Congressional Research Service IN12740.1 (SBA’s Proposed Expansion of Small Business Program Eligibility)

Summary

A Congressional Research Service Insight, IN12740, SBA’s Proposed Expansion of Small Business Program Eligibility, dated September 21, 2026, by R. Corinne Blackford and Anthony A. Cilluffo. It describes a proposed rule announced August 20, 2026, under which the number of SBA size standards would shrink from around 1,000 to 338, set by four- and five-digit NAICS codes. It states that most proposed standards would be based on number of employees (209 out of 338, or 62%) and that proposed revenue standards range from $31 million to over $1.0 billion. The SBA estimates about 115,000 firms would become eligible, including more than 37,000 unique firms with FY2025 contracts newly eligible for small business contracting programs. The Insight discusses effects on SBA programs and federal regulations and issues for Congress.

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                                                                                               INSIGHTi



SBA’s Proposed Expansion of Small Business
Program Eligibility

September 21, 2026

Overview
In a proposed rule announced August 20, 2026, the Small Business Administration (SBA) set new size
standards for defining firm size while simultaneously issuing a notice for comments on a revised
methodology for establishing, reviewing, and modifying these size standards. Currently, the SBA's size
standards determine firm-size limits for various SBA services and contracting preferences by industry
category that results in over 1,000 individual size standards. These size limits are generally expressed in
terms of either average annual revenue or average number of employees, with revenue limits ranging
from $2.25 million to $47 million and employee-count limits ranging from 100 employees to 1,500
employees (see the SBA table of size standards at 13 C.F.R. §121.201). Using the revised methodology,
the proposed size standards would newly classify approximately 110,000–114,500 additional firms as
“small.” Although robust analysis of the new proposal is unavailable to date, some researchers and
economists have analyzed the impacts of prior expansions to the size standards. This Insight describes the
proposed changes and issues that may be of congressional interest.


Proposed Changes
Fewer Size Standards Overall
Under the August 2026 proposal, the number of size standards would shrink from around 1,000 to 338.
This is a result of the revised methodology, which calculates size standards at a higher (less specific)
industry level. The SBA’s 2024 methodology (and its prior methodologies issued in 2023, 2019, 2018,
and 2009) defined size standards for the most specific industry category (categories are assigned a six-
digit North American Industry Classification code [NAICS]). The proposed 2026 methodology sets size
standards by four- and five-digit NAICS codes. An example of a four-digit NAICS code is 5417,
Scientific Research and Development Services, which has five-digit codes within that category that
include Research and Development (R&D) in the Physical, Engineering, and Life Sciences, as well as
R&D in the Social Sciences and Humanities; six-digit codes are as specific as biotechnology R&D.
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                                                                                                   IN12740

CRS INSIGHT
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More Standards Based on a Firm’s Number of Employees
The proposed 2026 size standards would replace some revenue-based standards with employee-count
based standards. While previous methodologies restricted the use of employee-count size standards to
mainly manufacturers and mining companies (483 of 997 [excluding exceptions], or 48%), the majority of
the proposed size standards are now expressed in terms of number of employees (209 out of 338, or 62%).

Higher Revenue and Employee Count Limits
In addition to shifting from revenue-based standards to standards primarily based on employee-count, the
proposed 2026 standards have higher limits and are generally inclusive of more firms in any given
industry. Prior revenue-based size standards included ceilings that ranged from $2.25 million to $47
million; new, proposed standards range from $31 million (e.g., NAICS code 4854, School and Employee
Bus Transportation) to over $1.0 billion (for NAICS code 5239, Other Financial Investment Activities).
Prior employee-count based standards included ceilings that ranged from 100 employees to 1,500
employees; proposed standards range from 500 employees (e.g., NAICS code 4411, Automobile Dealers)
to 3,600 employees (for NAICS code 5132, Software Publishers). The SBA estimates that the
approximate number of “small” firms that will become eligible for federal programs and benefits will rise
about 1.8 percent, or about 115,000 firms.


Potential Impacts
SBA Programs
SBA size standards are primarily used to define eligibility for SBA programs, though they have some
wider applicability.
Within SBA programs, the impact of the proposed 2026 changes may vary. Even though changes to size
standards affect eligibility for both lending and contracting programs, those seeking government
contracting preferences may be more likely to feel the impacts of the changes than those seeking
government assistance with borrowing. For instance, borrowing requirements—such as loan maximums,
personal guarantees, interest rates, and training requirements—for SBA’s business loan programs (7(a),
504, and Microloan) may make them less appealing to newly-eligible businesses. With regard to
contracting, SBA estimates that more than 37,000 unique firms with FY2025 contracts will be newly
eligible for small business contracting programs, with benefits such as contract set-asides and sole-source
contracts. Some have expressed concerns about the crowding-out of the smallest or newest contractors by
larger firms, while others have welcomed the ability for growing contractors to maintain SBA program
eligibility. Also, the investment decisions of venture capital funds in the Small Business Investment
Company Program may be affected by the newly eligible businesses. Meanwhile, the Small Business
Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are governed by
an employee-based standard of 500 employees (13 C.F.R. §121.702(c)).

Federal Regulations
Beyond SBA programs, SBA indicates that it foresees “lower [regulatory] compliance requirements for
small businesses” because of the more inclusive size standards. While hypothetically possible, that
outcome would depend on a variety of additional agency decisions. Under the Regulatory Flexibility Act
(RFA), agencies are required to analyze the effects of certain regulations on small entities, including small
businesses. The RFA is intended to encourage agencies to consider more flexible options for small entities
to comply with regulations. For example, more flexible options might include a shorter or less frequent
Congressional Research Service                                                                                        3




reporting requirement or an outright exemption from a rule. If more businesses are classified as small
businesses, agencies may also be required to consider these types of flexibilities more often: the RFA is
triggered when a rule is expected to have a “significant economic impact on a substantial number of small
entities.”


Issues for Congress
The SBA rulemaking notice states that it aims to simplify the size standards, reduce the number of firms
fluctuating between small and other-than-small business status, more closely align its methodology with
the Small Business Act’s description of a small business, and add a “productivity adjustment” into
calculations of the remaining revenue-based size standards. Congress may wish to explore the theory and
empirical analyses behind SBA’s proposals and consider how it may support or oppose broader policy
objectives such as the promotion of competitive markets, innovation, and job creation. For the sake of
program effectiveness, Congress has historically debated how to set program eligibility and best target
intended benefits to small businesses.


Author Information

R. Corinne Blackford                                       Anthony A. Cilluffo
Analyst in Small Business and Economic Development         Specialist in Public Finance
Policy




Disclaimer
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