SBA Proposes Expanding Small Business Classification to Cover 110K More Firms

By Kekeletso Nkele, small.news Assistant

(small.news) — The U.S. Small Business Administration has proposed a significant overhaul of the size standards used to determine which businesses qualify as small under federal law, a change the agency says would extend eligibility for loans, contracts, and other federal programs to more than 110,000 additional firms, reports SME Media.

Announced on August 20, the proposed rule would replace many of the SBA’s current size standards—which are organized by six-digit North American Industry Classification System codes—with broader four-digit industry groupings, cutting the total number of classifications from nearly 1,000 to 338.

What the Proposed Changes Would Mean for Small Business Owners

SBA Administrator Kelly Loeffler said the proposal is designed to give small business owners greater regulatory certainty as they scale and to ensure that growing firms can continue to access federal support without abruptly losing their small-business classification.

Under the proposed rule, employee and revenue thresholds would rise substantially in several industries. The size standard for semiconductor manufacturers would increase from 1,250 to 2,800 employees, while the threshold for shipbuilding companies would move from 1,300 to 2,300 employees. The SBA estimates the proposed changes would expand the 6.3 million employer firms currently recognized as small businesses by approximately 1.8%.

The agency said the changes reflect modern market conditions and are intended to reduce the compliance burden of navigating a highly granular classification system.

Critics: Proposal Could Direct Federal Contracts Away From Smaller Firms

The proposal has attracted criticism from lawmakers and federal contracting specialists who argue the expanded thresholds could allow considerably larger companies to access programs originally designed to support genuinely small businesses.

Senator Ed Markey of Massachusetts said the rule would effectively turn the Small Business Administration into a vehicle for larger businesses, arguing it would reduce the competitive opportunities available to smaller operators.

Some revenue-based thresholds under the proposal would increase dramatically. Reporting by The Independent cited the category for miscellaneous financial investment activities, in which firms with revenues exceeding $1 billion could qualify as small businesses under the revised standards—a threshold that critics argue stretches the definition well beyond its original intent.

Emily Murphy, a senior fellow at George Mason University’s Baroni Center for Government Contracting, acknowledged a legitimate case for simplifying the current system and creating a clearer growth pathway for expanding firms. However, she warned that the scale of the proposed increases could substantially enlarge the pool of companies eligible for small-business set-aside contracts, potentially making it harder for the smallest operators to compete for federal work where they previously had fewer rivals.

Public Comment Period Open Until End of September

The SBA is accepting public comments on the proposed rule through September 21, 2026. Small business owners who export to or contract with the federal government and wish to weigh in on the changes can submit comments through the federal rulemaking process.