at least one employee-based
size standard. These results are
presented below in Table 6, ‘‘Impacts
from Changing the Averaging Period for
Employees from 12 Months to 24
Months.’’ The last column of the table
shows the percent of firms impacted
relative to all business concerns in 2019
SAM. Because the SAM data only
captures businesses that are primarily
interested in Federal procurement
opportunities, the SAM-based results do
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not fully capture the impacts the
proposed change may have on
businesses participating in various nonprocurement programs that apply to
SBA’s employee-based size standards,
such as SBA loan programs and
exemptions from compliance with
paperwork and other regulatory
requirements.
The Economic Census, combined with
the Census of Agriculture and County
Business Patterns Reports, provides for
each NAICS code information on the
number of total small and large
businesses subjected to an employeebased size standard. Based on the
matched SAM data, SBA computed
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percentages of businesses impacted
under each impact category for each
NAICS industry subject to an employeebased size standard. By applying such
percentages to the 2012 Economic
Census tabulation (the latest available),
SBA estimated the number of all
businesses impacted under each impact
type for each NAICS code subject to an
employee-based size standard. These
results are presented in Table 7,
‘‘Impacts from Changing the Averaging
Period for Employees from 12 Months to
24 Months (2012 Economic Census),’’
below.
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TABLE 6—IMPACTS FROM CHANGING THE AVERAGING PERIOD FOR EMPLOYEES FROM 12 MONTHS TO 24 MONTHS
Firms
impacted in
matched
dataset
Impact 1
Total to
matched ratio
Total firms
impacted in
2019 SAM
Total firms in
2019 SAM
% Impacted
Entities only small under all NAICS code(s)
Impact (ii) .............................................................................
Impact (iii) ............................................................................
Impact (iv) ............................................................................
195
178
66
1.210
1.210
1.210
236
215
80
131,295
131,295
131,295
0.2
0.2
0.1
198
18,492
1.1
Entities other than small under all NAICS code(s)
Impact (i) ..............................................................................
188
1.055
Entities small in some NAICS code(s) and other than small in other(s)
Impact
Impact
Impact
Impact
(i) ..............................................................................
(ii) .............................................................................
(iii) ............................................................................
(iv) ............................................................................
182
130
42
20
1.054
1.054
1.054
1.054
192
137
44
21
2,663
2,663
2,663
2,663
7.2
5.1
1.7
0.8
........................
........................
........................
........................
390
373
260
101
21,155
133,958
133,958
133,958
1.8
0.3
0.2
0.1
Total impact by impact type
Impact
Impact
Impact
Impact
(i) ..............................................................................
(ii) .............................................................................
(iii) ............................................................................
(iv) ............................................................................
370
325
220
86
Overall total by expansive or contractive impact 2
Expansive [impact (i) or impact (ii)] .....................................
Contractive [impact (iii) or impact (iv)] .................................
689
306
1.098
1.178
757
361
152,450
152,450
0.5
0.2
Total impact ..................................................................
995
........................
1,117
152,450
0.7
1 Impact
(i) = Current large businesses gaining small business status; Impact (ii) = Current small businesses extending small status; Impact (iii)
= Current small businesses losing small status; Impact (iv) = Current small businesses shortening small status.
2 Number of firms under overall positive, negative and total impacts refer to the number of unique firms. Some firms could appear in multiple
impact types and hence individual impacts may not add up to overall impact.
TABLE 7—IMPACTS FROM CHANGING THE AVERAGING PERIOD FOR EMPLOYEES FROM 12 MONTHS TO 24 MONTHS
[2012 Economic census]
Total firms
(in million)
Impact 1
Impact
Impact
Impact
Impact
(i) ......................................................................................................................................
(ii) .....................................................................................................................................
(iii) ....................................................................................................................................
(iv) ....................................................................................................................................
Estimate of
impacted firms
%
Impacted
22,324
657,942
657,942
657,942
281
1,203
763
287
1.3
0.2
0.1
0.04
Expansive [impact (i) or impact (ii)] .............................................................................................
Contractive [impact (iii) or impact (iv)] .........................................................................................
680,266
657,942
1,484
1,050
0.2
0.2
Total impact ..........................................................................................................................
680,266
2,534
0.4
Overall impact
1 Impact
jspears on DSK121TN23PROD with PROPOSALS1
(i) = Current large businesses gaining small status; Impact (ii) = Current small businesses extending small status; Impact (iii) = Current small businesses losing small status; Impact (iv) = Current small businesses shortening small status.
Currently large or mid-size businesses
regaining small business status would
become eligible for various benefits as
small business concerns, including
access to Federal set-aside contracts,
SBA’s guaranteed loans and disaster
assistance, reduced patent fees, and
exemptions from various compliance
and paperwork requirements. With their
small business status extended,
advanced small businesses would
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continue to receive such benefits for a
longer period. However, the proposed
change may also cause some small
businesses to lose their small business
status in at least one employee-based
size standard and access to small
business assistance, especially Federal
set-aside opportunities.
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2. Impacts on Businesses From
Changing the Averaging Period for
Receipts From 3 Years to 5 Years
By comparing the approximated 5year annual receipts average with the
current receipts-based size standard for
each of the 192,295 matched business
concerns in each NAICS code subject to
a receipts-based size standard, in this
proposed rule, SBA identifies the
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< 5-year average ≤ size standard and
0.9*size standard < 3-year average ≤ size
standard)—contractive impact.
In this proposed rule, SBA is
changing the period for calculation of
average annual receipts for SBA
receipts-based size standards for
Business Loan, Disaster Loan, and SBIC
Programs from 3 years to 5 years. The
purpose of Public Law 115–324 is to
allow small businesses more time to
grow and develop competitiveness and
infrastructure so that they are better
prepared to succeed under full and open
competition once they outgrow the size
threshold. However, a longer 5-year
averaging period may not always and
necessarily provide relief to every small
business concern. As discussed in the
prior proposed rule, when annual
revenues are declining or when annual
revenues for the latest 3 years are lower
than those for the earliest 2 years of the
5-year period, the 5-year average would
be higher than the 3-year average,
thereby ejecting some advanced small
businesses out of their small business
status sooner or rendering some small
businesses under the 3-year average not
small immediately.
There are 4 different types of impacts
on small businesses from changes to the
averaging period for annual receipts
following 4 possible impacts from
changing the averaging period for
annual receipts from 3 years to 5 years:
i. The number of mid-size businesses
that have exceeded the size standard
and would regain small business status
in at least one NAICS industry with a
receipts-based size standard (i.e., 3-year
average > size standard ≥ 5-year
average)—expansive impact;
ii. The number of advanced small
businesses within 10 percent below the
size standard that would have their
small business status extended for a
longer period in at least one NAICS
industry with a receipts-based standard
(5-year average < 3-year average ≤ size
standard and 0.9*size standard < 3-year
average ≤ size standard)—expansive
impact;
iii. The number of currently small
businesses that would lose their small
business status in at least one NAICS
industry subjected to a receipts-based
size standard (i.e., 3-year average ≤ size
standard < 5-year average)—contractive
impact; and
iv. The number of advanced small
businesses within 10 percent below the
size standard that would have their
small business status shortened in at
least one NAICS industry subject to a
receipts-based standard (3-year average
60405
from 3 years to 5 years as follows: (i)
Enabling current large or mid-size
businesses to gain small business status
(impact i); (ii) enabling current
advanced small businesses to lengthen
their small business status (impact ii);
(iii) causing current small businesses to
lose their small business status (impact
iii); and (iv) causing current small
businesses to shorten their small
business status (impact iv).
However, with the SBA’s proposal to
permit businesses in the Business Loan,
Disaster Loan, and SBIC programs to use
either a 3-year average or a 5-year
average for calculating average annual
receipts for the purposes of qualifying as
a small business, the two contractive
impacts (namely impact (iii) and impact
(iv)) do not apply to this proposed rule.
Accordingly, this proposed rule
provides the analysis of the two
expansive impacts of changing the
averaging periods for annual receipts
from 3 years to 5 years (namely impact
(i) and impact (ii)) only.
Table 8, ‘‘Percentage Distribution of
Impacted Firms with Receipts Based
Size Standards by the Number of NAICS
Codes,’’ below, provides these results
based on the 2019 SAM—2016 SAM
matched firms.
TABLE 8—PERCENTAGE DISTRIBUTION OF IMPACTED FIRMS WITH RECEIPTS BASED SIZE STANDARDS BY THE NUMBER OF
NAICS CODES
% Distribution of impacted firms by number of NAICS codes
Number of
impacted
firms
Impact *
1 NAICS
code
2–5 NAICS
codes
6–10 NAICS
codes
>10 NAICS
codes
Total
Currently large in all NAICS codes
Impact (i) ..................................................
899
36.3
33.9
12.6
17.2
100.0
17.8
18.6
100.0
27.4
27.8
22.7
24.3
50.0
47.9
100.0
100.0
Currently small in all NAICS codes
Impact (ii) .................................................
1,227
27.3
36.3
Currently small in some NAICS and not small in others
Impact (i) ..................................................
Impact (ii) .................................................
1,761
1,072
0
0
Total impact by impact type
Impact (i) ..................................................
Impact (ii) .................................................
2,660
2,299
12.3
14.6
29.6
32.3
19.2
20.8
38.9
32.3
100.0
100.0
Total expansive impact .....................
4,702
14.1
31.8
20.2
34.0
100.0
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* Impact (i) = Current large businesses gaining small business status; and Impact (ii) = Current small businesses extending small business
status.
It is highly notable that the
distribution of impacted firms by the
number of NAICS codes, as shown in
Table 8, is very different as compared to
a similar distribution based on the
overall matched and total 2019 SAM
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data (see Table 4), especially with
respect to firms with only one NAICS
code and those with more than 5 NAICS
codes. For example, as shown in Table
4, above, more than 40 percent of all
firms in the overall data were associated
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with only one NAICS code, as compared
to less than 15 percent among impacted
firms in Table 8. Similarly, firms with
more than 5 NAICS codes accounted for
about 20 percent of all firms in the
original data, as compared to more than
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Each of these impacts was then
multiplied by an applicable factor or
ratio, as shown in the last column of
Table 3, to obtain the respective impacts
corresponding to all firms in 2019 SAM
subject to at least one receipts-based
size standard. These results are
presented below in Table 9, ‘‘Impacts
from Changing the Averaging Period for
Receipts from 3 Years to 5 Years.’’ The
last column of the table shows the
percent of firms impacted relative to all
business concerns in 2019 SAM.
50 percent among impacted firms. It is
also notable that, among the industries
with receipts based size standards,
NAICS Sectors 54, 56, and 23 together
accounted for more than 70 percent of
impacted firms, with Sector 54
(Professional, Scientific and Technical
Services) accounting for about 30–35
percent, followed by Sector 23
(Construction) about 25–30 percent, and
Sector 56 (Administrative and Support,
Waste Management and Remediation
Services) about 10–13 percent.
Because the SAM data only captures
businesses that are primarily interested
in Federal procurement opportunities,
the SAM-based results do not fully
capture the impacts the proposed
change may have on businesses
participating in various nonprocurement programs that apply SBA’s
receipts-based size standards, such as
exemptions from compliance with
paperwork and other regulatory
requirements.
TABLE 9—IMPACTS FROM CHANGING THE AVERAGING PERIOD FOR RECEIPTS FROM 3 YEARS TO 5 YEARS
Firms
impacted in
matched
dataset
Impact 1
Total to
matched ratio
(Table 1)
Total firms
impacted in
2019 SAM
Total firms in
2019 SAM
% Impacted
Entities other than small under all NAICS code(s)
Impact (i) ..............................................................................
899
1.32
1,189
42,536
2.8
2,281
282,671
0.8
2,132
1,298
9,783
9,783
21.8
13.3
Entities small under all NAICS code(s)
Impact (ii) .............................................................................
1,227
1.859
Entities small in some NAICS code(s) and other than small in other(s)
Impact (i) ..............................................................................
Impact (ii) .............................................................................
1,761
1,072
1.211
1.211
Total expansive impact by impact type
Impact (i) ..............................................................................
Impact (ii) .............................................................................
2,660
2,299
........................
........................
3,320
3,579
52,319
292,454
6.3
1.2
Overall total expansive impact 2 ...................................
4,702
1.391
6,542
334,990
2.0
1 Impact
(i) = Current large businesses gaining small business status; and Impact (ii) = Current small businesses extending small business sta-
tus.
2 Number of firms under total positive impacts refer to the number of unique firms. Some firms could appear in both impact types and hence individual impacts may not add up to overall impact.
The Economic Census, combined with
the Census of Agriculture and County
Business Patterns Reports, provides for
each NAICS code information on the
number of total small and large
businesses subjected to a receipts-based
size standard. Based on the matched
SAM data, SBA computed percentages
of businesses impacted under each
impact category for each NAICS
industry subject to a receipts-based size
standard. By applying such percentages
to the 2012 Economic Census
tabulation, SBA estimated the number
of all businesses impacted under each
impact type for each NAICS code
subject to a receipts-based size standard.
These results are presented in Table 10,
‘‘Impacts from Changing the Averaging
Period for Receipts from 3 Years to 5
Years (2012 Economic Census),’’ below.
TABLE 10—IMPACTS FROM CHANGING THE AVERAGING PERIOD FOR RECEIPTS FROM 3 YEARS TO 5 YEARS
[2012 Economic census]
jspears on DSK121TN23PROD with PROPOSALS1
Impact 1
Total firms
Estimate of
impacted firms
% Impacted
Impact (i) ......................................................................................................................................
Impact (ii) .....................................................................................................................................
271,505
6,896,633
8,565
60,176
3.2
0.9
Overall expansive impact .....................................................................................................
7,168,138
68,742
1.0
1 Impact
(i) = Current large businesses gaining small business status; and Impact (ii) = Current small businesses extending small business
status.
Currently large or mid-size businesses
regaining small business status would
get various benefits as small business
concerns, including access to SBA loan
programs, and exemptions from various
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compliance and paperwork
requirements. With their small business
status extended, advanced small
businesses would continue to receive
such benefits for a longer period.
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However, the change from 3-year
average receipts to 5-year average may
also harm some small businesses by
causing them to lose or shorten their
small business status in at least one
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receipts-based size standard, thereby
depriving them of access to small
business assistance, including SBA’s
lending. To mitigate such impacts, SBA
is allowing businesses to elect either the
3-year average annual receipts or the 5year average annual receipts for the
Business Loan, Disaster Loan, and SBIC
programs. SBA seeks comment on
implementation of Public Law 115–324
for the Business Loan, Disaster Loan,
and SBIC programs.
C. The Baseline
1. Baseline for Changing the Averaging
Period for Employees From 12 Months
to 24 Months
In this rulemaking, SBA establishes
an appropriate baseline to evaluate
benefits, costs, or transfer impacts of
this action and alternative approaches
considered, if any. A baseline should
represent the agency’s best assessment
of what the world would look like
absent the regulatory action. For a new
regulatory action modifying an existing
regulation (such as changing the
calculation of the average number of
employees from 12 months to 24
months), a baseline assuming no change
to the regulation (i.e., maintaining the
status quo) generally provides an
appropriate benchmark for evaluating
benefits, costs, or transfer impacts of
proposed regulatory changes and their
alternatives.
Based on the 2012 Economic Census
special tabulations (the latest available),
2012 County Business Patterns Reports
(for industries not covered by the
Economic Census), and 2012
Agricultural Census tabulations (for
agricultural industries), of a total of
about 7.2 million firms in all industries
with employee-based size standards,
about 96 percent were considered small
and 4 percent other than small under
the 12-month employee average.
Similarly, of 334,990 businesses that
were subject to at least one employeebased size standard and eligible for
Federal contracting, 87.3 percent were
small in at least one NAICS code and
12.7 percent other than small in all
NAICS codes with an employee-based
size standard.
Based on the data from the Federal
Procurement Data System—Next
Generation (FPDS–NG) for fiscal year
2019, on average, about 39,714 unique
firms in industries subject to employeebased size standards received at least
one Federal contract during 2019, of
which 85.3 percent were small.
Businesses subject to employee-based
size standards received $232.6 billion in
annual average Federal contract dollars
in 2019, of which nearly $47 billion or
about 20.2 percent went to small
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businesses. Of total dollars awarded to
small businesses subject to employeebased size standards, $23.8 billion or
50.6 percent was awarded through
various small business set-aside
programs and 49.4 percent was awarded
through non-set aside contracts.
Based on SBA’s internal data on its
loan programs, small businesses subject
to employee-based size standards
received, on an annual basis, a total of
7,672 7(a) and 504 loans for fiscal years
2018–2020, totaling $4.9 billion, of
which 75 percent was issued through
the 7(a) program and 25 percent was
issued through the CDC/504 program.
During fiscal years 2016–2018, small
businesses in those industries also
received about 400 loans through the
SBA’s disaster loan program, totaling
about $0.04 billion on an annual basis.
Table 11, ‘‘Baseline Analysis of
Employee-Based Size Standards,’’
below, provides these baseline results.
Besides set-aside contracting and
financial assistance discussed above,
small businesses also benefit through
reduced fees, less paperwork, and fewer
compliance requirements that are
available to small businesses through
Federal agencies that use SBA’s size
standards. However, SBA has no data to
estimate the number of small businesses
receiving such benefits.
TABLE 11—BASELINE ANALYSIS OF EMPLOYEE-BASED SIZE STANDARDS
Measure
Value
jspears on DSK121TN23PROD with PROPOSALS1
Total industries subject to employee-based size standards ...............................................................................................................
Total firms subject to at least one employee-based size standard (million)—2012 Economic Census .............................................
Total small firms subject to at least one employee-based size standard (million)—2012 Economic Census ...................................
Total small firms subject to at least one employee-based size standard as % of total firms—2012 Economic Census ..................
Total business concerns in SAM 1 (as of September 1, 2019) ...........................................................................................................
Total business concerns subject to a employee-based size standard in at least one NAICS code 2 (2019 SAM) ...........................
Total businesses that are small in at least one NAICS code subject to an employee-based size standard .....................................
Small business concerns as % of total business concerns subject to employee-based standards (2019 SAM) ..............................
Average total number of unique Eligible vendors getting Federal contracts 1—FPDS–NG (2019) ...................................................
Average total number of unique firms with employee-based size standards getting Federal contracts 2 —FPDS–NG (2019) ........
Average total contract dollars awarded to business concerns, subject to employee-based standards ($ billion)—FPDS–NG
(2019) ...............................................................................................................................................................................................
Average total small business contract dollars awarded to businesses subject to employee-based standards ($ billion)—FPDS–
NG (2019) ........................................................................................................................................................................................
Small business dollars as % of total dollars awarded to firms subject to employee-based standards ..............................................
Annual average number of 7(a) and 504 loans to businesses subject to employee-based standards (2018–2020) ........................
Annual average amount of 7(a) and 504 loans ($ billion) (2018–2020) .............................................................................................
Number of disaster loans to businesses subject to employee-based size standards (2016–2018) ..................................................
Amount of disaster loans ($ billion) (2016–2018) ...............................................................................................................................
500
680,266
657,942
96.7
403,116
152,450
133,958
87.9
106,230
39,714
$232.6
$47.1
20.2
7,672
$4.9
399
$0.04
1 Entities in SAM and FPDS–NG presented above only include business concerns that can be eligible to qualify as small for Federal contracting. That is, entities that can never qualify as small (e.g., foreign, not-for-profit and government entities) are excluded as they are not impacted by this rule.
2 A business concern could appear in multiple NAICS industries involving both employee-based and size standards and those based on other
measures (such as employees). Similarly, a business could be small in some industries and other than small in others.
As mentioned previously, businesses
that would regain or lose small business
status can be identified by comparing
their 24-month employee average with
the employee-based size standard. That
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is, if the 24-month employee average of
a firm currently above the size standard
is lower than the applicable employeebased size standard, that firm will gain
or regain small business status.
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Similarly, if the 24-month employee
average of a currently small business is
higher than the size standard, that
business will lose its small business
status. However, to estimate the number
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of small businesses that would benefit
by having their small business status
extended for a longer period or would
be penalized by having their small size
status shortened, SBA considered small
businesses whose 12-month employee
average was within 10 percent below
their employee-based size thresholds.
Small businesses that are not
immediately impacted may be impacted
either negatively or positively someday
as they continue to grow and approach
the size standard threshold.
2. Baseline for Changing the Averaging
Period for Receipts From 3 Years to 5
Years
For this new regulatory action
modifying an existing regulation (such
as changing the average annual receipts
calculation from 3 years to 5 years), a
baseline assuming no change to the
regulation (i.e., maintaining the status
quo) generally provides an appropriate
benchmark for evaluating benefits,
costs, or transfer impacts of proposed
regulatory changes and their
alternatives.
Based on the 2012 Economic Census
special tabulations (the latest available),
2012 County Business Patterns Reports
(for industries not covered by the
Economic Census), and 2012
Agricultural Census tabulations (for
agricultural industries), of a total of
about 7.2 million firms in all industries
with receipts-based size standards,
about 96 percent are considered small
and 4 percent other-than-small under
the 3-year annual receipts average.
Similarly, of 334,990 businesses in SAM
2019 that were subject to at least one
receipts-based size standard and eligible
to qualify as small business concerns,
87.3 percent were small in at least one
NAICS code and 12.7 percent other than
small in all NAICS codes.
Based on SBA’s internal data on its
loan programs, small businesses subject
to receipts-based size standards
received, on an annual basis, a total of
about 50,150 7(a) and 504 loans for
fiscal years 2018–2020, totaling nearly
$24 billion, of which 85 percent was
issued through the 7(a) program and 15
percent was issued through the CDC/
504 program. During fiscal years 2016–
2018, small businesses in those
industries also received about 5,585
loans through the SBA’s disaster loan
program, totaling about $0.5 billion on
an annual basis. Table 12, ‘‘Baseline
Analysis of Receipts-Based Size
Standards,’’ below, provides these
baseline results.
Besides financial assistance discussed
above, small businesses also benefit
through reduced fees, less paperwork,
and fewer compliance requirements that
are available to small businesses
through Federal agencies that use SBA’s
size standards. However, SBA has no
data to estimate the number of small
businesses receiving such benefits.
Similarly, due to the lack of data, SBA
is not able to determine impacts the
proposed rule will have on small
businesses participating in other
agencies’ programs that are subject to
their own size standards based on
average annual receipts.
TABLE 12—BASELINE ANALYSIS OF RECEIPTS-BASED SIZE STANDARDS
Measure
Value
Total industries subject to receipts-based standards ..........................................................................................................................
Total firms subject to at least one receipts-based standard (million)—2012 Economic Census .......................................................
Total small firms subject to at least one receipts-based standard (million)—2012 Economic Census ..............................................
Total small firms subject to at least one receipts-based standard as % of total firms—2012 Economic Census .............................
Total business concerns in SAM 1 (as of September 1, 2019) ...........................................................................................................
Total business concerns subject to a receipts-based size standard in at least one NAICS code 2 (2019 SAM) ..............................
Total businesses that are small in at least one NAICS code subject to a receipts-based size standard ..........................................
Small business concerns as % of total business concerns subject to receipts-based standards (2019 SAM) .................................
Annual average number of 7(a) and 504 loans to businesses subject to receipts-based standards (2018–2020) ...........................
Annual average amount of 7(a) and 504 loans ($ billion) (2018–2020) .............................................................................................
Number of disaster loans to businesses subject to receipts-based size standards (2016–2018) .....................................................
Amount of disaster loans ($ billion) (2016–2018) ...............................................................................................................................
518
7.17
6.9
96.2
403,116
334,990
292,454
87.3
50,153
$23.9
5,585
$0.5
jspears on DSK121TN23PROD with PROPOSALS1
1 Entities in SAM presented above only include business concerns that can be eligible to qualify as small for Federal assistance. That is, entities that can never qualify as small (e.g., foreign, not-for-profit and government entities) are excluded as they are not impacted by this rule.
2 A business concern could appear in multiple NAICS industries involving both receipts-based size standards and those based on other measures (such as employees). Similarly, a business could be small in some industries and other-than-small in others.
Businesses that would regain or
expand their small business status can
be identified by comparing the estimate
of their 5-year receipts average with the
size standard. That is, if the 5-year
receipts average of a firm currently
above the size standard is lower than
the applicable size standard, that firm
will gain or regain small business status.
To estimate the number of small
businesses that would benefit by having
their small business status extended for
a longer period or would be penalized
by having their small business status
shortened, SBA considered small
businesses whose 3-year average annual
receipts was within 10 percent below
their receipts-based size thresholds.
Depending upon whether their annual
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receipts are growing or declining, small
businesses that are not immediately
impacted may be impacted, either
positively (i.e., gaining small business
status) or negatively (i.e., losing small
business status) someday as they
continue to grow and approach the size
standard threshold as in the current 3year averaging method. However, SBA
is not able to quantify such impacts
now.
D. Expansions in Small Business Size
Status
1. Expansive Effects of Changing the
Averaging Period for Employees From
12 Months to 24 Months
The most significant expansive effects
to businesses from the proposed change
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in the averaging period for calculation
of the number of employees for size
standards from 12 months to 24 months
include: (i) Enabling some mid-size
businesses currently categorized above
their corresponding size standards to
gain or regain small business size status
and thereby qualify for participation in
Federal assistance intended for small
businesses, and (ii) allowing some
advanced and larger small businesses
close to their size thresholds to lengthen
their small business status for a longer
period and thereby continue their
participation in Federal small business
programs. These programs include
SBA’s business and disaster loan
programs and Federal procurement
programs intended for small businesses.
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Federal procurement programs provide
targeted, set-aside opportunities for
small businesses under SBA’s various
business development and contracting
programs, including 8(a)/Business
Development (BD), HUBZone, WomenOwned Small Business (WOSB),
Economically Disadvantaged WomenOwned Small Business (EDWOSB), and
Service-Disabled Veteran-Owned Small
Business (SDVOSB) programs.
Expansive effects accruing to businesses
gaining and extending small status are
presented below in Table 13,
‘‘Expansive Impacts of Changing the
Averaging Period for Employees from 12
Months to 24 Months.’’ The results in
Table 13 pertain to businesses and
industries subject to employee-based
size standards only.
As shown in Table 13, of 21,155 firms
not currently considered small in any
employee-based size standards, 390 (or
1.8 percent) would benefit from the
proposed change by gaining or regaining
small status under the 24-month
employee average in at least one NAICS
industry that is subject to an employeebased size standard. Additionally, 373
or 0.3 percent of small businesses
within 10 percent below size standards
would see their average number of
employees decrease under the 24-month
averaging period, consequently enabling
them to keep their size status for a
longer period.
Using the 2012 Economic Census,
SBA estimated that about 280 or 1.3
percent of currently large businesses
would gain or regain small status and
60409
about 1,200 or 0.2 percent of total small
businesses would see their small
business status extended for a longer
period as the result of the change in the
calculation of employees. These results
are shown in Table 13, below.
With more businesses qualifying as
small under the proposed change in the
calculation of employees, Federal
agencies will have a larger pool of small
businesses from which to draw for their
small business procurement programs.
Growing small businesses that are close
to exceeding the current employeebased size standards will be able to
retain their small business status for a
longer period under the 24-month
employee average, thereby enabling
them to continue to benefit from the
small business programs.
TABLE 13—EXPANSIVE IMPACTS OF CHANGING AVERAGING PERIOD FOR EMPLOYEES FROM 12 MONTHS TO 24 MONTHS
Large firms
gaining small
status
Impact of proposed change
Number of impacted industries ........................................................................................
Number of large firms becoming small or/and small firms extending small status—
SAM (as of Sept 1, 2019) ............................................................................................
Large firms becoming small or/and small firms with extended small status as % of
total large or/and small firms in the baseline—SAM (as of Sept 1, 2019) ..................
Number of large firms becoming small or/and small firms extending small status—
2012 Economic Census ...............................................................................................
Large firms becoming small or/and small firms extending small status as % of total
large or/and small firms in the baseline—2012 Economic Census .............................
Number of large firms becoming small or/and small firms extending small status for
small business contracts—FPDS–NG (2019) ..............................................................
Additional small business dollars available to newly qualified firms or/and current
small firms with extended small status ($ million)—FPDS–NG (2019) .......................
Additional small business dollars as % total small business contract dollars in the
baseline ........................................................................................................................
Number of additional 7(a) and 504 loans to newly qualified firms or/and current small
firms extending small status ........................................................................................
Additional 7(a) and 504 loan amount to newly qualified firms or/and current small
firms extending small status ($ million) .......................................................................
Additional 7(a) and 504 loan amount as % of total 7(a) and 504 loan amount in the
baseline ........................................................................................................................
Number of additional disaster loans to newly qualified firms or/and small firms extending small status ............................................................................................................
Additional disaster loan amount to newly qualified firms or/and small firms with extended small status ($ million) .....................................................................................
Additional disaster loan amount as % of total loan amount in the baseline ...................
Small firms
extending small
status
Total
expansive impact
196
184
1 260
390
373
2 757
1.8
0.3
0.5
281
1,203
1,484
1.3
0.2
0.2
139
83
219
$332.7
$90.5
$423.2
0.7
0.2
0.9
1
1
2
$0.01
$0.02
$0.03
0.0
0.0
0.001
0
0
0
$0
0
$0
0
$0
0
jspears on DSK121TN23PROD with PROPOSALS1
1 Total impact represents total unique industries impacted to avoid double counting as some industries have large firms gaining small status
and small firms extending small status.
2 Total impact represents total unique firms impacted to avoid double counting as some firms may gain small business status in at least one
NAICS code, while extending small business status in at least one other NAICS code.
Based on the FPDS–NG data for fiscal
year 2019, as shown in Table 13, SBA
estimates that those newly qualified
small businesses (i.e., large businesses
gaining small status) under the
proposed rule, if adopted, could receive
about $333 million in small business
contract dollars annually under SBA’s
small business, 8(a)/BD, HUBZone,
WOSB, EDWOSB, and SDVOSB
programs. That represents a 0.7 percent
increase to total small business contract
dollars from the baseline in Table 11,
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above. Additionally, small businesses
could receive approximately $90
million in additional small business
contract dollars because of extension of
their small business status, which is
about a 0.2 percent increase from the
total small business contract dollars in
the baseline. That is, businesses gaining
or extending small business status could
receive about $423 million in additional
small business contract dollars, which is
a 0.9 percent increase to the total small
business dollars in the baseline.
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Under SBA’s 7(a) and 504 loan
programs, based on the data for fiscal
years 2018–2020, SBA estimates up to
about 1 SBA 7(a) and 504 loans totaling
nearly $0.01 million could be made to
these newly qualified small businesses
under the proposed change.
Additionally, small businesses could
receive about 1 SBA 7(a) and 504 loans
totaling nearly $.02 million due to the
extension of their size status. These
amounts represent a .001 percent
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increases to the 7(a) and 504 loan
amount in the baseline.
Newly qualified small businesses and
those with extended small business
status under the 24-month averaging
period may also benefit from the SBA’s
disaster loan program. However, since
the benefit provided through this
program is contingent on the occurrence
and severity of a disaster in the future,
SBA cannot make a meaningful estimate
of this impact. Based on the historical
trends of the SBA’s disaster loan data
which shows that firms receiving loans
under employee-based size standards
are well below the industry size
thresholds, SBA estimates that newly
defined small businesses and small
businesses extending small business
status for a longer period would not
receive any additional disaster loans
under the proposed change.
The added competition from more
businesses qualifying as small may
result in lower prices to the Federal
Government for procurements set aside
or reserved for small businesses, but
SBA cannot quantify this impact. Costs
could be higher when full and open
contracts are awarded to HUBZone
businesses that receive price evaluation
preferences. However, with agencies
likely setting aside more contracts for
small businesses in response to a larger
pool of small businesses under the
proposed change, HUBZone firms might
actually end up getting more set-aside
contracts and fewer full and open
contracts, thereby resulting in some cost
savings to Federal agencies. While SBA
cannot estimate such costs savings, as it
is impossible to determine the number
and value of unrestricted contracts to be
otherwise awarded to HUBZone firms
that will be awarded as set-asides, such
cost savings are likely to be relatively
small as only a small fraction of full and
open contracts are awarded to HUBZone
businesses.
Additionally, the newly defined small
businesses, as well as those with a
longer small business status, would also
benefit from reduced fees, less
paperwork, and fewer compliance
requirements but SBA has no data to
quantify this impact.
The proposed change will also
address some of the challenges and
uncertainties small businesses face in
the open market once they graduate
from their small business status. Small
and mid-size businesses experience a
considerable disadvantage in competing
for full and open contracts against large
businesses, including the largest in the
industry. These large businesses often
have several competitive advantages
over small and mid-size firms, including
vast past performance qualifications and
experience, strong brand-name
recognition, a plethora of professional
certifications, security clearances, and
greater financial and marketing
resources. Small and mid-size
businesses cannot afford to maintain
these resources, leaving them at a
considerable disadvantage.
With contracts getting bigger, one
large set-aside contract could throw a
firm out of its small business size status,
thereby subjecting it to certain
requirements that apply to other-thansmall firms, such as developing
subcontracting plans. That firm may not
have the infrastructure, existing
business processes, and/or other
resources in place in order to comply
with such requirements. This may also
result in constant shuffling between
small and other-than-small status.
By allowing smaller mid-size
companies that have just exceeded the
size threshold to regain small business
status and advanced small businesses
close to size standards to prolong their
small business status for a longer
period, this proposed rule can expand
the pool of qualified small firms for
agencies to draw upon to meet their
small business requirements.
2. Expansive Effects of Changing the
Averaging Period for Receipts From 3
Years to 5 Years
The most significant benefits to
businesses from the change in the
period for calculation of average annual
receipts from 3 years to 5 years include:
(i) Enabling some mid-size businesses
currently categorized above their
corresponding size standards to gain or
regain small business status and thereby
qualify for participation in Federal
assistance intended for small
businesses, including access to SBA’s
financial assistance and (ii) allowing
some advanced and larger small
businesses close to their size thresholds
to lengthen their small business status
for a longer period and thereby continue
their participation in SBA’s Business
Loan, Disaster Loan and SBIC Programs.
Benefits accruing to businesses gaining
and extending small business status are
presented below in Table 14,
‘‘Expansive Impacts of Changing the
Averaging Period for Receipts from 3
Years to 5 Years.’’ The results in Table
14 pertain to businesses and industries
subject to SBA’s receipts-based size
standards only.
As shown in Table 14, of 42,536 firms
not currently considered small in any
receipts-based size standards, 3,320 (or
6.4 percent) would benefit from the
proposed change by gaining or regaining
small business status under the 5-year
receipts average in at least one NAICS
industry that is subject to a receiptsbased size standard. Additionally,
nearly 3,600 or 1.2 percent of small
businesses within 10 percent below size
standards would see their annual
receipts decrease under the 5-year
averaging period, consequently enabling
them to keep their small business status
for a longer period.
Using the 2012 Economic Census,
SBA estimated that more than 5,900 or
3.3 percent of currently large businesses
would gain or regain small business
status and more than 61,250 or 0.9
percent of total small businesses would
see their small business status extended
for a longer period as the result of this
proposed rule. These results are shown
in Table 14, below.
TABLE 14—EXPANSIVE IMPACTS OF CHANGING THE AVERAGING PERIOD FOR RECEIPTS FROM 3 YEARS TO 5 YEARS
Firms gaining
small business
status
jspears on DSK121TN23PROD with PROPOSALS1
Impact of proposed change
Number of impacted industries ........................................................................................
Number of large firms becoming small or/and small firms extending small business
status—SAM (as of Sept 1, 2019) ...............................................................................
Large firms becoming small or/and small firms with extended small business status
as % of total large or/and small firms in the baseline—SAM (as of Sept 1, 2019) ....
Number of large firms becoming small or/and small firms extending small business
status—2012 Economic Census ..................................................................................
Large firms becoming small or/and small firms extending small business status as %
of total large or/and small firms in the baseline—2012 Economic Census ................
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Firms extending
small business
status
Total expansive
impact
377
382
1 447
3,320
3,579
2 6,542
6.35
1.22
1.95
5,938
61,263
67,201
3.3%
0.9%
0.9%
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60411
TABLE 14—EXPANSIVE IMPACTS OF CHANGING THE AVERAGING PERIOD FOR RECEIPTS FROM 3 YEARS TO 5 YEARS—
Continued
Firms gaining
small business
status
Impact of proposed change
Number of additional 7(a) and 504 loans to newly qualified firms or/and current small
firms extending small status ........................................................................................
Additional 7(a) and 504 loan amount to newly qualified firms or/and current small
firms extending small status ($ million) .......................................................................
Additional 7(a) and 504 loan amount as % of total disaster loan amount in the baseline ................................................................................................................................
Number of additional disaster loans to newly qualified firms or/and small firms extending small status ............................................................................................................
Additional disaster loan amount to newly qualified firms or/and small firms with extended small status ($ million) .....................................................................................
Additional disaster loan amount as % of total loan amount in the baseline ...................
Firms extending
small business
status
Total expansive
impact
1
4
5
$0.2
$1.9
$2.1
0.0
0.0
0.01
1
1
2
$0.00
0.0
$0.01
0.0
$0.01
0.002
1 Total impact represents total unique industries impacted to avoid double counting as some industries have large firms gaining small business
status and small firms extending small business status.
2 Total impact represents total unique firms impacted to avoid double counting as some firms may gain small business status in at least one
NAICS code, while extending small business status in at least one other NAICS code.
Growing small businesses that are
close to exceeding the current size
standards will be able to retain their
small business status for a longer period
under the 5-year receipts average,
thereby enabling them to continue to
benefit from the small business
programs.
Under SBA’s 7(a) and 504 loan
programs, based on the data for fiscal
years 2018–2020, SBA estimates that
about 1 SBA 7(a) and 504 loans totaling
$0.2 million could be made to these
newly qualified small businesses under
the proposed change. Additionally,
small businesses could receive up to 4
SBA 7(a) and 504 loans totaling $1.9
million due to the expansion of their
size status. Together, these amounts
represent a 0.01 percent increase to the
loan amount in the baseline.
Newly qualified small businesses and
those with extended small business
status will also benefit from the SBA’s
disaster loan program. Since the benefit
provided through this program is
contingent on the occurrence and
severity of a disaster in the future, SBA
cannot make a meaningful estimate of
this impact. However, based on the
historical trends of the SBA disaster
loan data, SBA estimates that, on an
annual basis, the newly defined small
businesses under the proposed change
could receive about 1 disaster loan,
totaling about $0.003 million. Similarly,
extending small business status for a
longer period could result in small
businesses receiving 1 disaster loans,
totaling about $0.01 million. These
results are presented in Table 14, above.
Additionally, the newly defined small
businesses, as well as those with a
longer small business status, would also
benefit from reduced fees, less
paperwork, and fewer compliance
requirements but SBA has no data to
quantify this impact.
E. Contractions in Eligibility for Small
Business Status
1. Contractive Effects of Changing the
Averaging Period for Employees From
12 Months to 24 Months
As stated previously, the change
enacted under Public Law 116–283 may
not always and necessarily benefit every
small business concern. When
businesses’ monthly employees are
declining or when the number of
employees for the latest 12 months are
lower than those for the earliest 12
months of the 24-month averaging
period, the 24-month employee average
would be higher than the 12-month
average, thereby ejecting small
businesses out of their small status
sooner or rendering some small
businesses other than small
immediately. Such small businesses
would no longer be eligible for Federal
small business opportunities, such as
SBA’s loans, Federal small business
contracts, and other Federal assistance
available to small businesses. These
impacts are provided in Table 15,
‘‘Contractive Impacts from Changing the
Averaging Period for Employees from 12
Months to 24 Months,’’ below.
SBA estimates that, of 133,958 firms
in 2019 SAM that were small under at
least one employee-based size standard
based on the 12-month employee
average, 260 firms (or 0.2 percent)
would lose their small status and
another 100 firms (or 0.08 percent)
would see their size status shortened as
a result of the proposed change.
Similarly, based on the 2012 Economic
Census data, 763 firms would lose their
small business status and 287 firms
would see their size status shortened,
which represent, respectively, 0.1
percent and 0.04 percent of total small
firms subject to an employee-based size
standard.
TABLE 15—CONTRACTIVE IMPACTS FROM CHANGING THE AVERAGING PERIOD FOR EMPLOYEES FROM 12 MONTHS TO 24
MONTHS
Small firms
losing small
status
jspears on DSK121TN23PROD with PROPOSALS1
Impact of proposed change
Number of industries impacted ........................................................................................
Number of small firms losing or/and shortening small status—SAM (as of Sept 1,
2019) ............................................................................................................................
Small firms losing or shortening small status as % of total small firms—SAM (as of
Sept 1, 2019) ...............................................................................................................
Number of small firms losing or extending small status—2012 Economic Census .......
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Small firms
shortening small
status
Total
contractive
impact
190
64
1 211
260
101
2 361
0.2
763
0.08
287
0.3
1,050
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TABLE 15—CONTRACTIVE IMPACTS FROM CHANGING THE AVERAGING PERIOD FOR EMPLOYEES FROM 12 MONTHS TO 24
MONTHS—Continued
Small firms
losing small
status
Impact of proposed change
Small firms losing or shortening small status as % of total small firms in the baseline—2012 Economic Census ......................................................................................
Number of small firms losing or shortening small business eligibility for set-aside contracts—FPDS–NG (2019) ............................................................................................
Small business dollars unavailable to small firms losing or shortening small status ($
million)—FPDS–NG (2019) ..........................................................................................
Small business dollars as % of total small business dollars in the baseline ..................
Number of 7(a) and 504 loans unavailable to small firms losing or shortening small
status ............................................................................................................................
7(a) and 504 loan amount unavailable to small firms losing or shortening ($ million) ...
Unavailable 7(a) and 504 loan amount as % of total loan amount in the baseline
(baseline = $24.5 billion) ..............................................................................................
Number of disaster loans unavailable to small firms losing or shortening small status
Unavailable disaster loan amount to small firms losing or extending small status ($
million) ..........................................................................................................................
Unavailable disaster loan amount as % of total disaster loan amount in the baseline
(baseline = $1.0 billion) ................................................................................................
Small firms
shortening small
status
Total
contractive
impact
0.1
0.04
0.2
178
20
197
$197.1
0.42
$68.7
0.15
$265.8
0.56
1
$0.01
1
$0.01
2
$0.02
0.0
0.0
0.0
0.0
0.0
0.0
$0.0
$0.0
$0.0
0.0
0.0
0.0
1 Total
jspears on DSK121TN23PROD with PROPOSALS1
impact represents total unique industries impacted to avoid double counting as some industries have small firms losing small status and
small firms shortening small status.
2 Total impact represents total unique firms impacted to avoid double counting as some firms may gain small business status in at least one
NAICS code, while extending small business status in at least one other NAICS code.
Based on the contract awards data
from FPDS–NG for fiscal year 2019,
businesses losing or shortening small
status would lose access to about $266
million in Federal small business
contract collars, which is about a 0.6
percent decrease from the
corresponding value in the baseline.
Similarly, based on the SBA’s loan data
for fiscal years 2018–2020 and the
number of impacted firms from the
Economic Census, SBA estimates that
businesses losing or shortening small
business status would also lose access to
about $0.02 million in SBA 7(a) and 504
loans. Based on the historical trends of
the SBA’s disaster loan data which
shows that firms receiving loans under
employee-based size standards are well
below the industry size thresholds, SBA
estimates that businesses losing or
shortening small business status would
not lose access to any additional
disaster loans under the proposed
change.
Businesses losing small status and
those with size status shortened would
also be deprived of other Federal
benefits available, including reduced
fees and exemptions from certain
paperwork and compliance
requirements. However, there exists no
data to quantify this impact.
Additionally, by enabling mid-size
businesses to regain small business
status and lengthening the small
business status of advanced and
successful larger small businesses, the
proposed rule may disadvantage smaller
small businesses in more need of
Federal assistance than their larger
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counterparts in competing for Federal
opportunities. SBA frequently receives
concerns from smaller small businesses
that they lack resources, past
performance qualifications and
expertise to be able to compete against
more resourceful, qualified and
experienced large small businesses for
Federal opportunities for small
businesses.
Besides having to register in SAM to
be able to participate in Federal
contracting and update the SAM profile
annually, small businesses incur no
direct costs to gain or retain their small
business status. All businesses willing
to do business with the Federal
Government have to register in SAM
and update their SAM profiles annually,
regardless of their size status. SBA
believes that a vast majority of
businesses that are willing to participate
in Federal contracting are already
registered in SAM. Furthermore, this
proposed rule does not establish the
new size standards for the first time;
rather, it merely proposes to modify the
calculation of annual average receipts
that apply to the existing size standards
in accordance with a statutory
requirement.
The proposed change may entail some
additional administrative costs to the
Federal Government because more
businesses may qualify as small for
Federal small business programs. For
example, there will be more firms
seeking SBA’s loans; more firms eligible
for enrollment in the Dynamic Small
Business Search (DSBS) database or in
certify.sba.gov; more firms seeking
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certification as 8(a)/BD or HUBZone
firms or qualifying for small business,
WOSB, EDWOSB, and SDVOSB status;
and more firms applying for SBA’s 8(a)/
BD and Mentor-Prote´ge´ programs. With
an expanded pool of small businesses,
it is likely that Federal agencies will set
aside more contracts for small
businesses under the proposed change.
One may surmise that this might result
in a higher number of small business
size protests and additional processing
costs to agencies. However, the SBA’s
historical data on size protests actually
show that the number of size protests
actually decreased after an increase in
the number of businesses qualifying as
small as a result of size standards
revisions as part of the first 5-year
review of size standards. Specifically,
on an annual basis, the number of size
protests dropped from about 600 during
fiscal years 2011–2013 (review of most
receipts-based size standards was
completed by the end of fiscal year
2013) to less than 500 during fiscal
years 2017–2019. However, with more
months of the data to be reviewed, 24month averaging may increase time
needed by size specialists to process a
size protest. Among those newly
defined small businesses seeking SBA’s
loans, there could be some additional
costs associated with compliance and
verification of their small business
status. However, small business lenders
have an option of using the tangible net
worth and net income based alternative
size standard instead of using the
industry-based size standard to establish
eligibility for SBA’s loans. For these
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reasons, SBA believes that these added
administrative costs will be minor
because necessary mechanisms are
already in place to handle these added
requirements.
Additionally, some Federal contracts
may possibly have higher costs. With a
greater number of businesses defined as
small under the proposed change,
Federal agencies may choose to set aside
more contracts for competition among
small businesses only instead of using
full and open competition. The
movement of contracts from
unrestricted competition to small
business set-aside contracts might result
in competition among fewer total
bidders, although there will be more
small businesses eligible to submit
offers under the proposed change.
However, the additional costs associated
with fewer bidders are expected to be
minor since, by law, procurements may
be set aside for small businesses under
the 8(a)/BD, HUBZone, WOSB,
EDWOSB, or SDVOSB programs only if
awards are expected to be made at fair
and reasonable prices.
Costs may also be higher when full
and open contracts are awarded to
HUBZone businesses that receive price
evaluation preferences. However, with
agencies likely setting aside more
contracts for small businesses in
response to the availability of a larger
pool of small businesses under the
proposed change to the averaging period
for employees from 12 months to 24
months, HUBZone firms might actually
end up getting fewer full and open
contracts, thereby resulting in some cost
savings to agencies. However, such cost
savings are likely to be minimal as only
a small fraction of unrestricted contracts
are awarded to HUBZone businesses.
2. Contractive Effects of Changing the
Averaging Period for Receipts From 3
Years to 5 Years
As stated previously, the change
enacted under Public Law 115–324 may
not always and necessarily benefit every
small business concern. When
businesses’ annual revenues are
declining or when annual revenues for
the latest 3 years are lower than those
for the earliest 2 years of the 5-year
period, the 5-year average would be
higher than the 3-year average, thereby
ejecting small businesses out of their
small business status sooner or
rendering some small businesses other
than small immediately. Similarly,
small businesses that lose their small
business status would have to wait
longer to qualify as small again. Such
small businesses would no longer be
eligible for Federal small business
opportunities, such as Federal small
business contracts, SBA loan programs
and other Federal benefits (such as
reduced fees and exemptions from
certain paperwork and compliance
requirements) available to small
businesses. However, the SBA’s
proposal to allow businesses applying
for its Business Loan, Disaster Loan and
SBIC Programs to elect to use either the
3-year receipts average or the 5-year
receipts average will mitigate such
impacts. Moreover, the change in the
averaging period for receipts in this
proposed rule only applies to businesses
in the SBA Business Loan, Disaster
Loan, and SBIC Programs. In other
words, the change in the calculation of
average annual receipts in this proposed
rule will have no impacts on businesses
participating in Federal procurement
and all other non-procurement programs
except SBA loan programs.
By enabling mid-size businesses to
regain small business status and
lengthening the small business status of
advanced and successful larger small
businesses, the proposed rule may
disadvantage smaller small businesses
in more need of Federal assistance than
their larger counterparts in competing
for Federal opportunities. SBA
frequently receives concerns from
smaller small businesses that they lack
resources, past performance
qualifications and expertise to be able to
compete against more resourceful,
60413
qualified and experienced larger small
businesses for Federal opportunities for
small businesses. SBA believes that
overall benefits to small businesses from
this proposed rule change outweigh the
costs to small businesses.
F. Net Impact
1. Net Impact of Changing the Averaging
Period for Employees From 12 Months
to 24 Months
As discussed elsewhere, the proposed
change in averaging period for
employees would result in four primary
impacts, which can be categorized as
either having a ‘expansive impact’ or
‘contractive impact’ on size status of
both currently large and small
businesses. Allowing some currently
large firms to gain small business status
and some advanced small firms to
remain small for a longer period
represents the expansive impact of the
proposed rule. Causing some currently
small firms to lose or shorten their small
business is the contractive impact.
Although businesses in a majority of
industries with employee-based size
standards would be both positively and
negatively impacted by this proposed
rule, in totality the number of firms with
expansive impacts was generally greater
than the number of firms with
contractive impacts. The proposed rule
would result in a net gain of about $158
million (or 0.3 percent increase from the
baseline) in Federal small business
contract dollars. The net impact of the
proposed rule on SBA loans was also
positive, but very small. Specifically,
SBA estimates a net gain of $0.01
million in 7(a) and 504 loans and no
change in disaster loans to small firms
as a result of changing the period for
calculating the average number of
employees for size standards from 12
months to 24 months. Net impacts of the
proposed rule are summarized in Table
16, ‘‘Net Impact from Changing the
Averaging Period for Employees from 12
Months to 24 Months,’’ below.
TABLE 16—NET IMPACT FROM CHANGING THE AVERAGING PERIOD FOR EMPLOYEES FROM 12 MONTHS TO 24 MONTHS
Total
expansive
impact
jspears on DSK121TN23PROD with PROPOSALS1
Impact of proposed change
Total number of impacted firms—SAM (as of Sept 1, 2019) ..........................................
Impacted firms as % of total firms in the baseline—SAM (as of Sept 1, 2019) .............
Number of impacted firms—2012 Economic Census .....................................................
Impacted firms as % of total firms in the baseline—2012 Economic Census ................
Number of impacted firms eligible for set-aside contracts (FPDS–NG) .........................
Small business dollars impacted ($ million) ....................................................................
Small business dollars impacted as % total set-aside dollars in the baseline ...............
Number of 7(a) and 504 loans impacted ........................................................................
7(a) and 504 loan amount impacted ($ million) ..............................................................
7(a) and 504 loan amount impacted as % of total 7(a) and 504 loan amount in the
baseline ........................................................................................................................
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Total
contractive
impact
Net impact
757
0.5
1,484
0.2
219
$423.2
0.9
2
$0.03
361
0.2
1,050
0.2
197
$265.8
0.6
2
$0.02
396
0.3
435
0.1
22
$157.8
0.3
0
$0.01
0.0
0.0
0.0
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TABLE 16—NET IMPACT FROM CHANGING THE AVERAGING PERIOD FOR EMPLOYEES FROM 12 MONTHS TO 24 MONTHS—
Continued
Total
expansive
impact
Impact of proposed change
Number of disaster loans impacted .................................................................................
Disaster loan amount impacted ($ million) ......................................................................
Disaster loan amount impacted as % of total disaster loan amount in the baseline .....
2. Net Impact of Changing the Averaging
Period for Receipts From 3 Years to 5
Years
Under the SBA’s proposal allowing
businesses to elect to choose either a 3year receipts average or a 5-year receipts
average to establish small business
eligibility for its Business Loan, Disaster
Loan, and SBIC Programs, none of the
currently eligible small businesses will
experience a contractive impact from
the proposed change. In other words,
the proposed change will not cause any
currently small businesses to lose or
shorten their small business status. The
proposed change will enable some midsize businesses above the size standard
gain or regain small business status and
some advanced small businesses close
to the size standard to lengthen their
small status. In the absence of
contractive impacts, the expansive
impacts shown in Table 14 (above) will
also represent as net impacts of the
proposed change.
G. Transfer Impacts
jspears on DSK121TN23PROD with PROPOSALS1
1. Transfer Impacts of Changing the
Averaging Period for Employees From
12 Months to 24 Months
The proposed change may result in
some redistribution of Federal contracts
between businesses gaining or
extending small status and large
businesses, and between businesses
gaining or extending small status and
other existing small businesses.
However, it would have no impact on
the overall economic activity since the
total Federal contract dollars available
for businesses to compete for will not
change. While SBA cannot quantify
with certainty the actual outcome of the
gains and losses from the redistribution
of contracts among different groups of
businesses, it can identify several
probable impacts in qualitative terms.
With the availability of a larger pool of
small businesses under the proposed
change, some unrestricted Federal
contracts may be set aside for small
businesses. As a result, large businesses
may lose access to some Federal
contracts. Similarly, some currently
small businesses may obtain fewer setaside contracts due to the increased
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competition from some large businesses
qualifying as small and advanced small
businesses remaining small for a longer
period. This impact may be offset by a
greater number of procurements being
set aside for all small businesses. With
large businesses qualifying as small and
advanced larger small businesses
remaining small for a longer period
under the proposed rule, smaller small
businesses could face some
disadvantages in competing for set-aside
contracts against their larger
counterparts. However, SBA cannot
quantify these impacts.
2. Transfer Impacts of Changing the
Averaging Period for Receipts From 3
Years to 5 Years
The change from a 3-year averaging
period to a 5-year averaging period may
result in some redistribution of Federal
contracts between businesses gaining or
extending small business status and
large businesses, and between
businesses gaining or extending small
business status and other existing small
businesses. However, since the change
in calculation of receipts in this
proposed rule does not apply to Federal
contracting, these distributional impacts
are not relevant for changing the
averaging period for receipts from 3
years to 5 years.
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. This 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 final rule has
no federalism implications warranting
preparation of a federalism assessment.
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Total
contractive
impact
0
$0.0
0.0
0
$0.0
0.0
Net impact
0
$0.0
0.0
Executive Order 13563
Executive Order 13563 emphasizes
the importance of quantifying both costs
and benefits, reducing costs,
harmonizing rules, and promoting
flexibility. 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 BenefitCost Analysis under Executive Order
12866. Additionally, Executive Order
13563, Section 6, calls for retrospective
analyses of existing rules.
Following the enactment of Public
Law 115–324, SBA issued a public
notice advising business and contracting
communities that SBA must go through
a rulemaking process to implement the
new law and that businesses still must
report their receipts based on a 3-year
average until SBA changes its
regulations. SBA updated the Small
Business Procurement Advisory Council
(SBPAC) at its March 26, 2019, April 23,
2019, and August 26, 2019, meetings
about SBA’s rulemaking process to
implement Public Law 115–324. On
April 18, 2019, SBA also presented an
update on the implementation of Public
Law 115–324 at the 2019 Annual
Government Procurement Conference.
Through phone calls and emails, SBA
also advised business and contracting
communities and other interested
parties about the SBA’s process to
implement the new law.
Regulatory Flexibility Act (Initial
Regulatory Flexibility Analysis)
Under the Regulatory Flexibility Act
(RFA), this proposed rule may have a
significant economic impact on a
substantial number of small businesses
in industries subject to both employeebased and receipts-based size standards.
As described above, this rule may affect
small businesses in those industries
seeking assistance under Federal small
business programs. Specifically, the
change in the averaging period for
calculating the number employees for
size standards from 12 months to 24
months may have a significant impact
on a substantial number of businesses in
industries subject to employee based
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size standards in terms of qualifying for
Federal small business programs,
including Federal contracts set aside for
small businesses and SBA’s loan
programs. Similarly, the proposed
change in the averaging period for
receipts from 3 years to 5 years will also
impact a substantial number of
businesses in the SBA Business Loan,
Disaster Loan, and SBIC programs.
Immediately below, SBA sets forth an
initial regulatory flexibility analysis
(IRFA) of proposed rule to address the
following questions: (1) What is the
need for and objective of the rule?; (2)
What is SBA’s description and estimate
of the number of small businesses to
which the rule will apply?; (3) What are
the projected reporting, record-keeping,
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 is the need for and objective of
the rule?
First, section 863 of the NDAA 2021,
Public Law 116–283, changed the
averaging period for SBA’s employeebased size standards from 12 months to
24 months. The intent of this proposed
rule is to implement Public Law 116–
283 by amending 13 CFR 121.106 such
that a concern would average its
employees over all pay periods in the
preceding completed 24 months.
Second, in 2018, Public Law 115–324
amended section 3(a)(2)(C)(ii)(II) of the
Small Business Act by modifying the
period for calculating average annual
receipts for prescribing size standards
for business concerns in services
industries by an agency without
separate statutory authority to issue size
standards from 3 years to 5 years. In a
final rule published December 5, 2019
(84 FR 66561), SBA implemented Public
Law 115–324 by making changes to its
receipts-based size standards for all SBA
programs except the Business Loan and
Disaster Loan Programs. This proposed
rule would extend the changes to SBA’s
receipts-based size standards for the
Business Loan, Disaster Loan, and SBIC
Programs.
2. What are SBA’s description and
estimate of the number of small
businesses to which the rule will apply?
This proposed rule applies to all
small businesses that are subject to
either an employee-based or a receiptsbased size standard. Based on the 2012
Economic Census special tabulations,
2012 County Business Patterns Reports,
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and 2012 Agricultural Census
tabulations, of a total of 680,266 firms
in all industries with employee-based
size standards to which this proposed
rule will apply, 657,942 or about 96.7
percent are considered small under the
12-month employee average. Of 152,450
total concerns in SAM 2019 to which an
employee-based size standard will
apply, about 133,958 or 87.9 percent
were small in at least one NAICS
industry with an employee-based size
standard. Similarly, based on the data
from FPDS–NG for fiscal year 2019,
about 39,700 unique firms in industries
subject to employee-based size
standards received at least one Federal
contract in 2019, of which 85.3 percent,
or 33,867 were small.
Based on the same data sources listed
above, of a total of 7.2 million firms in
all industries with receipts-based size
standards to which this final rule will
apply, 6.9 million or about 96 percent
are considered small under the 3-years
receipts average. Of 334,990 total
concerns in SAM 2019 to which a
receipts-based size standard will apply,
292,454 or 87.3 percent were small in at
least one NAICS industry with a
receipts-based size standard.
60415
4. What are the relevant Federal rules
which may duplicate, overlap or
conflict with the rule?
Under section 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, 5 U.S.C.
601(3), authorizes an Agency to
establish an alternative small business
definition, after consultation with the
Office of Advocacy of the U.S. Small
Business Administration.
3. What are the projected reporting,
record-keeping and other compliance
requirements of the rule?
5. What alternatives will allow the
Agency to accomplish its regulatory
objectives while minimizing the impact
on small entities?
The proposed rule changes existing
reporting or record-keeping
requirements for small businesses. To
qualify for Federal procurement and a
few other programs, businesses are
required to register in SAM and to selfcertify that they are small at least once
annually. Therefore, businesses opting
to participate in those programs must
comply with SAM requirements. There
are no costs associated with SAM
registration or certification. The change
in the calculation of employees from a
12-month averaging period to a 24month averaging period may result in
some redistribution of Federal contracts
between businesses gaining or
extending small status and large
businesses, and between businesses
gaining or extending small status and
other existing small businesses.
However, it would have no impact on
the overall economic activity since the
total Federal contract dollars available
for businesses to compete for will not
change. Since the change in the
calculation of annual average receipts in
this proposed rule only applies to SBA
loan programs, this will have no impact
on Federal contracting and associated
record-keeping requirements.
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 or
changing a measurement period, no
practical alternative exists to the
systems of numerical size standards. As
stated elsewhere, the objective of this
final rule is to change SBA’s regulations
on the calculation of business size in
terms of average number of employees
to implement Public Law 116–283 for
all SBA programs and average annual
receipts to implement Public Law 115–
324 for the SBA’s Business Loan,
Disaster Loan and SBIC programs.
This rule is expected to affect a
substantial number of small entities, but
the effects are not expected to be
significant. However, to mitigate any
unintended negative impacts of a 5-year
averaging period on small businesses
and to allow small businesses to
continue to use the 3-year receipts
average, in this proposed rule, SBA is
allowing applicants in Business Loan,
Disaster Loan and SBIC programs to
elect to calculate average annual
receipts using either a 3-year averaging
period or a 5-year averaging period.
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Federal Register / Vol. 86, No. 209 / Tuesday, November 2, 2021 / Proposed Rules
Paperwork Reduction Act
For purposes of the Paperwork
Reduction Act, 44 U.S.C. Chapter 35,
SBA has determined that this proposed
rule would amend an information
collection (SBA Form 355, Information
for Small Business Size Determination,
OMB Control Number 3245–0101). SBA
will revise Instruction No. 5 to specify
that respondents will use a 24-month
average to calculate number of
employees. In Part II, question 10,
respondents will then provide an
average number of employees over 24
months.
Concurrently with publication of this
proposed rule, SBA is submitting to
OMB an Information Collection Review
based on the changes described above.
SBA has determined that the changes to
the Form 355 will not impact the
paperwork burden, and it will remain at
4 hours.
SBA will revise the SBA Form 480,
Size Status Declaration, for SBIC
applicants. The form would reflect the
change to the 24-month average for
applicants using an employee-based size
standard, and the change to an election
between a 3-year average and a 5-year
average for applicants using a receiptsbased size standard. The metrics for the
alternative size standard for SBIC
applicants would not change.
SBA will revise Part M (Size Analysis)
of SBA Form 1920 (7(a) Lender
Application), OMB Control No.: 3245–
0348, and Exhibit 4 of SBA Form 1244
(504 Loan Application), OMB Control
No.: 3245–0071. The revisions would
reflect the change to an election
between a 3-year average or a 5-year
average for applicants using a receiptsbased size standard. The metrics for the
alternative size standard for 7(a) and
504 applicants would not change.
List of Subjects in 13 CFR Part 121
jspears on DSK121TN23PROD with PROPOSALS1
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 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),
636(a)(36), 662, and 694a(9); Pub. L. 116–136,
Section 1114.
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17:38 Nov 01, 2021
2. In § 121.104, revise the first
sentence of paragraph (c)(1) and
paragraphs (c)(2) through (4) to read as
follows:
■
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§ 121.104 How does SBA calculate annual
receipts?
*
*
*
*
*
(c) Period of measurement. (1) Except
for the Business Loan, Disaster Loan,
and Small Business Investment
Company (SBIC) Programs, annual
receipts of a concern that has been in
business for 5 or more completed fiscal
years means the total receipts of the
concern over its most recently
completed 5 fiscal years divided by 5.
* * *
(2) Except for the Business Loan,
Disaster Loan Programs, and SBIC
Programs, annual receipts of a concern
which has been in business for less than
5 complete fiscal years means the total
receipts for the period the concern has
been in business divided by the number
of weeks in business, multiplied by 52.
(3) Except for the Business Loan,
Disaster Loan, and SBIC Programs,
where a concern has been in business 5
or more complete fiscal years but has a
short year as one of the years within its
period of measurement, annual receipts
means the total receipts for the short
year and the 4 full fiscal years divided
by the total number of weeks in the
short year and the 4 full fiscal years,
multiplied by 52.
(4) For the Business Loan, Disaster
Loan, and SBIC Programs, a concern
that has been in business for three or
more completed fiscal years may elect to
calculate annual receipts using either
the total receipts of the concern over its
most recently completed 5 fiscal years
divided by 5, or the total receipts of the
concern over its most recently
completed 3 fiscal years divided by 3.
Annual receipts of a concern which has
been in business for less than three
complete fiscal years means the total
receipts for the period the concern has
been in business divided by the number
of weeks in business, multiplied by 52.
Where a concern has been in business
three or more complete fiscal years but
has a short year as one of the years
within its period of measurement,
annual receipts means the total receipts
for the short year and the two full fiscal
years divided by the total number of
weeks in the short year and the two full
fiscal years, multiplied by 52. For the
purposes of this subsection, the
Business Loan Programs consist of the
7(a) Loan Program, the Microloan
Program, the Intermediary Lending Pilot
Program, and the Development
Company Loan Program (‘‘504 Loan
Program’’). The Disaster Loan Programs
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consist of Physical Disaster Business
Loans, Economic Injury Disaster Loans,
Military Reservist Economic Injury
Disaster Loans, and Immediate Disaster
Assistance Program loans.
*
*
*
*
*
■ 3. In § 121.106, revise paragraphs
(b)(1) and (3) to read as follows:
§ 121.106 How does SBA calculate number
of employees?
*
*
*
*
*
(b) * * *
(1) The average number of employees
of the concern is used (including the
employees of its domestic and foreign
affiliates) based upon numbers of
employees for each of the pay periods
for the preceding completed 24 calendar
months.
*
*
*
*
*
(3) If a concern has not been in
business for 24 months, the average
number of employees is used for each of
the pay periods during which it has
been in business.
*
*
*
*
*
■ 4. In § 121.903, revise paragraph
(a)(1)(i) to read as follows:
§ 121.903 How may an agency use size
standards for its programs that are different
than those established by SBA?
(a) * * *
(1) * * *
(i) The size of a manufacturing
concern by its average number of
employees based on the preceding 24
calendar months, determined according
to § 121.106;
*
*
*
*
*
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2021–23439 Filed 11–1–21; 8:45 am]
BILLING CODE 8026–03–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 71
[Docket No. FAA–2021–0849; Airspace
Docket No. 21–ACE–17]
RIN 2120–AA66
Proposed Amendment of VOR Federal
Airways V–161, V–190, and V–307, and
Revocation of VOR Federal Airway V–
516 in the Vicinity of Oswego, KS
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking
(NPRM).
AGENCY:
This action proposes to
amend VHF Omnidirectional Range
SUMMARY:
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]]>Agencies
[Federal Register Volume 86, Number 209 (Tuesday, November 2, 2021)]
[Proposed Rules]
[Pages 60396-60416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23439]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AH26
Small Business Size Standards: Calculation of Number of Employees
for All Programs and of Average Annual Receipts in the Business Loan,
Disaster Loan, and Small Business Investment Company Programs
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Small Business Administration (SBA or Agency) is
proposing to use a 24-month average to calculate a business concern's
number of employees for eligibility purposes in all of SBA's programs.
SBA also proposes to permit business concerns in its Business Loan,
Disaster Loan, and Small Business Investment Company (SBIC) Programs to
use a 5-year averaging period, in addition to the existing 3-year
averaging period, for the purposes of calculating annual average
receipts. These proposed changes will allow larger small businesses to
retain their small business size status for longer, and some mid-sized
businesses to regain small business status.
DATES: SBA must receive comments to this proposed rule on or before
December 2, 2021.
ADDRESSES: Identify your comments by RIN 3245-AH26 and submit them by
one of the following methods: (1) Federal eRulemaking Portal: https://www.regulations.gov, follow the instructions for submitting comments;
or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Office
of Size Standards, U.S. Small Business Administration, 409 Third Street
SW, Mail Code 6530, Washington, DC 20416.
SBA will post all comments to this proposed rule on https://www.regulations.gov. If you wish to submit confidential business
information (CBI) as defined in the User Notice at https://www.regulations.gov, you must submit such information to Khem R.
Sharma, Ph.D., Chief, Office of Size Standards, U.S. Small Business
Administration, 409 Third Street SW, Mail Code 6530, Washington, DC
20416, or send an email to [email protected]. Highlight the
information that you consider to be CBI and explain why you believe SBA
should withhold this information as confidential. SBA will review your
information and determine whether it will make it public.
FOR FURTHER INFORMATION CONTACT: Khem R. Sharma, Ph.D., Chief, Office
of Size Standards, (202) 205-6618 or [email protected].
SUPPLEMENTARY INFORMATION:
I. Background Information
This proposal seeks to implement two legislative enactments that
affect how SBA calculates a business concern's size to determine
whether the business qualifies as small for SBA's contracting, loan,\1\
and assistance programs. First, section 863 of the National Defense
Authorization Act for Fiscal Year 2021, Public Law 116-283 (``NDAA''),
changed the averaging period for SBA's employee-based size standards
from 12 months to 24 months. Second, the Small Business Runway
Extension Act of 2018, Public Law 115-324 (``SBREA'') amended section
3(a)(2)(C)(ii)(II) of the Small Business Act, 15 U.S.C.
632(a)(2)(C)(ii)(II), to modify the requirements for proposed small
business size standards prescribed by an agency without separate
statutory authority to issue size standards.
---------------------------------------------------------------------------
\1\ These changes do not apply to the Paycheck Protection
Program because the authority for that program expired on June 30,
2021.
---------------------------------------------------------------------------
A. Changes to Calculation of Number of Employees
Section 863 of the NDAA amended two provisions of section 3(a)(2)
of the Small Business Act, which sets forth requirements for an agency
that would prescribe a proposed size standard. First, the NDAA provides
that those requirements apply to the SBA when the agency acts pursuant
to the authority in section 3(a)(2)(A) for SBA to specify small
business definitions or size standards. Second, the NDAA amends section
3(a)(2)(C)(ii)(I) such that a proposed size standard for a
manufacturing concern must provide for determining the size of the
concern based on the employment during each of the concern's pay
periods for the preceding 24 months. Previously, the statute specified
the use of a 12-month period.
SBA proposes to implement the change to a 24-month period by
amending 13 CFR 121.106. Section 121.106 currently provides that the
size
[[Page 60397]]
of a business concern under an employee-based size standard is
calculated by averaging the concern's number of employees for each pay
period in the preceding completed 12 calendar months. Part-time and
temporary employees count as full-time employees, and the concern
aggregates the employees of its domestic and foreign affiliates. SBA
proposes to change the 12-month period in Sec. 121.106 to a 24-month
period. As a result, a concern would average its employees over all pay
periods in the preceding completed 24 months. If it has not been in
business for 24 months, the concern would average its number of
employees for each pay period during which it has been in business.
This change to Sec. 121.106 would apply to all employee-based size
standards. Those size standards predominantly apply to manufacturers
but not exclusively. Firms also use SBA's employee-based size standards
in certain mining, utilities, transportation, publishing,
telecommunications, insurance, research and development, and
environmental remediation industries. Significant to government
contracting, nonmanufacturers also qualify for small business status
for government procurement using an employee-based size standard.
Though nonmanufacturers and the nonmanufacturing industries are not
covered by the NDAA's change to proposed size standards, SBA believes
that it would be unworkable to use a 24-month average for manufacturing
industries but retain a 12-month average for other industries with
employee-based size standards. Firms may participate in multiple
industries, and it is burdensome to use different averaging periods for
different industries with employee-based size standards. SBA seeks
comment on whether to include nonmanufacturers and nonmanufacturing
industries in the change to a 24-month average for employee-based
standards.
B. Changes to Calculation of Average Annual Receipts
In a final rule published December 5, 2019 (84 FR 66561), SBA
implemented the SBREA by making changes to its receipts-based size
standards for all SBA programs except the Business Loan and Disaster
Loan Programs. The excepted programs include: (i) The 7(a) Loan
Program, the Microloan Program, the Intermediary Lending Pilot Program,
and the Development Company Loan Program (collectively, the ``Business
Loan Programs''); and (ii) the Physical Disaster Business Loans,
Economic Injury Disaster Loans, Military Reservist Economic Injury
Disaster Loans, and Immediate Disaster Assistance Program loans
(collectively, the ``Disaster Loan Programs'').
This proposed rule would extend the changes to SBA's receipts-based
size standards to the Business Loan and Disaster Loan Programs.
Currently, applicants in those loan programs must calculate their
average annual receipts using a 3-year average. Under this proposal,
applicants may choose to use either a 3-year average or a 5-year
average. Thus, an applicant might be eligible for assistance if its 5-
year average is equal to or less than the size standard, even if it
would otherwise be ineligible because its 3-year average exceeds that
size standard.
SBA also proposes to use the same treatment in SBA's SBIC program
by SBIC applicants to choose to use either a 3-year average or a 5-year
average. Recipients of SBIC assistance were not specifically identified
in the December 2019 rulemaking that applied to all programs.
Therefore, interested parties likely were not attuned to the effect
that the December 2019 final rule might have on SBIC participants. This
proposed rule invites SBICs and their portfolio companies to comment on
SBA's proposed changes to the size rules for that program.
Like the changes in the December 2019 final rule, these proposed
changes will expand the eligibility for SBA assistance to larger small
businesses and some mid-sized businesses. An advanced small business
may be able to retain its small business status for a longer period, if
it is close to exceeding the size standard. A mid-sized business may be
able to regain its small business status, if it would otherwise have
exceeded the size standard.
These proposed changes differ in some respects from what SBA
implemented in the earlier final rule. In particular, this proposal
does not use the ``transition period'' that SBA included with the
December 2019 final rule. That rule applied size-standard changes to
the SBA government contracting programs and other non-loan programs.
Starting on January 6, 2020, those programs began permitting
participants to elect whether to use a 3-year average or a 5-year
average to calculate average annual receipts. That election will end on
January 6, 2022, however, marking the end of the transition period for
those changes. After January 6, 2022, all government contractors will
use a 5-year average for average annual receipts.
Conversely, the changes here allow for an election but do not have
a transition period. SBA intends to make the election available
indefinitely. This recognizes the differences between the loan programs
and the government contracting programs, where firms are competing
against one another. Where there is competition, businesses should be
competing on an equal basis; therefore, the December 2019 final rule
provided that, after the end of the transition period, government
contractors all would use a 5-year averaging period. By contrast, in
the loan programs, loan applicants are evaluated on an applicant-by-
applicant basis. It is thus unnecessary to ensure that applicants use
the same size criteria. As a result, SBA does not believe it is
necessary to limit the election in the loan programs to a two-year
period.
In soliciting comment for the December 2019 final rule, SBA
received some comments from participants in the Business Loan programs.
SBA has considered those comments in preparing this proposed rule.
Prior commenters asked that SBA use the 5-year average only for
calculating average annual receipts, not for other loan application
purposes. Accordingly, this proposal only authorizes the 3-or-5-year
election for the calculation of receipts, not for any other purpose.
Other calculations remain unchanged.
Prior commenters also asked that SBA authorize the Business Loan
Programs to continue to use a 3-year average. Accordingly, this
proposal uses an election, not a mandate. For the most part, lenders
and applicants will continue to be able to use a 3-year average. The
only exception will be where the applicant would not qualify as a small
business using a 3-year average. In that case, the applicant may use a
5-year average if that would qualify the applicant as small. The
applicant also might be able to qualify for loan assistance using the
alternative size standard in section 3(a)(5)(B) of the Small Business
Act.
II. Section-by-Section Analysis
A. Section 121.104
In paragraphs (c)(1), (c)(2), and (c)(3), SBA proposes to add the
SBIC program to the list of programs that are excepted from SBA's
current rule on calculating average annual receipts.
In paragraph (c)(4), SBA proposes to amend the calculation of
average annual receipts for the Business Loan, Disaster Loan, and SBIC
Programs. A business in those programs may calculate its receipts using
either a 3-year average or a 5-year average for the purposes of
determining its size under a receipts-based size standard. This change
does
[[Page 60398]]
not affect the calculation of any other figures in SBA's programs. In
particular, alternative size standards are not affected by this change.
B. Section 121.106
In paragraphs (b)(1) and (b)(3), SBA proposes to amend the current
12-month averaging period to a 24-month averaging period. Businesses
that have been in existence for more than 24 months would calculate
their number of employees by averaging the number of employees for each
pay period for the preceding completed 24 months. Businesses that have
been in existence for fewer than 24 months would average their number
of employees for each pay period during their existence.
C. Section 121.903
In paragraph (a)(1)(i), SBA proposes to amend the averaging period
for size standards proposed by other agencies from a 12-month period to
a 24-month averaging period.
III. Request for Comments
SBA invites comments, input, or suggestions from interested parties
on its proposal to change the 12-month averaging period for employee-
based size standards to a 24-month averaging period.
SBA also invites comments, input, or suggestions from interested
parties on its proposal to permit businesses in the Business Loan,
Disaster Loan, and SBIC programs to use either a 3-year average or a 5-
year average for calculating average annual receipts for the purposes
of qualifying as a small business. The comments should address the
following specific issues pertaining to the SBA's proposal:
1. SBA invites input on its proposal to allow for a 3-or-5-year
election indefinitely, rather than using a transition period that would
end the election on a specified date.
2. SBA invites input on the effects that this proposal would have
on applicants and lenders in the Business Loan Program.
3. SBA invites input on the effects that this proposal would have
on SBICs.
4. SBA invites input on the effects that this proposal would have
on the Disaster Loan Program.
Compliance With Executive Orders 12866, 12988, 13132, and 13563, the
Congressional Review Act (5 U.S.C. 801-808), the Regulatory Flexibility
Act (5 U.S.C. 601-612), and the Paperwork Reduction Act (44 U.S.C. Ch.
35)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is a significant regulatory action for purposes of
Executive Order 12866. Accordingly, below, SBA provides a benefit-cost
analysis of this proposed rule, including: (1) A statement of the need
for the proposed action, and (2) an evaluation of the benefits and
costs--both quantitative and qualitative--of this regulatory action.
Congressional Review Act
OIRA has determined that this is not a major rule under 5 U.S.C.
804(2).
Subtitle E of the Small Business Regulatory Enforcement Fairness
Act of 1996 (codified at 5 U.S.C. 801-808), also known as the
Congressional Review Act or CRA, generally provides that before a rule
may take effect, the agency promulgating the rule must submit a rule
report, which includes a copy of the rule, to each House of the
Congress and to the Comptroller General of the United States. SBA will
submit a report containing this rule and other required information to
the U.S. Senate, the U.S. House of Representatives, and the Comptroller
General of the United States. A major rule under the CRA cannot take
effect until 60 days after it is published in the Federal Register.
OIRA has determined that this rule is not a ``major rule'' as defined
by 5 U.S.C. 804(2).
Regulatory Impact Analysis
A. Benefit-Cost Analysis
1. What is the need for this regulatory action?
As stated elsewhere, the Small Business Act delegates to SBA's
Administrator the responsibility for establishing small business size
definitions (usually referred to as ``size standards''). First, Public
Law 116-283 changed the averaging period for SBA's employee-based size
standards from 12 months to 24 months. Second, in 2018, Public Law 115-
324 modified the requirements for proposed small business size
standards prescribed by an agency without separate statutory authority
to issue size standards. Specifically, Public Law 115-324 changed the
averaging period for receipts-based size standards for services
industries from 3 years to 5 years.
The need of this proposed rule is to carry out the intent of Public
Law 116-283 and Public Law 115-324, and to ensure consistency in the
calculation of average number of employees and average annual receipts
for size standards across the Federal Government. In addition to the
averaging requirements, size standards prescribed under section
3(a)(2)(C)(ii) of the Small Business Act must meet two other
requirements: (1) Be proposed with an opportunity for public notice and
comment, and (2) be approved by the Administrator. Neither Public Law
116-283 nor Public Law 115-324 repeals these 2 requirements, and this
proposed rule satisfies these requirements.
SBA's mission is to aid and assist small businesses through a
variety of financial, procurement, business development and counseling,
and disaster assistance programs. This regulatory action promotes the
Administration's goals and objectives and meets the SBA's statutory
responsibility to implement a new law impacting size definitions for
small businesses. One of SBA's goals in support of promoting the
Administration's objectives is to help small businesses succeed through
access to capital, Federal Government contracts and purchases, and
management, technical and disaster assistance.
2. What are the potential effects of this regulatory action?
i. Potential Effects of Changing the Calculation of Employees
Changing the periods for calculating average number of employees
from 12 months to 24 months may enable some mid-size businesses that
have just exceeded size standards to regain small business status.
Similarly, it could also allow some advanced and larger small
businesses about to exceed size standards to retain their small status
for a longer period. However, it could also result in some advanced
small businesses having the 24-months employee average that happens to
be higher than the 12-month employee average, thus ejecting them out of
their small business status sooner. Detailed impacts of the proposed
change are discussed below.
It is difficult to determine the actual number of small and mid-
size businesses that would be impacted by Public Law 116-283 and this
regulatory action because there is no data on businesses' employment by
month or by pay period. The employment data from the Economic Census
special tabulation are only available once every 5 years. Similarly,
the System for Award Management (SAM) only records the data on the
concern's average number of employees for each pay period in the
preceding completed 12 calendar months, but not their employee counts
for each pay period or each month. For example, the 12-month average
employee data for January 2020 is an
[[Page 60399]]
average of number of employees for each pay period during preceding
completed 12 calendar months (i.e., January 2019 to December 2019).
Similarly, the 24-month average employee value for January 2020 is an
average of number of employees for each pay period during preceding
completed 24 calendar months (i.e., January 2018 to December 2019).
Given the lack of employment data for each pay period or each
month, SBA approximates a firm's 24-month average number of employees
for January 2020 as follows:
[GRAPHIC] [TIFF OMITTED] TP02NO21.000
To estimate the 24-month employee average using the above formula,
SBA analyzed the 2019 SAM extracts (as of September 1, 2019) and 2018
SAM extracts (as of September 1, 2018). The 24-month average employee
formula would only work for businesses that were present in both 2018
and 2019 SAM extracts. One challenge was that some businesses found in
2019 SAM could not be found in 2018 SAM and vice versa. Excluding
entities registered in SAM for purposes other than government
contracting and entities ineligible for small business consideration
(such as foreign governments and state-controlled institutions of
higher learning), there were a total of 152,450 unique business
concerns in 2019 SAM subject to at least one employee-based size
standard. Of these concerns, 131,295 (or about 86.1 percent) were
``small'' in all North American Industry Classification System (NAICS)
industries, 2,663 (or 1.7 percent) were ``small'' in some industries
and ``not small'' in other industries, and 18,492 (or 12.1 percent)
were ``not small'' in any industry subject to an employee-based size
standard.
Excluding entities with ``null'' or ``zero'' employee values,
128,599 firms (or about 84.4 percent) appeared both in 2019 SAM and in
2018 SAM and were included in the 24-month average employee
approximation and calculation of number of businesses impacted. Of
those 128,599 matched firms subject to an employee-based size standard,
108,541 (or about 84.4 percent) were ``small'' in all NAICS industries,
2,526 (or 2.0 percent) were ``small'' in some industries and other than
small (``not small'') in other industries, and 17,532 (or about 13.6
percent) were ``not small'' in any industry. In other words, 133,958
(or 87.9 percent) of 152,450 total concerns in SAM 2019 and 111,067 (or
86.4 percent) of 128,599 total matched firms were small in at least one
NAICS industry with an employee-based size standard. These results are
summarized in Table 1, ``Size Status of Businesses in Industries
Subject to Employee-Based Size Standards,'' below.
Table 1--Size Status of Businesses in Industries Subject to Employee-Based Size Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total firms in 2019 SAM Firms in both 2018 SAM and
subject to least one employee- 2019 SAM (matched)
based size standard -------------------------------- Total to
Size status -------------------------------- % matched matched ratio
Number of Number of % *
firms % firms
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small in at least one industry.......................... 133,958 87.9 111,067 86.4 82.9 1.206
Small in all industries................................. 131,295 86.1 108,541 84.4 82.7 1.210
Small in some and not small in others................... 2,663 1.7 2,526 2.0 94.9 1.054
Large in all industries................................. 18,492 12.1 17,532 13.6 94.8 1.055
-----------------------------------------------------------------------------------------------
Total............................................... 152,450 100.0 128,599 100.0 84.4 1.185
--------------------------------------------------------------------------------------------------------------------------------------------------------
According to Table 2, ``Distribution of Business Concerns Subject
to Employee-Based Size Standards by Number of NAICS Codes,'' below, the
distribution of firms by the number of NAICS codes in the matched data
is very similar to that for the overall 2019 SAM data. About 45 percent
of firms were in only one NAICS code that has an employee-based size
standard, about 40 percent in 2-5 NAICS codes, about 9 percent in 6-10
NAICS codes, and about 5 percent in more than 10 NAICS codes. In other
words, 55 percent of firms were in multiple NAICS codes with employee-
based size standards. Thus, it is quite possible that the proposed
change may impact a firm's small business status in multiple
industries. For purposes of this analysis, an impacted firm is defined
as one that would be impacted by the change in terms of gaining,
regaining, extending, or losing small business status in at least one
industry with an employee-based size standard.
[[Page 60400]]
Table 2--Distribution of Business Concerns Subject to Employee-Based Size Standards by Number of NAICS Codes
----------------------------------------------------------------------------------------------------------------
Total firms in 2019 SAM with Matched firms between 2019 and
at least one employee-based 2018 SAM
Number of NAICS codes NAICS code -------------------------------
--------------------------------
Count % Count %
----------------------------------------------------------------------------------------------------------------
1 NAICS code.................................... 70,200 46.0 57,498 44.7
2 to 5 NAICS codes.............................. 61,266 40.2 52,599 40.9
6 to 10 NAICS codes............................. 13,540 8.9 11,798 9.2
>10 NAICS codes................................. 7,444 4.9 6,704 5.2
---------------------------------------------------------------
Total....................................... 152,450 100.0 128,599 100.0
----------------------------------------------------------------------------------------------------------------
Note: A business concern is defined in terms of a unique local (vendor) DUNS number.
A central premise of Public Law 116-283 is that a 24-month employee
average (as opposed to a 12-month employee average) would enable some
mid-size businesses who have recently exceeded the size standard to
regain small business status and some advanced small businesses close
to exceeding the size standard to retain their small business status
for a longer period. However, this premise would only hold true when
businesses' monthly employees are rising. When businesses' monthly
employees are declining, due to economic downturns or other factors,
the 24-month employee average could be higher than the 12-month
employee average, thereby causing small businesses close to their size
standards based on the 12-month average to lose their small business
status sooner. In some cases where the 24-month employee average could
be higher than the size standard, thereby forcing small businesses to
lose their small status immediately when the longer 24-month averaging
period becomes effective. Additionally, such businesses with declining
employees would have to wait longer to regain their small business
status.
ii. Potential Effects of Changing the Calculation of Receipts
Changing the periods for calculating average annual receipts from 3
years to 5 years, pursuant to Public Law 115-324, may enable some mid-
size businesses that have just exceeded size standards to regain small
business status. Similarly, it could also allow some advanced and
larger small businesses about to exceed size standards to retain their
small business status for a longer period. However, it could also
result in some advanced small businesses having a 5-year receipts
average that happens to be higher than the 3-year receipts average,
thus ejecting them out of their small business status sooner. To
mitigate this negative impact, SBA proposes to allow applicants to its
Business Loan, Disaster Loan, and SBIC Programs to choose either a 3-
year average or a 5-year average. Thus, an applicant might be eligible
for assistance if its 5-year average is equal to or less than the size
standard, even if it would otherwise be ineligible under the 3-year
average. Detailed impacts of the proposed change are discussed below.
It is difficult to determine the actual number of small and mid-
size businesses that would be impacted by Public Law 115-324 and this
regulatory action because there is no annual data on receipts of
businesses. The annual receipts data from the Economic Census special
tabulation are only available once every 5 years. Similarly, the System
for Award Management (SAM) only records the data on 3-year average
annual receipts of businesses over their 3 preceding fiscal years, but
not their annual receipts for each fiscal year. For example, the
receipts data for year 2019 is an average of annual receipts for 2018,
2017, and 2016. Similarly, the receipts data for 2018 is an average of
annual receipts for 2017, 2016, and 2015, and so on. A 5-year receipts
average for 2019 would be an average of annual receipts for 2018, 2017,
2016, 2015, and 2014.
Given the lack of annual receipts for each year, SBA approximated a
firm's 5-year average annual revenue for 2019 as follows:
[[Page 60401]]
[GRAPHIC] [TIFF OMITTED] TP02NO21.001
This result may slightly underestimate the 5-year revenue average
when annual revenues are rising (i.e., 2015 revenue >2014 revenue >2013
revenue) and overestimate it if annual revenues are declining (i.e.,
2015 revenue <2014 revenue <2013 revenue).
To estimate the 5-year receipts average for 2019 using the above
formula, SBA analyzed the 2019 SAM extracts (as of September 1, 2019)
and 2016 SAM extracts (as of September 1, 2016). The above 5-year
average annual receipts formula would only work for businesses that
were present in both 2016 and 2018 SAM extracts. One challenge was that
some businesses found in 2019 SAM could not be found in 2016 SAM and
vice versa. Excluding entities registered in SAM for purposes other
than government contracting and entities ineligible for small business
consideration (such as foreign governments and state-controlled
institutions of higher learning), there were a total of 334,990 unique
business concerns in 2019 SAM subject to at least one receipts-based
size standard. Of these concerns, 282,671 (or about 84.4 percent) were
``small'' in all North American Industry Classification System (NAICS)
industries, 9,783 (or 2.9 percent) were ``small'' in some industries
and ``not small'' in other industries, and 42,536 (or 12.7 percent)
were ``not small'' in any industry.
Excluding entities with ``null'' or ``zero'' receipts values,
192,295 firms (or about 57.4 percent) appeared both in 2019 SAM and in
2016 SAM and were included in the 5-year average annual receipts
approximation and calculation of number of businesses impacted. Of
those 192,295 matched firms subject to a receipts-based size standard,
152,040 (or about 79 percent) were ``small'' in all NAICS industries,
8,081 (or 4.2 percent) were ``small'' in some industries and other than
small (``not small'') in other industries, and 32,174 (or about 16.7
percent) were ``not small'' in any industry. In other words, 292,454
(or 87.3 percent) of 334,990 total concerns in SAM 2019 and 160,121 (or
83.3 percent) of 192,295 total matched firms were small in at least one
NAICS industry with a receipts-based size standard. These results are
summarized in Table 3, ``Size Status of Businesses in Industries
Subject to Receipts-Based Size Standards,'' below.
Table 3--Size Status of Businesses in Industries Subject to Receipts-Based Size Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total firms in 2019 SAM Firms in both 2016 SAM and
subject to least one receipts- 2019 SAM (matched)
based standard -------------------------------- Total to
Size status -------------------------------- % Matched matched ratio
Number of Number of % *
firms % firms
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small in at least one industry.......................... 292,454 87.3 160,121 83.3 54.8 1.826
Small in all industries................................. 282,671 84.4 152,040 79.1 53.8 1.859
Small in some and not small in others................... 9,783 2.9 8,081 4.2 82.6 1.211
Large in all industries................................. 42,536 12.7 32,174 16.7 75.6 1.322
-----------------------------------------------------------------------------------------------
Total............................................... 334,990 100.0 192,295 100.0 57.4 1.742
--------------------------------------------------------------------------------------------------------------------------------------------------------
* To be used to translate the results from the matched data to overall 2019 SAM data.
According to Table 4, ``Distribution of Business Concerns Subject
to Receipts-Based Size Standards by Number of NAICS Codes,'' below, the
distribution of firms by the number of NAICS codes in the matched data
is very similar to that for the overall 2019 SAM data. About 41-43
percent of firms were in only one NAICS code that has a receipts-based
size standard, about 35 percent in 2-5 NAICS codes, about 12 percent in
6-10 NAICS codes, and about 8-10 percent in more than 10 NAICS codes.
In other words, 57-59 percent of firms were in multiple NAICS codes
with receipts-based size standards. Thus, it is quite possible that the
proposed change may impact a firm's
[[Page 60402]]
small business status in multiple industries. For purposes of this
analysis, an impacted firm is defined as one that would be impacted by
the change in terms of gaining, regaining, extending, or losing small
business status in at least one industry with a receipts-based size
standard.
Table 4--Distribution of Business Concerns Subject to Receipts-Based Size Standards by Number of NAICS Codes
----------------------------------------------------------------------------------------------------------------
Total firms in 2019 SAM with Matched firms between 2019 and
at least one receipts-based 2016 SAM
Number of NAICS codes NAICS code -------------------------------
--------------------------------
Count % Count %
----------------------------------------------------------------------------------------------------------------
1 NAICS code.................................... 145,267 43.4 79,701 41.4
2 to 5 NAICS codes.............................. 120,078 35.8 68,168 35.4
6 to 10 NAICS codes............................. 40,595 12.1 24,461 12.7
>10 NAICS codes................................. 29,050 8.7 19,965 10.4
---------------------------------------------------------------
Total....................................... 334,990 100.0 192,295 100.0
----------------------------------------------------------------------------------------------------------------
Note: A business concern is defined in terms of a unique local (vendor) DUNS number.
A central premise of Public Law 115-324 is that a 5-year annual
receipts average (as opposed to a 3-year annual receipts average) would
enable some mid-size businesses who have recently exceeded the size
standard to regain small business status and some advanced small
businesses close to exceeding the size standard to retain their small
business status for a longer period. However, this premise would only
hold true when businesses' annual revenues are rising. When businesses'
annual revenues are declining, due to economic downturns or other
factors, the 5-year annual receipts average could be higher than the 3-
year annual receipts average, thereby causing small businesses close to
their size standards to lose their small business status sooner. To
mitigate such negative impacts on small businesses, SBA proposes, in
consideration of public comments on the prior proposed rule and the
results from its own analysis, to permit businesses in the Business
Loan, Disaster Loan, and SBIC Programs to use either a 3-year average
or a 5-year average for calculating average annual receipts for the
purposes of qualifying as a small business.
B. Impacts on Businesses From Proposed Changes in Calculation of
Employees and Receipts for Size Standards
1. Impacts on Businesses From Changing the Averaging Period for
Employees From 12 Months to 24 Months
By comparing the approximated 24-month employee average with the
current employee-based size standard for each of the 128,599 matched
business concerns in each NAICS code subject to an employee-based size
standard, SBA identifies the following 4 possible impacts from changing
the averaging period for employees from 12 months to 24 months:
i. The number of mid-size businesses that have exceeded the size
standard and would regain small business status in at least one NAICS
industry with an employee-based size standard (i.e., 12-month average >
size standard >= 24-month average)--expansive impact;
ii. The number of advanced small businesses within 10 percent below
the size standard that would have their small business status extended
for a longer period in at least one NAICS industry with an employee-
based standard (24-month average < 12-month average <= size standard
and 0.9*size standard < 12-month average <= size standard)--expansive
impact;
iii. The number of currently small businesses that would lose their
small business status in at least one NAICS industry subjected to an
employee-based size standard (i.e., 12-month average <= size standard <
24-month average)--contractive impact; and
iv. The number of advanced small businesses within 10 percent below
the size standard that would have their small status shortened in at
least one NAICS industry subject to an employee-based standard (12-
month average < 24-month average <= size standard and 0.9*size standard
< 12-month average <= size standard)--contractive impact.
In this proposed rule, SBA is changing the period for calculation
of average employees for all of its employee-based size standards from
12 months to 24 months. The purpose of Public Law 116-283 is to allow
small businesses more time to grow and develop competitiveness and
infrastructure so that they are better prepared to succeed under full
and open competition once they outgrow the size threshold. However, as
stated previously, a longer 24-month averaging period may not always
and necessarily provide relief to every small business concern. As
discussed previously, when monthly employees are declining, the 24-
month average would be higher than the 12-month average, thereby
ejecting some advanced small businesses out of their small business
status sooner or rendering some small businesses under the 12-month
average not small immediately.
As discussed earlier, the change in the averaging period for
employees from 12 months to 24 months results in four different types
of impacts on small businesses: (i) Enabling current large or mid-size
businesses to gain small business status (impact i); (ii) enabling
current advanced small businesses to lengthen their small business
status (impact ii); (iii) causing current small businesses to lose
their small business status (impact iii); and (iv) causing current
small businesses to shorten their small business status (impact iv).
Table 5, ``Percentage Distribution of Impacted Firms with Employee
Based Size Standards by the Number of NAICS Codes,'' below, provides
these results based on the 2019 SAM--2018 SAM matched firms.
It is highly notable that the distribution of impacted firms by the
number of NAICS codes, as shown in Table 5, is very different as
compared to a similar distribution based on the overall matched and
total 2019 SAM data (see Table 2), especially with respect to firms
with only one NAICS code and those with more than 5 NAICS codes. For
example, about 45 percent of all firms in the overall data were
associated with only one NAICS code, as compared only about 20 percent
among impacted firms. Similarly, firms with more than 5 NAICS codes
accounted for about 13-14 percent of all firms in the original data, as
compared
[[Page 60403]]
to 30-40 percent among impacted firms. It is also notable that, among
the industries with employee-based size standard, NAICS Sectors 31-33
and 42 together accounted for about 90 percent of impacted firms (in
terms of both contractive and expansive impacts), with Sector 31-33
(Manufacturing) accounting for about 65 percent and Sector 42
(Wholesale Trade) about 25 percent.
Table 5--Percentage Distribution of Impacted Firms With Employee Based Size Standards by the Number of NAICS Codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
% Distribution of impacted firms by number of NAICS codes
Number of -------------------------------------------------------------------------------
Impact * impacted firms 2-5 NAICS 6-10 NAICS >10 NAICS
1 NAICS code codes codes codes Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Currently small in all NAICS codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (ii)............................................. 195 33.3 47.2 10.3 9.2 100
Impact (iii)............................................ 178 33.1 44.4 15.7 6.7 100
Impact (iv)............................................. 66 19.7 47.0 13.6 19.7 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
Currently large business in all NAICS codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i).............................................. 188 39.9 44.1 11.2 4.8 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
Currently small in some NAICS and not small in others
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i).............................................. 182 0 34.1 31.9 34.1 100
Impact (ii)............................................. 130 0 36.2 32.3 31.5 100
Impact (iii)............................................ 42 0 40.5 40.5 19.0 100
Impact (iv)............................................. 20 0 50 15 35 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total impact by impact type
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i).............................................. 370 20.3 39.2 21.4 19.2 100
Impact (ii)............................................. 325 20.0 42.8 19.1 18.2 100
Impact (iii)............................................ 220 18.2 29.5 13.8 6.2 100
Impact (iv)............................................. 86 15.1 47.7 14.0 23.3 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
Overall impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expansive............................................... 689 20.3 40.8 20.2 18.7 100
Contractive............................................. 306 23.5 44.8 18.6 13.1 100
-----------------------------------------------------------------------------------------------
Total............................................... 995 21.3 42.0 19.7 17.0 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Impact (i) = Current large businesses gaining small status; Impact (ii) = Current small businesses extending small status; Impact (iii) = Current
small businesses losing small status; Impact (iv) = Current small businesses shortening small status.
Each of these impacts was then multiplied by an applicable factor
or ratio, as shown in the last column of Table 1, to obtain the
respective impacts corresponding to all firms in 2019 SAM subject to at
least one employee-based size standard. These results are presented
below in Table 6, ``Impacts from Changing the Averaging Period for
Employees from 12 Months to 24 Months.'' The last column of the table
shows the percent of firms impacted relative to all business concerns
in 2019 SAM. Because the SAM data only captures businesses that are
primarily interested in Federal procurement opportunities, the SAM-
based results do not fully capture the impacts the proposed change may
have on businesses participating in various non-procurement programs
that apply to SBA's employee-based size standards, such as SBA loan
programs and exemptions from compliance with paperwork and other
regulatory requirements.
The Economic Census, combined with the Census of Agriculture and
County Business Patterns Reports, provides for each NAICS code
information on the number of total small and large businesses subjected
to an employee-based size standard. Based on the matched SAM data, SBA
computed percentages of businesses impacted under each impact category
for each NAICS industry subject to an employee-based size standard. By
applying such percentages to the 2012 Economic Census tabulation (the
latest available), SBA estimated the number of all businesses impacted
under each impact type for each NAICS code subject to an employee-based
size standard. These results are presented in Table 7, ``Impacts from
Changing the Averaging Period for Employees from 12 Months to 24 Months
(2012 Economic Census),'' below.
[[Page 60404]]
Table 6--Impacts From Changing the Averaging Period for Employees From 12 Months to 24 Months
----------------------------------------------------------------------------------------------------------------
Firms
impacted in Total to Total firms Total firms in
Impact \1\ matched matched ratio impacted in 2019 SAM % Impacted
dataset 2019 SAM
----------------------------------------------------------------------------------------------------------------
Entities only small under all NAICS code(s)
----------------------------------------------------------------------------------------------------------------
Impact (ii)..................... 195 1.210 236 131,295 0.2
Impact (iii).................... 178 1.210 215 131,295 0.2
Impact (iv)..................... 66 1.210 80 131,295 0.1
----------------------------------------------------------------------------------------------------------------
Entities other than small under all NAICS code(s)
----------------------------------------------------------------------------------------------------------------
Impact (i)...................... 188 1.055 198 18,492 1.1
----------------------------------------------------------------------------------------------------------------
Entities small in some NAICS code(s) and other than small in other(s)
----------------------------------------------------------------------------------------------------------------
Impact (i)...................... 182 1.054 192 2,663 7.2
Impact (ii)..................... 130 1.054 137 2,663 5.1
Impact (iii).................... 42 1.054 44 2,663 1.7
Impact (iv)..................... 20 1.054 21 2,663 0.8
----------------------------------------------------------------------------------------------------------------
Total impact by impact type
----------------------------------------------------------------------------------------------------------------
Impact (i)...................... 370 .............. 390 21,155 1.8
Impact (ii)..................... 325 .............. 373 133,958 0.3
Impact (iii).................... 220 .............. 260 133,958 0.2
Impact (iv)..................... 86 .............. 101 133,958 0.1
----------------------------------------------------------------------------------------------------------------
Overall total by expansive or contractive impact \2\
----------------------------------------------------------------------------------------------------------------
Expansive [impact (i) or impact 689 1.098 757 152,450 0.5
(ii)]..........................
Contractive [impact (iii) or 306 1.178 361 152,450 0.2
impact (iv)]...................
-------------------------------------------------------------------------------
Total impact................ 995 .............. 1,117 152,450 0.7
----------------------------------------------------------------------------------------------------------------
\1\ Impact (i) = Current large businesses gaining small business status; Impact (ii) = Current small businesses
extending small status; Impact (iii) = Current small businesses losing small status; Impact (iv) = Current
small businesses shortening small status.
\2\ Number of firms under overall positive, negative and total impacts refer to the number of unique firms. Some
firms could appear in multiple impact types and hence individual impacts may not add up to overall impact.
Table 7--Impacts From Changing the Averaging Period for Employees From 12 Months to 24 Months
[2012 Economic census]
----------------------------------------------------------------------------------------------------------------
Total firms Estimate of
Impact \1\ (in million) impacted firms % Impacted
----------------------------------------------------------------------------------------------------------------
Impact (i)...................................................... 22,324 281 1.3
Impact (ii)..................................................... 657,942 1,203 0.2
Impact (iii).................................................... 657,942 763 0.1
Impact (iv)..................................................... 657,942 287 0.04
----------------------------------------------------------------------------------------------------------------
Overall impact
----------------------------------------------------------------------------------------------------------------
Expansive [impact (i) or impact (ii)]........................... 680,266 1,484 0.2
Contractive [impact (iii) or impact (iv)]....................... 657,942 1,050 0.2
-----------------------------------------------
Total impact................................................ 680,266 2,534 0.4
----------------------------------------------------------------------------------------------------------------
\1\ Impact (i) = Current large businesses gaining small status; Impact (ii) = Current small businesses extending
small status; Impact (iii) = Current small businesses losing small status; Impact (iv) = Current small
businesses shortening small status.
Currently large or mid-size businesses regaining small business
status would become eligible for various benefits as small business
concerns, including access to Federal set-aside contracts, SBA's
guaranteed loans and disaster assistance, reduced patent fees, and
exemptions from various compliance and paperwork requirements. With
their small business status extended, advanced small businesses would
continue to receive such benefits for a longer period. However, the
proposed change may also cause some small businesses to lose their
small business status in at least one employee-based size standard and
access to small business assistance, especially Federal set-aside
opportunities.
2. Impacts on Businesses From Changing the Averaging Period for
Receipts From 3 Years to 5 Years
By comparing the approximated 5-year annual receipts average with
the current receipts-based size standard for each of the 192,295
matched business concerns in each NAICS code subject to a receipts-
based size standard, in this proposed rule, SBA identifies the
[[Page 60405]]
following 4 possible impacts from changing the averaging period for
annual receipts from 3 years to 5 years:
i. The number of mid-size businesses that have exceeded the size
standard and would regain small business status in at least one NAICS
industry with a receipts-based size standard (i.e., 3-year average >
size standard >= 5-year average)--expansive impact;
ii. The number of advanced small businesses within 10 percent below
the size standard that would have their small business status extended
for a longer period in at least one NAICS industry with a receipts-
based standard (5-year average < 3-year average <= size standard and
0.9*size standard < 3-year average <= size standard)--expansive impact;
iii. The number of currently small businesses that would lose their
small business status in at least one NAICS industry subjected to a
receipts-based size standard (i.e., 3-year average <= size standard <
5-year average)--contractive impact; and
iv. The number of advanced small businesses within 10 percent below
the size standard that would have their small business status shortened
in at least one NAICS industry subject to a receipts-based standard (3-
year average < 5-year average <= size standard and 0.9*size standard <
3-year average <= size standard)--contractive impact.
In this proposed rule, SBA is changing the period for calculation
of average annual receipts for SBA receipts-based size standards for
Business Loan, Disaster Loan, and SBIC Programs from 3 years to 5
years. The purpose of Public Law 115-324 is to allow small businesses
more time to grow and develop competitiveness and infrastructure so
that they are better prepared to succeed under full and open
competition once they outgrow the size threshold. However, a longer 5-
year averaging period may not always and necessarily provide relief to
every small business concern. As discussed in the prior proposed rule,
when annual revenues are declining or when annual revenues for the
latest 3 years are lower than those for the earliest 2 years of the 5-
year period, the 5-year average would be higher than the 3-year
average, thereby ejecting some advanced small businesses out of their
small business status sooner or rendering some small businesses under
the 3-year average not small immediately.
There are 4 different types of impacts on small businesses from
changes to the averaging period for annual receipts from 3 years to 5
years as follows: (i) Enabling current large or mid-size businesses to
gain small business status (impact i); (ii) enabling current advanced
small businesses to lengthen their small business status (impact ii);
(iii) causing current small businesses to lose their small business
status (impact iii); and (iv) causing current small businesses to
shorten their small business status (impact iv).
However, with the SBA's proposal to permit businesses in the
Business Loan, Disaster Loan, and SBIC programs to use either a 3-year
average or a 5-year average for calculating average annual receipts for
the purposes of qualifying as a small business, the two contractive
impacts (namely impact (iii) and impact (iv)) do not apply to this
proposed rule. Accordingly, this proposed rule provides the analysis of
the two expansive impacts of changing the averaging periods for annual
receipts from 3 years to 5 years (namely impact (i) and impact (ii))
only.
Table 8, ``Percentage Distribution of Impacted Firms with Receipts
Based Size Standards by the Number of NAICS Codes,'' below, provides
these results based on the 2019 SAM--2016 SAM matched firms.
Table 8--Percentage Distribution of Impacted Firms With Receipts Based Size Standards by the Number of NAICS Codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
% Distribution of impacted firms by number of NAICS codes
Number of -------------------------------------------------------------------------------
Impact * impacted firms 2-5 NAICS 6-10 NAICS >10 NAICS
1 NAICS code codes codes codes Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Currently large in all NAICS codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i).............................................. 899 36.3 33.9 12.6 17.2 100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Currently small in all NAICS codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (ii)............................................. 1,227 27.3 36.3 17.8 18.6 100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Currently small in some NAICS and not small in others
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i).............................................. 1,761 0 27.4 22.7 50.0 100.0
Impact (ii)............................................. 1,072 0 27.8 24.3 47.9 100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total impact by impact type
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i).............................................. 2,660 12.3 29.6 19.2 38.9 100.0
Impact (ii)............................................. 2,299 14.6 32.3 20.8 32.3 100.0
-----------------------------------------------------------------------------------------------
Total expansive impact.............................. 4,702 14.1 31.8 20.2 34.0 100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Impact (i) = Current large businesses gaining small business status; and Impact (ii) = Current small businesses extending small business status.
It is highly notable that the distribution of impacted firms by the
number of NAICS codes, as shown in Table 8, is very different as
compared to a similar distribution based on the overall matched and
total 2019 SAM data (see Table 4), especially with respect to firms
with only one NAICS code and those with more than 5 NAICS codes. For
example, as shown in Table 4, above, more than 40 percent of all firms
in the overall data were associated with only one NAICS code, as
compared to less than 15 percent among impacted firms in Table 8.
Similarly, firms with more than 5 NAICS codes accounted for about 20
percent of all firms in the original data, as compared to more than
[[Page 60406]]
50 percent among impacted firms. It is also notable that, among the
industries with receipts based size standards, NAICS Sectors 54, 56,
and 23 together accounted for more than 70 percent of impacted firms,
with Sector 54 (Professional, Scientific and Technical Services)
accounting for about 30-35 percent, followed by Sector 23
(Construction) about 25-30 percent, and Sector 56 (Administrative and
Support, Waste Management and Remediation Services) about 10-13
percent.
Each of these impacts was then multiplied by an applicable factor
or ratio, as shown in the last column of Table 3, to obtain the
respective impacts corresponding to all firms in 2019 SAM subject to at
least one receipts-based size standard. These results are presented
below in Table 9, ``Impacts from Changing the Averaging Period for
Receipts from 3 Years to 5 Years.'' The last column of the table shows
the percent of firms impacted relative to all business concerns in 2019
SAM.
Because the SAM data only captures businesses that are primarily
interested in Federal procurement opportunities, the SAM-based results
do not fully capture the impacts the proposed change may have on
businesses participating in various non-procurement programs that apply
SBA's receipts-based size standards, such as exemptions from compliance
with paperwork and other regulatory requirements.
Table 9--Impacts From Changing the Averaging Period for Receipts From 3 Years to 5 Years
----------------------------------------------------------------------------------------------------------------
Firms
impacted in Total to Total firms Total firms in
Impact \1\ matched matched ratio impacted in 2019 SAM % Impacted
dataset (Table 1) 2019 SAM
----------------------------------------------------------------------------------------------------------------
Entities other than small under all NAICS code(s)
----------------------------------------------------------------------------------------------------------------
Impact (i)...................... 899 1.32 1,189 42,536 2.8
----------------------------------------------------------------------------------------------------------------
Entities small under all NAICS code(s)
----------------------------------------------------------------------------------------------------------------
Impact (ii)..................... 1,227 1.859 2,281 282,671 0.8
----------------------------------------------------------------------------------------------------------------
Entities small in some NAICS code(s) and other than small in other(s)
----------------------------------------------------------------------------------------------------------------
Impact (i)...................... 1,761 1.211 2,132 9,783 21.8
Impact (ii)..................... 1,072 1.211 1,298 9,783 13.3
----------------------------------------------------------------------------------------------------------------
Total expansive impact by impact type
----------------------------------------------------------------------------------------------------------------
Impact (i)...................... 2,660 .............. 3,320 52,319 6.3
Impact (ii)..................... 2,299 .............. 3,579 292,454 1.2
-------------------------------------------------------------------------------
Overall total expansive 4,702 1.391 6,542 334,990 2.0
impact \2\.................
----------------------------------------------------------------------------------------------------------------
\1\[thinsp]Impact (i) = Current large businesses gaining small business status; and Impact (ii) = Current small
businesses extending small business status.
\2\[thinsp]Number of firms under total positive impacts refer to the number of unique firms. Some firms could
appear in both impact types and hence individual impacts may not add up to overall impact.
The Economic Census, combined with the Census of Agriculture and
County Business Patterns Reports, provides for each NAICS code
information on the number of total small and large businesses subjected
to a receipts-based size standard. Based on the matched SAM data, SBA
computed percentages of businesses impacted under each impact category
for each NAICS industry subject to a receipts-based size standard. By
applying such percentages to the 2012 Economic Census tabulation, SBA
estimated the number of all businesses impacted under each impact type
for each NAICS code subject to a receipts-based size standard. These
results are presented in Table 10, ``Impacts from Changing the
Averaging Period for Receipts from 3 Years to 5 Years (2012 Economic
Census),'' below.
Table 10--Impacts From Changing the Averaging Period for Receipts From 3 Years to 5 Years
[2012 Economic census]
----------------------------------------------------------------------------------------------------------------
Estimate of
Impact \1\ Total firms impacted firms % Impacted
----------------------------------------------------------------------------------------------------------------
Impact (i)...................................................... 271,505 8,565 3.2
Impact (ii)..................................................... 6,896,633 60,176 0.9
-----------------------------------------------
Overall expansive impact.................................... 7,168,138 68,742 1.0
----------------------------------------------------------------------------------------------------------------
\1\ Impact (i) = Current large businesses gaining small business status; and Impact (ii) = Current small
businesses extending small business status.
Currently large or mid-size businesses regaining small business
status would get various benefits as small business concerns, including
access to SBA loan programs, and exemptions from various compliance and
paperwork requirements. With their small business status extended,
advanced small businesses would continue to receive such benefits for a
longer period. However, the change from 3-year average receipts to 5-
year average may also harm some small businesses by causing them to
lose or shorten their small business status in at least one
[[Page 60407]]
receipts-based size standard, thereby depriving them of access to small
business assistance, including SBA's lending. To mitigate such impacts,
SBA is allowing businesses to elect either the 3-year average annual
receipts or the 5-year average annual receipts for the Business Loan,
Disaster Loan, and SBIC programs. SBA seeks comment on implementation
of Public Law 115-324 for the Business Loan, Disaster Loan, and SBIC
programs.
C. The Baseline
1. Baseline for Changing the Averaging Period for Employees From 12
Months to 24 Months
In this rulemaking, SBA establishes an appropriate baseline to
evaluate benefits, costs, or transfer impacts of this action and
alternative approaches considered, if any. A baseline should represent
the agency's best assessment of what the world would look like absent
the regulatory action. For a new regulatory action modifying an
existing regulation (such as changing the calculation of the average
number of employees from 12 months to 24 months), a baseline assuming
no change to the regulation (i.e., maintaining the status quo)
generally provides an appropriate benchmark for evaluating benefits,
costs, or transfer impacts of proposed regulatory changes and their
alternatives.
Based on the 2012 Economic Census special tabulations (the latest
available), 2012 County Business Patterns Reports (for industries not
covered by the Economic Census), and 2012 Agricultural Census
tabulations (for agricultural industries), of a total of about 7.2
million firms in all industries with employee-based size standards,
about 96 percent were considered small and 4 percent other than small
under the 12-month employee average. Similarly, of 334,990 businesses
that were subject to at least one employee-based size standard and
eligible for Federal contracting, 87.3 percent were small in at least
one NAICS code and 12.7 percent other than small in all NAICS codes
with an employee-based size standard.
Based on the data from the Federal Procurement Data System--Next
Generation (FPDS-NG) for fiscal year 2019, on average, about 39,714
unique firms in industries subject to employee-based size standards
received at least one Federal contract during 2019, of which 85.3
percent were small. Businesses subject to employee-based size standards
received $232.6 billion in annual average Federal contract dollars in
2019, of which nearly $47 billion or about 20.2 percent went to small
businesses. Of total dollars awarded to small businesses subject to
employee-based size standards, $23.8 billion or 50.6 percent was
awarded through various small business set-aside programs and 49.4
percent was awarded through non-set aside contracts.
Based on SBA's internal data on its loan programs, small businesses
subject to employee-based size standards received, on an annual basis,
a total of 7,672 7(a) and 504 loans for fiscal years 2018-2020,
totaling $4.9 billion, of which 75 percent was issued through the 7(a)
program and 25 percent was issued through the CDC/504 program. During
fiscal years 2016-2018, small businesses in those industries also
received about 400 loans through the SBA's disaster loan program,
totaling about $0.04 billion on an annual basis. Table 11, ``Baseline
Analysis of Employee-Based Size Standards,'' below, provides these
baseline results.
Besides set-aside contracting and financial assistance discussed
above, small businesses also benefit through reduced fees, less
paperwork, and fewer compliance requirements that are available to
small businesses through Federal agencies that use SBA's size
standards. However, SBA has no data to estimate the number of small
businesses receiving such benefits.
Table 11--Baseline Analysis of Employee-Based Size Standards
------------------------------------------------------------------------
Measure Value
------------------------------------------------------------------------
Total industries subject to employee-based size 500
standards..............................................
Total firms subject to at least one employee-based size 680,266
standard (million)--2012 Economic Census...............
Total small firms subject to at least one employee-based 657,942
size standard (million)--2012 Economic Census..........
Total small firms subject to at least one employee-based 96.7
size standard as % of total firms--2012 Economic Census
Total business concerns in SAM \1\ (as of September 1, 403,116
2019)..................................................
Total business concerns subject to a employee-based size 152,450
standard in at least one NAICS code \2\ (2019 SAM).....
Total businesses that are small in at least one NAICS 133,958
code subject to an employee-based size standard........
Small business concerns as % of total business concerns 87.9
subject to employee-based standards (2019 SAM).........
Average total number of unique Eligible vendors getting 106,230
Federal contracts \1\--FPDS-NG (2019)..................
Average total number of unique firms with employee-based 39,714
size standards getting Federal contracts \2\ --FPDS-NG
(2019).................................................
Average total contract dollars awarded to business $232.6
concerns, subject to employee-based standards ($
billion)--FPDS-NG (2019)...............................
Average total small business contract dollars awarded to $47.1
businesses subject to employee-based standards ($
billion)--FPDS-NG (2019)...............................
Small business dollars as % of total dollars awarded to 20.2
firms subject to employee-based standards..............
Annual average number of 7(a) and 504 loans to 7,672
businesses subject to employee-based standards (2018-
2020)..................................................
Annual average amount of 7(a) and 504 loans ($ billion) $4.9
(2018-2020)............................................
Number of disaster loans to businesses subject to 399
employee-based size standards (2016-2018)..............
Amount of disaster loans ($ billion) (2016-2018)........ $0.04
------------------------------------------------------------------------
\1\ Entities in SAM and FPDS-NG presented above only include business
concerns that can be eligible to qualify as small for Federal
contracting. That is, entities that can never qualify as small (e.g.,
foreign, not-for-profit and government entities) are excluded as they
are not impacted by this rule.
\2\ A business concern could appear in multiple NAICS industries
involving both employee-based and size standards and those based on
other measures (such as employees). Similarly, a business could be
small in some industries and other than small in others.
As mentioned previously, businesses that would regain or lose small
business status can be identified by comparing their 24-month employee
average with the employee-based size standard. That is, if the 24-month
employee average of a firm currently above the size standard is lower
than the applicable employee-based size standard, that firm will gain
or regain small business status. Similarly, if the 24-month employee
average of a currently small business is higher than the size standard,
that business will lose its small business status. However, to estimate
the number
[[Page 60408]]
of small businesses that would benefit by having their small business
status extended for a longer period or would be penalized by having
their small size status shortened, SBA considered small businesses
whose 12-month employee average was within 10 percent below their
employee-based size thresholds. Small businesses that are not
immediately impacted may be impacted either negatively or positively
someday as they continue to grow and approach the size standard
threshold.
2. Baseline for Changing the Averaging Period for Receipts From 3 Years
to 5 Years
For this new regulatory action modifying an existing regulation
(such as changing the average annual receipts calculation from 3 years
to 5 years), a baseline assuming no change to the regulation (i.e.,
maintaining the status quo) generally provides an appropriate benchmark
for evaluating benefits, costs, or transfer impacts of proposed
regulatory changes and their alternatives.
Based on the 2012 Economic Census special tabulations (the latest
available), 2012 County Business Patterns Reports (for industries not
covered by the Economic Census), and 2012 Agricultural Census
tabulations (for agricultural industries), of a total of about 7.2
million firms in all industries with receipts-based size standards,
about 96 percent are considered small and 4 percent other-than-small
under the 3-year annual receipts average. Similarly, of 334,990
businesses in SAM 2019 that were subject to at least one receipts-based
size standard and eligible to qualify as small business concerns, 87.3
percent were small in at least one NAICS code and 12.7 percent other
than small in all NAICS codes.
Based on SBA's internal data on its loan programs, small businesses
subject to receipts-based size standards received, on an annual basis,
a total of about 50,150 7(a) and 504 loans for fiscal years 2018-2020,
totaling nearly $24 billion, of which 85 percent was issued through the
7(a) program and 15 percent was issued through the CDC/504 program.
During fiscal years 2016-2018, small businesses in those industries
also received about 5,585 loans through the SBA's disaster loan
program, totaling about $0.5 billion on an annual basis. Table 12,
``Baseline Analysis of Receipts-Based Size Standards,'' below, provides
these baseline results.
Besides financial assistance discussed above, small businesses also
benefit through reduced fees, less paperwork, and fewer compliance
requirements that are available to small businesses through Federal
agencies that use SBA's size standards. However, SBA has no data to
estimate the number of small businesses receiving such benefits.
Similarly, due to the lack of data, SBA is not able to determine
impacts the proposed rule will have on small businesses participating
in other agencies' programs that are subject to their own size
standards based on average annual receipts.
Table 12--Baseline Analysis of Receipts-Based Size Standards
------------------------------------------------------------------------
Measure Value
------------------------------------------------------------------------
Total industries subject to receipts-based standards.... 518
Total firms subject to at least one receipts-based 7.17
standard (million)--2012 Economic Census...............
Total small firms subject to at least one receipts-based 6.9
standard (million)--2012 Economic Census...............
Total small firms subject to at least one receipts-based 96.2
standard as % of total firms--2012 Economic Census.....
Total business concerns in SAM \1\ (as of September 1, 403,116
2019)..................................................
Total business concerns subject to a receipts-based size 334,990
standard in at least one NAICS code \2\ (2019 SAM).....
Total businesses that are small in at least one NAICS 292,454
code subject to a receipts-based size standard.........
Small business concerns as % of total business concerns 87.3
subject to receipts-based standards (2019 SAM).........
Annual average number of 7(a) and 504 loans to 50,153
businesses subject to receipts-based standards (2018-
2020)..................................................
Annual average amount of 7(a) and 504 loans ($ billion) $23.9
(2018-2020)............................................
Number of disaster loans to businesses subject to 5,585
receipts-based size standards (2016-2018)..............
Amount of disaster loans ($ billion) (2016-2018)........ $0.5
------------------------------------------------------------------------
\1\ Entities in SAM presented above only include business concerns that
can be eligible to qualify as small for Federal assistance. That is,
entities that can never qualify as small (e.g., foreign, not-for-
profit and government entities) are excluded as they are not impacted
by this rule.
\2\ A business concern could appear in multiple NAICS industries
involving both receipts-based size standards and those based on other
measures (such as employees). Similarly, a business could be small in
some industries and other-than-small in others.
Businesses that would regain or expand their small business status
can be identified by comparing the estimate of their 5-year receipts
average with the size standard. That is, if the 5-year receipts average
of a firm currently above the size standard is lower than the
applicable size standard, that firm will gain or regain small business
status. To estimate the number of small businesses that would benefit
by having their small business status extended for a longer period or
would be penalized by having their small business status shortened, SBA
considered small businesses whose 3-year average annual receipts was
within 10 percent below their receipts-based size thresholds. Depending
upon whether their annual receipts are growing or declining, small
businesses that are not immediately impacted may be impacted, either
positively (i.e., gaining small business status) or negatively (i.e.,
losing small business status) someday as they continue to grow and
approach the size standard threshold as in the current 3-year averaging
method. However, SBA is not able to quantify such impacts now.
D. Expansions in Small Business Size Status
1. Expansive Effects of Changing the Averaging Period for Employees
From 12 Months to 24 Months
The most significant expansive effects to businesses from the
proposed change in the averaging period for calculation of the number
of employees for size standards from 12 months to 24 months include:
(i) Enabling some mid-size businesses currently categorized above their
corresponding size standards to gain or regain small business size
status and thereby qualify for participation in Federal assistance
intended for small businesses, and (ii) allowing some advanced and
larger small businesses close to their size thresholds to lengthen
their small business status for a longer period and thereby continue
their participation in Federal small business programs. These programs
include SBA's business and disaster loan programs and Federal
procurement programs intended for small businesses.
[[Page 60409]]
Federal procurement programs provide targeted, set-aside opportunities
for small businesses under SBA's various business development and
contracting programs, including 8(a)/Business Development (BD),
HUBZone, Women-Owned Small Business (WOSB), Economically Disadvantaged
Women-Owned Small Business (EDWOSB), and Service-Disabled Veteran-Owned
Small Business (SDVOSB) programs. Expansive effects accruing to
businesses gaining and extending small status are presented below in
Table 13, ``Expansive Impacts of Changing the Averaging Period for
Employees from 12 Months to 24 Months.'' The results in Table 13
pertain to businesses and industries subject to employee-based size
standards only.
As shown in Table 13, of 21,155 firms not currently considered
small in any employee-based size standards, 390 (or 1.8 percent) would
benefit from the proposed change by gaining or regaining small status
under the 24-month employee average in at least one NAICS industry that
is subject to an employee-based size standard. Additionally, 373 or 0.3
percent of small businesses within 10 percent below size standards
would see their average number of employees decrease under the 24-month
averaging period, consequently enabling them to keep their size status
for a longer period.
Using the 2012 Economic Census, SBA estimated that about 280 or 1.3
percent of currently large businesses would gain or regain small status
and about 1,200 or 0.2 percent of total small businesses would see
their small business status extended for a longer period as the result
of the change in the calculation of employees. These results are shown
in Table 13, below.
With more businesses qualifying as small under the proposed change
in the calculation of employees, Federal agencies will have a larger
pool of small businesses from which to draw for their small business
procurement programs. Growing small businesses that are close to
exceeding the current employee-based size standards will be able to
retain their small business status for a longer period under the 24-
month employee average, thereby enabling them to continue to benefit
from the small business programs.
Table 13--Expansive Impacts of Changing Averaging Period for Employees From 12 Months to 24 Months
----------------------------------------------------------------------------------------------------------------
Large firms Small firms
Impact of proposed change gaining small extending small Total expansive
status status impact
----------------------------------------------------------------------------------------------------------------
Number of impacted industries............................. 196 184 \1\ 260
Number of large firms becoming small or/and small firms 390 373 \2\ 757
extending small status--SAM (as of Sept 1, 2019).........
Large firms becoming small or/and small firms with 1.8 0.3 0.5
extended small status as % of total large or/and small
firms in the baseline--SAM (as of Sept 1, 2019)..........
Number of large firms becoming small or/and small firms 281 1,203 1,484
extending small status--2012 Economic Census.............
Large firms becoming small or/and small firms extending 1.3 0.2 0.2
small status as % of total large or/and small firms in
the baseline--2012 Economic Census.......................
Number of large firms becoming small or/and small firms 139 83 219
extending small status for small business contracts--FPDS-
NG (2019)................................................
Additional small business dollars available to newly $332.7 $90.5 $423.2
qualified firms or/and current small firms with extended
small status ($ million)--FPDS-NG (2019).................
Additional small business dollars as % total small 0.7 0.2 0.9
business contract dollars in the baseline................
Number of additional 7(a) and 504 loans to newly qualified 1 1 2
firms or/and current small firms extending small status..
Additional 7(a) and 504 loan amount to newly qualified $0.01 $0.02 $0.03
firms or/and current small firms extending small status
($ million)..............................................
Additional 7(a) and 504 loan amount as % of total 7(a) and 0.0 0.0 0.001
504 loan amount in the baseline..........................
Number of additional disaster loans to newly qualified 0 0 0
firms or/and small firms extending small status..........
Additional disaster loan amount to newly qualified firms $0 $0 $0
or/and small firms with extended small status ($ million)
Additional disaster loan amount as % of total loan amount 0 0 0
in the baseline..........................................
----------------------------------------------------------------------------------------------------------------
\1\ Total impact represents total unique industries impacted to avoid double counting as some industries have
large firms gaining small status and small firms extending small status.
\2\ Total impact represents total unique firms impacted to avoid double counting as some firms may gain small
business status in at least one NAICS code, while extending small business status in at least one other NAICS
code.
Based on the FPDS-NG data for fiscal year 2019, as shown in Table
13, SBA estimates that those newly qualified small businesses (i.e.,
large businesses gaining small status) under the proposed rule, if
adopted, could receive about $333 million in small business contract
dollars annually under SBA's small business, 8(a)/BD, HUBZone, WOSB,
EDWOSB, and SDVOSB programs. That represents a 0.7 percent increase to
total small business contract dollars from the baseline in Table 11,
above. Additionally, small businesses could receive approximately $90
million in additional small business contract dollars because of
extension of their small business status, which is about a 0.2 percent
increase from the total small business contract dollars in the
baseline. That is, businesses gaining or extending small business
status could receive about $423 million in additional small business
contract dollars, which is a 0.9 percent increase to the total small
business dollars in the baseline.
Under SBA's 7(a) and 504 loan programs, based on the data for
fiscal years 2018-2020, SBA estimates up to about 1 SBA 7(a) and 504
loans totaling nearly $0.01 million could be made to these newly
qualified small businesses under the proposed change. Additionally,
small businesses could receive about 1 SBA 7(a) and 504 loans totaling
nearly $.02 million due to the extension of their size status. These
amounts represent a .001 percent
[[Page 60410]]
increases to the 7(a) and 504 loan amount in the baseline.
Newly qualified small businesses and those with extended small
business status under the 24-month averaging period may also benefit
from the SBA's disaster loan program. However, since the benefit
provided through this program is contingent on the occurrence and
severity of a disaster in the future, SBA cannot make a meaningful
estimate of this impact. Based on the historical trends of the SBA's
disaster loan data which shows that firms receiving loans under
employee-based size standards are well below the industry size
thresholds, SBA estimates that newly defined small businesses and small
businesses extending small business status for a longer period would
not receive any additional disaster loans under the proposed change.
The added competition from more businesses qualifying as small may
result in lower prices to the Federal Government for procurements set
aside or reserved for small businesses, but SBA cannot quantify this
impact. Costs could be higher when full and open contracts are awarded
to HUBZone businesses that receive price evaluation preferences.
However, with agencies likely setting aside more contracts for small
businesses in response to a larger pool of small businesses under the
proposed change, HUBZone firms might actually end up getting more set-
aside contracts and fewer full and open contracts, thereby resulting in
some cost savings to Federal agencies. While SBA cannot estimate such
costs savings, as it is impossible to determine the number and value of
unrestricted contracts to be otherwise awarded to HUBZone firms that
will be awarded as set-asides, such cost savings are likely to be
relatively small as only a small fraction of full and open contracts
are awarded to HUBZone businesses.
Additionally, the newly defined small businesses, as well as those
with a longer small business status, would also benefit from reduced
fees, less paperwork, and fewer compliance requirements but SBA has no
data to quantify this impact.
The proposed change will also address some of the challenges and
uncertainties small businesses face in the open market once they
graduate from their small business status. Small and mid-size
businesses experience a considerable disadvantage in competing for full
and open contracts against large businesses, including the largest in
the industry. These large businesses often have several competitive
advantages over small and mid-size firms, including vast past
performance qualifications and experience, strong brand-name
recognition, a plethora of professional certifications, security
clearances, and greater financial and marketing resources. Small and
mid-size businesses cannot afford to maintain these resources, leaving
them at a considerable disadvantage.
With contracts getting bigger, one large set-aside contract could
throw a firm out of its small business size status, thereby subjecting
it to certain requirements that apply to other-than-small firms, such
as developing subcontracting plans. That firm may not have the
infrastructure, existing business processes, and/or other resources in
place in order to comply with such requirements. This may also result
in constant shuffling between small and other-than-small status.
By allowing smaller mid-size companies that have just exceeded the
size threshold to regain small business status and advanced small
businesses close to size standards to prolong their small business
status for a longer period, this proposed rule can expand the pool of
qualified small firms for agencies to draw upon to meet their small
business requirements.
2. Expansive Effects of Changing the Averaging Period for Receipts From
3 Years to 5 Years
The most significant benefits to businesses from the change in the
period for calculation of average annual receipts from 3 years to 5
years include: (i) Enabling some mid-size businesses currently
categorized above their corresponding size standards to gain or regain
small business status and thereby qualify for participation in Federal
assistance intended for small businesses, including access to SBA's
financial assistance and (ii) allowing some advanced and larger small
businesses close to their size thresholds to lengthen their small
business status for a longer period and thereby continue their
participation in SBA's Business Loan, Disaster Loan and SBIC Programs.
Benefits accruing to businesses gaining and extending small business
status are presented below in Table 14, ``Expansive Impacts of Changing
the Averaging Period for Receipts from 3 Years to 5 Years.'' The
results in Table 14 pertain to businesses and industries subject to
SBA's receipts-based size standards only.
As shown in Table 14, of 42,536 firms not currently considered
small in any receipts-based size standards, 3,320 (or 6.4 percent)
would benefit from the proposed change by gaining or regaining small
business status under the 5-year receipts average in at least one NAICS
industry that is subject to a receipts-based size standard.
Additionally, nearly 3,600 or 1.2 percent of small businesses within 10
percent below size standards would see their annual receipts decrease
under the 5-year averaging period, consequently enabling them to keep
their small business status for a longer period.
Using the 2012 Economic Census, SBA estimated that more than 5,900
or 3.3 percent of currently large businesses would gain or regain small
business status and more than 61,250 or 0.9 percent of total small
businesses would see their small business status extended for a longer
period as the result of this proposed rule. These results are shown in
Table 14, below.
Table 14--Expansive Impacts of Changing the Averaging Period for Receipts From 3 Years to 5 Years
----------------------------------------------------------------------------------------------------------------
Firms gaining Firms extending
Impact of proposed change small business small business Total expansive
status status impact
----------------------------------------------------------------------------------------------------------------
Number of impacted industries............................. 377 382 \1\ 447
Number of large firms becoming small or/and small firms 3,320 3,579 \2\ 6,542
extending small business status--SAM (as of Sept 1, 2019)
Large firms becoming small or/and small firms with 6.35 1.22 1.95
extended small business status as % of total large or/and
small firms in the baseline--SAM (as of Sept 1, 2019)....
Number of large firms becoming small or/and small firms 5,938 61,263 67,201
extending small business status--2012 Economic Census....
Large firms becoming small or/and small firms extending 3.3% 0.9% 0.9%
small business status as % of total large or/and small
firms in the baseline--2012 Economic Census..............
[[Page 60411]]
Number of additional 7(a) and 504 loans to newly qualified 1 4 5
firms or/and current small firms extending small status..
Additional 7(a) and 504 loan amount to newly qualified $0.2 $1.9 $2.1
firms or/and current small firms extending small status
($ million)..............................................
Additional 7(a) and 504 loan amount as % of total disaster 0.0 0.0 0.01
loan amount in the baseline..............................
Number of additional disaster loans to newly qualified 1 1 2
firms or/and small firms extending small status..........
Additional disaster loan amount to newly qualified firms $0.00 $0.01 $0.01
or/and small firms with extended small status ($ million)
Additional disaster loan amount as % of total loan amount 0.0 0.0 0.002
in the baseline..........................................
----------------------------------------------------------------------------------------------------------------
\1\ Total impact represents total unique industries impacted to avoid double counting as some industries have
large firms gaining small business status and small firms extending small business status.
\2\ Total impact represents total unique firms impacted to avoid double counting as some firms may gain small
business status in at least one NAICS code, while extending small business status in at least one other NAICS
code.
Growing small businesses that are close to exceeding the current
size standards will be able to retain their small business status for a
longer period under the 5-year receipts average, thereby enabling them
to continue to benefit from the small business programs.
Under SBA's 7(a) and 504 loan programs, based on the data for
fiscal years 2018-2020, SBA estimates that about 1 SBA 7(a) and 504
loans totaling $0.2 million could be made to these newly qualified
small businesses under the proposed change. Additionally, small
businesses could receive up to 4 SBA 7(a) and 504 loans totaling $1.9
million due to the expansion of their size status. Together, these
amounts represent a 0.01 percent increase to the loan amount in the
baseline.
Newly qualified small businesses and those with extended small
business status will also benefit from the SBA's disaster loan program.
Since the benefit provided through this program is contingent on the
occurrence and severity of a disaster in the future, SBA cannot make a
meaningful estimate of this impact. However, based on the historical
trends of the SBA disaster loan data, SBA estimates that, on an annual
basis, the newly defined small businesses under the proposed change
could receive about 1 disaster loan, totaling about $0.003 million.
Similarly, extending small business status for a longer period could
result in small businesses receiving 1 disaster loans, totaling about
$0.01 million. These results are presented in Table 14, above.
Additionally, the newly defined small businesses, as well as those
with a longer small business status, would also benefit from reduced
fees, less paperwork, and fewer compliance requirements but SBA has no
data to quantify this impact.
E. Contractions in Eligibility for Small Business Status
1. Contractive Effects of Changing the Averaging Period for Employees
From 12 Months to 24 Months
As stated previously, the change enacted under Public Law 116-283
may not always and necessarily benefit every small business concern.
When businesses' monthly employees are declining or when the number of
employees for the latest 12 months are lower than those for the
earliest 12 months of the 24-month averaging period, the 24-month
employee average would be higher than the 12-month average, thereby
ejecting small businesses out of their small status sooner or rendering
some small businesses other than small immediately. Such small
businesses would no longer be eligible for Federal small business
opportunities, such as SBA's loans, Federal small business contracts,
and other Federal assistance available to small businesses. These
impacts are provided in Table 15, ``Contractive Impacts from Changing
the Averaging Period for Employees from 12 Months to 24 Months,''
below.
SBA estimates that, of 133,958 firms in 2019 SAM that were small
under at least one employee-based size standard based on the 12-month
employee average, 260 firms (or 0.2 percent) would lose their small
status and another 100 firms (or 0.08 percent) would see their size
status shortened as a result of the proposed change. Similarly, based
on the 2012 Economic Census data, 763 firms would lose their small
business status and 287 firms would see their size status shortened,
which represent, respectively, 0.1 percent and 0.04 percent of total
small firms subject to an employee-based size standard.
Table 15--Contractive Impacts From Changing the Averaging Period for Employees From 12 Months to 24 Months
----------------------------------------------------------------------------------------------------------------
Small firms Small firms Total
Impact of proposed change losing small shortening small contractive
status status impact
----------------------------------------------------------------------------------------------------------------
Number of industries impacted............................. 190 64 \1\ 211
Number of small firms losing or/and shortening small 260 101 \2\ 361
status--SAM (as of Sept 1, 2019).........................
Small firms losing or shortening small status as % of 0.2 0.08 0.3
total small firms--SAM (as of Sept 1, 2019)..............
Number of small firms losing or extending small status-- 763 287 1,050
2012 Economic Census.....................................
[[Page 60412]]
Small firms losing or shortening small status as % of 0.1 0.04 0.2
total small firms in the baseline--2012 Economic Census..
Number of small firms losing or shortening small business 178 20 197
eligibility for set-aside contracts--FPDS-NG (2019)......
Small business dollars unavailable to small firms losing $197.1 $68.7 $265.8
or shortening small status ($ million)--FPDS-NG (2019)...
Small business dollars as % of total small business 0.42 0.15 0.56
dollars in the baseline..................................
Number of 7(a) and 504 loans unavailable to small firms 1 1 2
losing or shortening small status........................
7(a) and 504 loan amount unavailable to small firms losing $0.01 $0.01 $0.02
or shortening ($ million)................................
Unavailable 7(a) and 504 loan amount as % of total loan 0.0 0.0 0.0
amount in the baseline (baseline = $24.5 billion)........
Number of disaster loans unavailable to small firms losing 0.0 0.0 0.0
or shortening small status...............................
Unavailable disaster loan amount to small firms losing or $0.0 $0.0 $0.0
extending small status ($ million).......................
Unavailable disaster loan amount as % of total disaster 0.0 0.0 0.0
loan amount in the baseline (baseline = $1.0 billion)....
----------------------------------------------------------------------------------------------------------------
\1\ Total impact represents total unique industries impacted to avoid double counting as some industries have
small firms losing small status and small firms shortening small status.
\2\ Total impact represents total unique firms impacted to avoid double counting as some firms may gain small
business status in at least one NAICS code, while extending small business status in at least one other NAICS
code.
Based on the contract awards data from FPDS-NG for fiscal year
2019, businesses losing or shortening small status would lose access to
about $266 million in Federal small business contract collars, which is
about a 0.6 percent decrease from the corresponding value in the
baseline. Similarly, based on the SBA's loan data for fiscal years
2018-2020 and the number of impacted firms from the Economic Census,
SBA estimates that businesses losing or shortening small business
status would also lose access to about $0.02 million in SBA 7(a) and
504 loans. Based on the historical trends of the SBA's disaster loan
data which shows that firms receiving loans under employee-based size
standards are well below the industry size thresholds, SBA estimates
that businesses losing or shortening small business status would not
lose access to any additional disaster loans under the proposed change.
Businesses losing small status and those with size status shortened
would also be deprived of other Federal benefits available, including
reduced fees and exemptions from certain paperwork and compliance
requirements. However, there exists no data to quantify this impact.
Additionally, by enabling mid-size businesses to regain small
business status and lengthening the small business status of advanced
and successful larger small businesses, the proposed rule may
disadvantage smaller small businesses in more need of Federal
assistance than their larger counterparts in competing for Federal
opportunities. SBA frequently receives concerns from smaller small
businesses that they lack resources, past performance qualifications
and expertise to be able to compete against more resourceful, qualified
and experienced large small businesses for Federal opportunities for
small businesses.
Besides having to register in SAM to be able to participate in
Federal contracting and update the SAM profile annually, small
businesses incur no direct costs to gain or retain their small business
status. All businesses willing to do business with the Federal
Government have to register in SAM and update their SAM profiles
annually, regardless of their size status. SBA believes that a vast
majority of businesses that are willing to participate in Federal
contracting are already registered in SAM. Furthermore, this proposed
rule does not establish the new size standards for the first time;
rather, it merely proposes to modify the calculation of annual average
receipts that apply to the existing size standards in accordance with a
statutory requirement.
The proposed change may entail some additional administrative costs
to the Federal Government because more businesses may qualify as small
for Federal small business programs. For example, there will be more
firms seeking SBA's loans; more firms eligible for enrollment in the
Dynamic Small Business Search (DSBS) database or in certify.sba.gov;
more firms seeking certification as 8(a)/BD or HUBZone firms or
qualifying for small business, WOSB, EDWOSB, and SDVOSB status; and
more firms applying for SBA's 8(a)/BD and Mentor-Prot[eacute]g[eacute]
programs. With an expanded pool of small businesses, it is likely that
Federal agencies will set aside more contracts for small businesses
under the proposed change. One may surmise that this might result in a
higher number of small business size protests and additional processing
costs to agencies. However, the SBA's historical data on size protests
actually show that the number of size protests actually decreased after
an increase in the number of businesses qualifying as small as a result
of size standards revisions as part of the first 5-year review of size
standards. Specifically, on an annual basis, the number of size
protests dropped from about 600 during fiscal years 2011-2013 (review
of most receipts-based size standards was completed by the end of
fiscal year 2013) to less than 500 during fiscal years 2017-2019.
However, with more months of the data to be reviewed, 24-month
averaging may increase time needed by size specialists to process a
size protest. Among those newly defined small businesses seeking SBA's
loans, there could be some additional costs associated with compliance
and verification of their small business status. However, small
business lenders have an option of using the tangible net worth and net
income based alternative size standard instead of using the industry-
based size standard to establish eligibility for SBA's loans. For these
[[Page 60413]]
reasons, SBA believes that these added administrative costs will be
minor because necessary mechanisms are already in place to handle these
added requirements.
Additionally, some Federal contracts may possibly have higher
costs. With a greater number of businesses defined as small under the
proposed change, Federal agencies may choose to set aside more
contracts for competition among small businesses only instead of using
full and open competition. The movement of contracts from unrestricted
competition to small business set-aside contracts might result in
competition among fewer total bidders, although there will be more
small businesses eligible to submit offers under the proposed change.
However, the additional costs associated with fewer bidders are
expected to be minor since, by law, procurements may be set aside for
small businesses under the 8(a)/BD, HUBZone, WOSB, EDWOSB, or SDVOSB
programs only if awards are expected to be made at fair and reasonable
prices.
Costs may also be higher when full and open contracts are awarded
to HUBZone businesses that receive price evaluation preferences.
However, with agencies likely setting aside more contracts for small
businesses in response to the availability of a larger pool of small
businesses under the proposed change to the averaging period for
employees from 12 months to 24 months, HUBZone firms might actually end
up getting fewer full and open contracts, thereby resulting in some
cost savings to agencies. However, such cost savings are likely to be
minimal as only a small fraction of unrestricted contracts are awarded
to HUBZone businesses.
2. Contractive Effects of Changing the Averaging Period for Receipts
From 3 Years to 5 Years
As stated previously, the change enacted under Public Law 115-324
may not always and necessarily benefit every small business concern.
When businesses' annual revenues are declining or when annual revenues
for the latest 3 years are lower than those for the earliest 2 years of
the 5-year period, the 5-year average would be higher than the 3-year
average, thereby ejecting small businesses out of their small business
status sooner or rendering some small businesses other than small
immediately. Similarly, small businesses that lose their small business
status would have to wait longer to qualify as small again. Such small
businesses would no longer be eligible for Federal small business
opportunities, such as Federal small business contracts, SBA loan
programs and other Federal benefits (such as reduced fees and
exemptions from certain paperwork and compliance requirements)
available to small businesses. However, the SBA's proposal to allow
businesses applying for its Business Loan, Disaster Loan and SBIC
Programs to elect to use either the 3-year receipts average or the 5-
year receipts average will mitigate such impacts. Moreover, the change
in the averaging period for receipts in this proposed rule only applies
to businesses in the SBA Business Loan, Disaster Loan, and SBIC
Programs. In other words, the change in the calculation of average
annual receipts in this proposed rule will have no impacts on
businesses participating in Federal procurement and all other non-
procurement programs except SBA loan programs.
By enabling mid-size businesses to regain small business status and
lengthening the small business status of advanced and successful larger
small businesses, the proposed rule may disadvantage smaller small
businesses in more need of Federal assistance than their larger
counterparts in competing for Federal opportunities. SBA frequently
receives concerns from smaller small businesses that they lack
resources, past performance qualifications and expertise to be able to
compete against more resourceful, qualified and experienced larger
small businesses for Federal opportunities for small businesses. SBA
believes that overall benefits to small businesses from this proposed
rule change outweigh the costs to small businesses.
F. Net Impact
1. Net Impact of Changing the Averaging Period for Employees From 12
Months to 24 Months
As discussed elsewhere, the proposed change in averaging period for
employees would result in four primary impacts, which can be
categorized as either having a `expansive impact' or `contractive
impact' on size status of both currently large and small businesses.
Allowing some currently large firms to gain small business status and
some advanced small firms to remain small for a longer period
represents the expansive impact of the proposed rule. Causing some
currently small firms to lose or shorten their small business is the
contractive impact.
Although businesses in a majority of industries with employee-based
size standards would be both positively and negatively impacted by this
proposed rule, in totality the number of firms with expansive impacts
was generally greater than the number of firms with contractive
impacts. The proposed rule would result in a net gain of about $158
million (or 0.3 percent increase from the baseline) in Federal small
business contract dollars. The net impact of the proposed rule on SBA
loans was also positive, but very small. Specifically, SBA estimates a
net gain of $0.01 million in 7(a) and 504 loans and no change in
disaster loans to small firms as a result of changing the period for
calculating the average number of employees for size standards from 12
months to 24 months. Net impacts of the proposed rule are summarized in
Table 16, ``Net Impact from Changing the Averaging Period for Employees
from 12 Months to 24 Months,'' below.
Table 16--Net Impact From Changing the Averaging Period for Employees From 12 Months to 24 Months
----------------------------------------------------------------------------------------------------------------
Total
Impact of proposed change Total expansive contractive Net impact
impact impact
----------------------------------------------------------------------------------------------------------------
Total number of impacted firms--SAM (as of Sept 1, 2019).. 757 361 396
Impacted firms as % of total firms in the baseline--SAM 0.5 0.2 0.3
(as of Sept 1, 2019).....................................
Number of impacted firms--2012 Economic Census............ 1,484 1,050 435
Impacted firms as % of total firms in the baseline--2012 0.2 0.2 0.1
Economic Census..........................................
Number of impacted firms eligible for set-aside contracts 219 197 22
(FPDS-NG)................................................
Small business dollars impacted ($ million)............... $423.2 $265.8 $157.8
Small business dollars impacted as % total set-aside 0.9 0.6 0.3
dollars in the baseline..................................
Number of 7(a) and 504 loans impacted..................... 2 2 0
7(a) and 504 loan amount impacted ($ million)............. $0.03 $0.02 $0.01
7(a) and 504 loan amount impacted as % of total 7(a) and 0.0 0.0 0.0
504 loan amount in the baseline..........................
[[Page 60414]]
Number of disaster loans impacted......................... 0 0 0
Disaster loan amount impacted ($ million)................. $0.0 $0.0 $0.0
Disaster loan amount impacted as % of total disaster loan 0.0 0.0 0.0
amount in the baseline...................................
----------------------------------------------------------------------------------------------------------------
2. Net Impact of Changing the Averaging Period for Receipts From 3
Years to 5 Years
Under the SBA's proposal allowing businesses to elect to choose
either a 3-year receipts average or a 5-year receipts average to
establish small business eligibility for its Business Loan, Disaster
Loan, and SBIC Programs, none of the currently eligible small
businesses will experience a contractive impact from the proposed
change. In other words, the proposed change will not cause any
currently small businesses to lose or shorten their small business
status. The proposed change will enable some mid-size businesses above
the size standard gain or regain small business status and some
advanced small businesses close to the size standard to lengthen their
small status. In the absence of contractive impacts, the expansive
impacts shown in Table 14 (above) will also represent as net impacts of
the proposed change.
G. Transfer Impacts
1. Transfer Impacts of Changing the Averaging Period for Employees From
12 Months to 24 Months
The proposed change may result in some redistribution of Federal
contracts between businesses gaining or extending small status and
large businesses, and between businesses gaining or extending small
status and other existing small businesses. However, it would have no
impact on the overall economic activity since the total Federal
contract dollars available for businesses to compete for will not
change. While SBA cannot quantify with certainty the actual outcome of
the gains and losses from the redistribution of contracts among
different groups of businesses, it can identify several probable
impacts in qualitative terms. With the availability of a larger pool of
small businesses under the proposed change, some unrestricted Federal
contracts may be set aside for small businesses. As a result, large
businesses may lose access to some Federal contracts. Similarly, some
currently small businesses may obtain fewer set-aside contracts due to
the increased competition from some large businesses qualifying as
small and advanced small businesses remaining small for a longer
period. This impact may be offset by a greater number of procurements
being set aside for all small businesses. With large businesses
qualifying as small and advanced larger small businesses remaining
small for a longer period under the proposed rule, smaller small
businesses could face some disadvantages in competing for set-aside
contracts against their larger counterparts. However, SBA cannot
quantify these impacts.
2. Transfer Impacts of Changing the Averaging Period for Receipts From
3 Years to 5 Years
The change from a 3-year averaging period to a 5-year averaging
period may result in some redistribution of Federal contracts between
businesses gaining or extending small business status and large
businesses, and between businesses gaining or extending small business
status and other existing small businesses. However, since the change
in calculation of receipts in this proposed rule does not apply to
Federal contracting, these distributional impacts are not relevant for
changing the averaging period for receipts from 3 years to 5 years.
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. This 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 final
rule has no federalism implications warranting preparation of a
federalism assessment.
Executive Order 13563
Executive Order 13563 emphasizes the importance of quantifying both
costs and benefits, reducing costs, harmonizing rules, and promoting
flexibility. 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 Benefit-Cost Analysis under Executive Order
12866. Additionally, Executive Order 13563, Section 6, calls for
retrospective analyses of existing rules.
Following the enactment of Public Law 115-324, SBA issued a public
notice advising business and contracting communities that SBA must go
through a rulemaking process to implement the new law and that
businesses still must report their receipts based on a 3-year average
until SBA changes its regulations. SBA updated the Small Business
Procurement Advisory Council (SBPAC) at its March 26, 2019, April 23,
2019, and August 26, 2019, meetings about SBA's rulemaking process to
implement Public Law 115-324. On April 18, 2019, SBA also presented an
update on the implementation of Public Law 115-324 at the 2019 Annual
Government Procurement Conference. Through phone calls and emails, SBA
also advised business and contracting communities and other interested
parties about the SBA's process to implement the new law.
Regulatory Flexibility Act (Initial Regulatory Flexibility Analysis)
Under the Regulatory Flexibility Act (RFA), this proposed rule may
have a significant economic impact on a substantial number of small
businesses in industries subject to both employee-based and receipts-
based size standards. As described above, this rule may affect small
businesses in those industries seeking assistance under Federal small
business programs. Specifically, the change in the averaging period for
calculating the number employees for size standards from 12 months to
24 months may have a significant impact on a substantial number of
businesses in industries subject to employee based
[[Page 60415]]
size standards in terms of qualifying for Federal small business
programs, including Federal contracts set aside for small businesses
and SBA's loan programs. Similarly, the proposed change in the
averaging period for receipts from 3 years to 5 years will also impact
a substantial number of businesses in the SBA Business Loan, Disaster
Loan, and SBIC programs.
Immediately below, SBA sets forth an initial regulatory flexibility
analysis (IRFA) of proposed rule to address the following questions:
(1) What is the need for and objective of the rule?; (2) What is SBA's
description and estimate of the number of small businesses to which the
rule will apply?; (3) What are the projected reporting, record-keeping,
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 is the need for and objective of the rule?
First, section 863 of the NDAA 2021, Public Law 116-283, changed
the averaging period for SBA's employee-based size standards from 12
months to 24 months. The intent of this proposed rule is to implement
Public Law 116-283 by amending 13 CFR 121.106 such that a concern would
average its employees over all pay periods in the preceding completed
24 months. Second, in 2018, Public Law 115-324 amended section
3(a)(2)(C)(ii)(II) of the Small Business Act by modifying the period
for calculating average annual receipts for prescribing size standards
for business concerns in services industries by an agency without
separate statutory authority to issue size standards from 3 years to 5
years. In a final rule published December 5, 2019 (84 FR 66561), SBA
implemented Public Law 115-324 by making changes to its receipts-based
size standards for all SBA programs except the Business Loan and
Disaster Loan Programs. This proposed rule would extend the changes to
SBA's receipts-based size standards for the Business Loan, Disaster
Loan, and SBIC Programs.
2. What are SBA's description and estimate of the number of small
businesses to which the rule will apply?
This proposed rule applies to all small businesses that are subject
to either an employee-based or a receipts-based size standard. Based on
the 2012 Economic Census special tabulations, 2012 County Business
Patterns Reports, and 2012 Agricultural Census tabulations, of a total
of 680,266 firms in all industries with employee-based size standards
to which this proposed rule will apply, 657,942 or about 96.7 percent
are considered small under the 12-month employee average. Of 152,450
total concerns in SAM 2019 to which an employee-based size standard
will apply, about 133,958 or 87.9 percent were small in at least one
NAICS industry with an employee-based size standard. Similarly, based
on the data from FPDS-NG for fiscal year 2019, about 39,700 unique
firms in industries subject to employee-based size standards received
at least one Federal contract in 2019, of which 85.3 percent, or 33,867
were small.
Based on the same data sources listed above, of a total of 7.2
million firms in all industries with receipts-based size standards to
which this final rule will apply, 6.9 million or about 96 percent are
considered small under the 3-years receipts average. Of 334,990 total
concerns in SAM 2019 to which a receipts-based size standard will
apply, 292,454 or 87.3 percent were small in at least one NAICS
industry with a receipts-based size standard.
3. What are the projected reporting, record-keeping and other
compliance requirements of the rule?
The proposed rule changes existing reporting or record-keeping
requirements for small businesses. To qualify for Federal procurement
and a few other programs, businesses are required to register in SAM
and to self-certify that they are small at least once annually.
Therefore, businesses opting to participate in those programs must
comply with SAM requirements. There are no costs associated with SAM
registration or certification. The change in the calculation of
employees from a 12-month averaging period to a 24-month averaging
period may result in some redistribution of Federal contracts between
businesses gaining or extending small status and large businesses, and
between businesses gaining or extending small status and other existing
small businesses. However, it would have no impact on the overall
economic activity since the total Federal contract dollars available
for businesses to compete for will not change. Since the change in the
calculation of annual average receipts in this proposed rule only
applies to SBA loan programs, this will have no impact on Federal
contracting and associated record-keeping requirements.
4. What are the relevant Federal rules which may duplicate, overlap or
conflict with the rule?
Under section 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, 5 U.S.C. 601(3), 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. 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 or changing a measurement period, no practical
alternative exists to the systems of numerical size standards. As
stated elsewhere, the objective of this final rule is to change SBA's
regulations on the calculation of business size in terms of average
number of employees to implement Public Law 116-283 for all SBA
programs and average annual receipts to implement Public Law 115-324
for the SBA's Business Loan, Disaster Loan and SBIC programs.
This rule is expected to affect a substantial number of small
entities, but the effects are not expected to be significant. However,
to mitigate any unintended negative impacts of a 5-year averaging
period on small businesses and to allow small businesses to continue to
use the 3-year receipts average, in this proposed rule, SBA is allowing
applicants in Business Loan, Disaster Loan and SBIC programs to elect
to calculate average annual receipts using either a 3-year averaging
period or a 5-year averaging period.
[[Page 60416]]
Paperwork Reduction Act
For purposes of the Paperwork Reduction Act, 44 U.S.C. Chapter 35,
SBA has determined that this proposed rule would amend an information
collection (SBA Form 355, Information for Small Business Size
Determination, OMB Control Number 3245-0101). SBA will revise
Instruction No. 5 to specify that respondents will use a 24-month
average to calculate number of employees. In Part II, question 10,
respondents will then provide an average number of employees over 24
months.
Concurrently with publication of this proposed rule, SBA is
submitting to OMB an Information Collection Review based on the changes
described above. SBA has determined that the changes to the Form 355
will not impact the paperwork burden, and it will remain at 4 hours.
SBA will revise the SBA Form 480, Size Status Declaration, for SBIC
applicants. The form would reflect the change to the 24-month average
for applicants using an employee-based size standard, and the change to
an election between a 3-year average and a 5-year average for
applicants using a receipts-based size standard. The metrics for the
alternative size standard for SBIC applicants would not change.
SBA will revise Part M (Size Analysis) of SBA Form 1920 (7(a)
Lender Application), OMB Control No.: 3245-0348, and Exhibit 4 of SBA
Form 1244 (504 Loan Application), OMB Control No.: 3245-0071. The
revisions would reflect the change to an election between a 3-year
average or a 5-year average for applicants using a receipts-based size
standard. The metrics for the alternative size standard for 7(a) and
504 applicants would not change.
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 13
CFR part 121 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, and
694a(9); Pub. L. 116-136, Section 1114.
0
2. In Sec. 121.104, revise the first sentence of paragraph (c)(1) and
paragraphs (c)(2) through (4) to read as follows:
Sec. 121.104 How does SBA calculate annual receipts?
* * * * *
(c) Period of measurement. (1) Except for the Business Loan,
Disaster Loan, and Small Business Investment Company (SBIC) Programs,
annual receipts of a concern that has been in business for 5 or more
completed fiscal years means the total receipts of the concern over its
most recently completed 5 fiscal years divided by 5. * * *
(2) Except for the Business Loan, Disaster Loan Programs, and SBIC
Programs, annual receipts of a concern which has been in business for
less than 5 complete fiscal years means the total receipts for the
period the concern has been in business divided by the number of weeks
in business, multiplied by 52.
(3) Except for the Business Loan, Disaster Loan, and SBIC Programs,
where a concern has been in business 5 or more complete fiscal years
but has a short year as one of the years within its period of
measurement, annual receipts means the total receipts for the short
year and the 4 full fiscal years divided by the total number of weeks
in the short year and the 4 full fiscal years, multiplied by 52.
(4) For the Business Loan, Disaster Loan, and SBIC Programs, a
concern that has been in business for three or more completed fiscal
years may elect to calculate annual receipts using either the total
receipts of the concern over its most recently completed 5 fiscal years
divided by 5, or the total receipts of the concern over its most
recently completed 3 fiscal years divided by 3. Annual receipts of a
concern which has been in business for less than three complete fiscal
years means the total receipts for the period the concern has been in
business divided by the number of weeks in business, multiplied by 52.
Where a concern has been in business three or more complete fiscal
years but has a short year as one of the years within its period of
measurement, annual receipts means the total receipts for the short
year and the two full fiscal years divided by the total number of weeks
in the short year and the two full fiscal years, multiplied by 52. For
the purposes of this subsection, the Business Loan Programs consist of
the 7(a) Loan Program, the Microloan Program, the Intermediary Lending
Pilot Program, and the Development Company Loan Program (``504 Loan
Program''). The Disaster Loan Programs consist of Physical Disaster
Business Loans, Economic Injury Disaster Loans, Military Reservist
Economic Injury Disaster Loans, and Immediate Disaster Assistance
Program loans.
* * * * *
0
3. In Sec. 121.106, revise paragraphs (b)(1) and (3) to read as
follows:
Sec. 121.106 How does SBA calculate number of employees?
* * * * *
(b) * * *
(1) The average number of employees of the concern is used
(including the employees of its domestic and foreign affiliates) based
upon numbers of employees for each of the pay periods for the preceding
completed 24 calendar months.
* * * * *
(3) If a concern has not been in business for 24 months, the
average number of employees is used for each of the pay periods during
which it has been in business.
* * * * *
0
4. In Sec. 121.903, revise paragraph (a)(1)(i) to read as follows:
Sec. 121.903 How may an agency use size standards for its programs
that are different than those established by SBA?
(a) * * *
(1) * * *
(i) The size of a manufacturing concern by its average number of
employees based on the preceding 24 calendar months, determined
according to Sec. 121.106;
* * * * *
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2021-23439 Filed 11-1-21; 8:45 am]
BILLING CODE 8026-03-P
