SBA Proposes Major Changes To Small Business Methodology And Size Standards

On Aug. 20, 2026, the U.S. Small Business Administration (SBA) issued two proposed rules that would change how the federal government defines “small” businesses. The first proposed rule (91 Fed. Reg. 54096) would revise the methodology the SBA uses to set size standards. The second proposed rule (91 Fed. Reg. 53741) would apply that methodology by consolidating nearly 1,000 industry-specific standards into 338 broad classifications and increasing a number of existing thresholds.

If finalized, the proposed rules would expand small business eligibility across a wide range of industries and may materially change the landscape of set-aside competitive procurements. Comments on both proposed rules are due by Sept. 21, 2026.

Size Standard Methodology

The first proposed rule would adopt a new methodology that would make several important structural changes to establishing, reviewing, and updating SBA size standards. The SBA would move away from the current system of nearly 1,000 standards tied to six-digit NAICS codes and instead rely on 338 broader standards; 276 would be at the four-digit Industry Group level and 62 would be at the five-digit Industry Group level. The proposed methodology would also replace the SBA’s existing multi-factor analysis when determining size standards with three core measurements: national industry size, the number of geographic markets in which firms compete, and an adjustment for net imports. The SBA stated that these three proposed factors are intended to “more closely align the size standard’s methodology with the Small Business Act’s statutory language requiring a small business concern to be one which is ‘not dominant in its field of operations.’”

Further, the SBA seeks to eliminate the current maximum limits on size standards and establish new minimum thresholds of 500 employees for employee-based standards and $30.6 million for receipts-based standards. The proposed rule would adjust receipts-based standards for productivity growth and inflation, which may change how monetary thresholds are updated over time. It would also eliminate the 18 federal contracting exceptions currently included in the SBA’s size standards regulations, consistent with the SBA’s broader effort to simplify and standardize the framework. Though the proposed methodology may create lower size standards for 45 industries, the SBA proposes to keep these size standards unchanged.

Revised Size Standards Framework

The second proposed rule would implement the SBA’s revised methodology across the industries and sectors covered by the SBA’s regulations. The rule would consolidate industry classifications, revise the metrics used to determine business size, and increase some existing thresholds. The proposed rule reflects the SBA’s broader move toward employee-based standards, with employee count serving as the primary size measure unless Congress has specified that a receipts-based standard must be used. The SBA stated that its proposed changes are intended to simplify the framework while expanding access to federal small business programs and procurement preferences.

If the proposed rule becomes final, some industries would move to employee-based size standards while others would experience notable increases to their receipts-based size thresholds. For example, NAICS 541512 (Computer Systems Design Services) and NAICS 541519 (Other Computer Related Services) would increase from $34 million to $531 million, and NAICS 541330 (Engineering Services) would increase from $25.5 million to $252 million. The SBA estimated that the proposed changes would newly classify approximately 114,541 firms as small, including 37,002 firms that received federal contract awards in FY 2025, representing approximately 105,655 contracts valued at more than $71 billion.

Key Takeaways

If finalized, the proposed rules would shift the framework of the SBA’s size standards and may cause ripples in the federal government contracting industry. Higher or restructured size standards would expand the pool of qualified businesses for set-aside procurements and may increase competition under those revised size standards. The proposed change would allow some businesses to remain small and may breathe life into their contract pipelines. For other businesses, the proposed change may invite larger businesses into their smaller competitive landscape. Contractors may wish to review the proposed rules and should consider submitting comments before the Sept. 21, 2026, deadline.

*Special thanks to Government Contracts Project Assistant Millie Koehler˘ for contributing to this GT Alert.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.