More than 100,000 additional companies could start qualifying for federal small-business contracts, teaming arrangements, and set-aside programs under a proposed rule the Small Business Administration published August 20 that rewrites how the government decides which firms count as "small." The proposal, filed jointly with a companion methodology rule under RIN 3245-AI67, is the first comprehensive overhaul of size-standard calculations since SBA's 2024 Methodology, and it would touch nearly every industry code contracting officers use to set aside work.
SBA estimates the changes would add roughly 110,000 to 115,000 firms to the pool of small businesses nationally — a pool the agency currently counts at about 36 million — with the biggest gains concentrated in management companies, restaurant chains, and medical and surgical hospitals. Telecommunications carriers and waste-collection firms are among the few categories that could lose small-business status under the new formulas. Comments on the rule are due September 21, 2026, filed through regulations.gov under RIN 3245-AI67 or Docket No. SBA-2026-0199.
Why SBA Is Collapsing Nearly 1,000 Size Standards Into 338
The current system assigns a size standard to almost every one of the 978 NAICS industries and 18 subindustries the Census Bureau maintains — nearly 1,000 codes in all, though they share just 102 distinct size-standard levels among them. SBA's proposal consolidates those codes into 338 standards built around a mix of four- and five-digit NAICS groupings rather than today's six-digit codes, folding related industries into a single shared threshold on the theory that they compete in similar markets.
The methodology behind those thresholds is also changing. Instead of the five-factor formula SBA adopted in its 2024 Methodology, the new approach calculates an "average market size" for each industry group by combining national industry size, the number of distinct geographic markets firms compete in, and net import-export adjustments — an approach SBA says is modeled loosely on the merger-guideline analysis the Department of Justice and Federal Trade Commission use to define competitive markets. For monetary-based standards, SBA is also proposing a new "productivity adjustment" layered on top of the inflation adjustments already applied every five years.
Employee Counts Would Replace Revenue as the Default Yardstick
Perhaps the most consequential structural change is a proposed default shift from receipt-based size standards — measuring a company by its average annual revenue — to employee-based standards across most industries. SBA's rationale, as described in reporting on the rule, is that revenue thresholds can penalize a company simply for winning a large contract, even if its workforce and operational capacity haven't grown. According to Washington Technology's coverage of the proposal, SBA framed the change around the idea that "winning a contract will not by itself force a firm to transition into a large business."
That framing matters for contractors that have historically hovered near their receipts-based ceiling. A services firm that lands one large task order today can find itself reclassified as "other than small" the following recertification cycle, even without adding staff. Shifting the default metric to headcount is meant to insulate firms from that revenue-driven bump, though it also means companies that have grown lean and automated — generating large revenue with relatively few employees — could see their eligibility expand in ways a receipts test would not have allowed.
No Industry Would See Its Standard Lowered
SBA's own analytics flagged 45 industries — including Metal Ore Mining, Electric Power Generation, and Natural Gas Distribution — where the data supported lowering the size standard. SBA is proposing not to lower any of them. The agency's notice states that "small firms without small status—and small firms without small status in industries where standards are already too low—would face financial pressure, reduce hiring, or lay off workers," language SBA uses to justify holding every threshold flat or raising it rather than tightening standards anywhere, even where the underlying market data would support a cut.
That one-directional approach is likely to draw comment from advocacy groups on both sides. Large-business trade groups have historically objected when size standards rise without offsetting decreases elsewhere, arguing it lets firms that no longer resemble small businesses keep capturing set-aside work. Small-business advocates, by contrast, are likely to welcome the decision as shielding existing small firms from losing eligibility during a period SBA describes as one of contraction in the defense industrial base.
The Defense Industrial Base Argument
SBA's notice leans on Pentagon contracting data to justify the expansion. The agency states that "small businesses comprise 73 percent of companies in the U.S. defense industrial base (Department of War), even while DoW small business vendor count decreased 49 percent between 2010 and 2024." SBA is using that steep decline — nearly half of small defense vendors disappearing from the base over 14 years — as evidence that current size standards are already too restrictive rather than too generous, reinforcing the decision not to lower any threshold even where the data pointed that way.
SBA Administrator Kelly Loeffler tied the rule directly to job creation in the agency's public announcement of the proposal. "Small businesses create the vast majority of new jobs," Loeffler said. "This proposal ensures that these job creators have the regulatory certainty to scale." That "regulatory certainty" framing points to another goal buried in the consolidation: fewer, broader NAICS groupings mean fewer edge cases where a firm's size status depends on which six-digit code a contracting officer happens to assign a solicitation.
What It Means for Contractors
Firms near their current size thresholds should not assume the proposal's direction guarantees their result — a shift from receipts to employee counts can cut either way depending on a company's ratio of revenue to headcount, and the industry consolidation could move a business into a broader NAICS grouping with a different threshold than the one it operates under today. Contractors should identify which of the 338 new industry groups would absorb their current six-digit code, model their eligibility under both the receipts and employee tests, and watch for their industry on the list of 45 where SBA's analytics suggested a decrease it chose not to implement — a signal those thresholds could face pressure in a future rulemaking even though this one holds them flat.
Businesses that stand to gain small-business status for the first time should start tracking the September 21 comment deadline and the eventual effective date closely, since expanded eligibility typically opens access to set-aside solicitations, SBA-backed loan programs, and mentor-protégé arrangements that require current small-business certification. Companies that could lose status under the new employee-based defaults — particularly in telecommunications and waste collection — have a narrower window to weigh in before the rule is finalized.
