Recently, the US Small Business Administration (SBA) notified a proposed rule, Small Business Size Standardsthat would fundamentally restructure the way the federal government defines a “small business.” The standard proposes new size standards for 338 industrial groups and industries.2 That same day, the SBA notified a second proposed rule, Small Business Size Standards: Revised Size Standards Methodologywhich would change the size standards methodology.3 These two rules together, if enacted, would reform the current system for classifying small businesses. Businesses that qualify for small business status at any government level (federal, state, or municipal) and other businesses that partner with small businesses to take advantage of certification status should take note of the changes, begin pivoting accordingly, or submit comments to the SBA.
Notable changes to the SBA’s proposed size standards include:
1. Expanded Eligibility: Most importantly, and perhaps most notable, the proposed rule would raise the thresholds for small business status. The SBA estimates that the changes would make 114,541 businesses newly eligible for small business status, expanding the eligibility pool.4
2. Simplified structure: The proposed rule would simplify the size standard. If enacted, it would replace the current system of approximately 1,000 individual size standards, organized at the six-digit level of the North American Industrial Classification System (NAICS), with 338 standards set primarily at the four- and five-digit levels of the NAICS.5
3. Shift to employee-based measures: The proposed rule would move a substantial number of industries from revenue-based measures to employee-based measures, which could change both how a company calculates its size and which competitors share its market.6
4. Simplified methodology: Under current methodology, the SBA uses seven factors to calculate size standards. However, under the proposed rule, the SBA would use three factors to calculate size standards: (1) domestic industry size; (2) number of geographic markets; and (3) an adjustment for net imports.7
5. Productivity adjustment: The proposed rules would add a productivity adjustment to the revenue-based standards to make them function more like employee-based standards, which already capture a similar productivity effect.8
6. No reductions: The proposed rule would not lower any industry size standards, which the SBA attributes to the difficult conditions small businesses faced between 2021 and 2024.9
The SBA Office of Advocacy issued a press release on September 17, 2026, generally supporting the proposed rule. However, the Office of Defense also significantly revised the SBA’s impact estimates, concluding that only 4,000 to 6,000 current small contractors would gain small business status (compared to the SBA’s estimate of 37,002 businesses) and describing the proposal as a “limited, targeted adjustment to eligibility, rather than a broad expansion of the small business market.”10
The SBA maintains that the proposed standards would produce several benefits: a simplified classification framework that is easier for businesses to navigate, expanded eligibility for government lending and contracting programs, lower compliance burdens, and increased competition in the federal marketplace.11
Prior to the original deadline of September 21, 2026, the SBA had received more than 2,100 comments on the size standards proposal, the majority of which opposed the proposals as drafted.12 More than 200 participants signed up to testify at the SBA’s virtual public forum on September 17, 2026, and the SBA held an in-person town hall in Denver on September 21, 2026.13 Commenters, including staff on the House Small Business Committee, expressed concerns about the speed and magnitude of the threshold increases (some exceeding 1,000 percent), the short 30-day comment period, and the risk that admitting businesses many times larger than current small businesses into the land reserve market would crowd out truly small businesses.14 In response, the SBA extended the comment periods for both proposals by 60 days, beginning September 21, 2026, and posted it on September 24, 2026, explaining that it was providing additional time “in response to requests for additional time to comment and following clarification from the SBA on the impacts of the SBA’s proposed changes.”15 Comments on both proposals are due November 20, 2026.
The current size standards remain in effect unless and until final rules are issued. In the meantime, companies competing for federal contracts (or other state or municipal government contracts that rely on such standards) or otherwise participating in SBA loan programs should evaluate how the proposed standards would affect their eligibility, as well as the eligibility of their competitors, and consider submitting comments on the proposed standards and methodology by the November 20, 2026 deadline.16
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