Small Business Administration Changes Legal Definition of "Small Business"
The Small Business Administration (SBA) changed its definition of "small business" this month in a move than could affect several thousand American businesses. The new standards, originally proposed in March 2011, will theoretically broaden the number of companies eligible for certain financial programs.
Thirty-seven industries will have redefined sizes as a result of the change, the first such alteration to the definitions in 25 years. Organizations that fall within the purview of those 37 categories, which includes businesses like accounting firms, engineering services, and certain advertising companies, may become eligible for government contracts and financial assistance.
The definition of small business changed on an industry-by-industry basis, and it is estimated that over 8,000 businesses formerly labeled as "mid-sized" will have their status changed. Previously, the rules roughly labeled any manufacturing business with fewer than 500 employees, or service business with less than $7 million in annual revenue, as a small business. The new definitions account for such variances as average firm size for the industry, degree of competition and inflation when categorizing companies.
While many industry lobbyists applauded the changes, others questioned the SBA's methods. The National Small Business Association (NSBA) told Huffington Post that it believed the new categories could hurt those small businesses that most need assistance. Molly Brogan, spokesperson for the NSBA, said there is concern that "there may be enhanced competition from businesses on the larger end of the scale that are now classified as a small business. For the majority of businesses that have about nine to 11 employees, it's hard to compete against a company that has 500 employees."
The NSBA, as well as another watchdog group, the National Federation of Independent Business, indicated that they would be thoroughly reviewing the new language before it is applied to ensure the best interests of small businesses are protected. The new definitions are scheduled to go into effect on March 12.