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SBA Proposes Sweeping Overhaul to Small Business Size Standards and Calculation Methodology

Posted on August 20, 2026

Article by: Nicholas Perry, Associate

The Small Business Administration (“SBA”) has proposed massive changes to its size standard system. If implemented, these changes will significantly increase the number of firms that qualify as “small business concerns” by establishing new standards that are, in some cases, more than ten times the currently applicable standards. For example, the proposed size standard for North American Industry Classification System (“NAICS”) industry group 5413, Architectural, Engineering, and Related Services, would be $252 million in average annual receipts. That industry group includes the commonly used NAICS 541330, Engineering Services, which currently has a size standard of $25.5 million in average annual receipts, subject to specialized exceptions. Even more surprising, the proposed size standard for NAICS Industry Group 5415, Computer Systems Design and Related Services, would be an eye-popping $531 million in average annual receipts. This broader industry group encompasses several commonly used NAICS codes that currently have substantially lower receipts-based standards, such as the $47 million used for NAICS 541511, Custom Computer Programming Services. Size standards are important because they determine a business concern’s eligibility for a variety of government programs, such as set-aside/reserved government contracts and small business loans.

SBA formally proposed these changes on August 20 and requested public comments. The initiative consists of two related actions. One is a new SBA white paper, the “Revised Size Standards Methodology.” See Small Business Size Standards: Revised Size Standards Methodology, 91 Fed. Reg. 54096 (Aug. 20, 2026), https://www.govinfo.gov/content/pkg/FR-2026-08-20/pdf/2026-17039.pdf. The white paper outlines changes to how SBA establishes, reviews, and modifies its small business size standards pursuant to the Small Business Act, 15 U.S.C. 631 et seq. Alongside the revised methodology, SBA issued a proposed rule that applies the new methodology and sets forth the resulting proposed size standards. See Small Business Size Standards, 91 Fed. Reg. 53741 (Aug. 20, 2026), https://www.govinfo.gov/content/pkg/FR-2026-08-20/pdf/2026-17042.pdf.

Again, the top headline from these developments, which SBA explicitly discussed in the proposed rule for the new size standards, is that the number of firms qualifying as “small business concerns” under SBA’s methodology would increase materially if the proposal is finalized, potentially increasing competition for small business set-aside/reserved contracts. Specifically, the proposed rule states that “[t]he changes to the size standards would result in a net increase of about 114,541 businesses classified as small,” and that “nearly 37,002 unique firms with FY 2025 [government] contracts will be newly eligible small businesses.” Collectively, “these firms accounted for roughly 105,655 contracts in FY 2025 for a total of more than $71 billion.” Indeed, only 24 of the new size standards will “result in a reduction in number of eligible firms with the total decrease expected to be less than 200.”

As for the revised methodology, described in significant detail in SBA’s white paper, the most significant changes are as follows:

  • Fewer, Simpler Size Standards. Today, SBA’s table of size standards covers 978 six-digit NAICS industries and 18 subindustry exceptions, resulting in nearly 1,000 industry-specific standards and exceptions. The 2026 revised methodology collapses that system into 338 standards, set mostly at the broader four-digit NAICS “industry group” level (276 of them) and the rest at the five-digit NAICS “industry” level (62), reflecting a meaningful reduction. The new methodology also eliminates all 18 of the size standard exceptions that currently apply only to federal contracting.  For contractors, SBA says the aim is less guesswork about which code and which threshold govern a given solicitation, and fewer close calls where a contracting officer’s choice of NAICS code may determine eligibility.
  • From Revenue to Headcount. The proposal flips the default yardstick for measuring size. Many industries now assessed under an annual receipts standard would move to an employee headcount-based standard, so that of the 338 proposed size standards, 208 would be headcount-based, 129 revenue-based, and one asset-based. Revenue-based standards are kept mainly for services, where they are statutorily required. Also, the new methodology would have no fixed maximum size standard, unlike the current $47 million and 1,500-employee ceilings. The SBA’s stated goal is to reduce how often firms bounce between small and large status, which is a familiar problem for contractors whose revenue can spike because of a single large award, even though their workforce has not meaningfully grown.
  • A New Way of Measuring Dominance. The most fundamental change is how each new size standard is derived. The 2024 methodology weighed seven factors: simple average firm size, weighted average firm size, average assets per firm, the four-firm concentration ratio, the industry Gini coefficient, and two federal contracting disparity ratios. According to SBA, “[t]hese factors, while often associated with a firm’s dominance in its field of operation, did not directly relate and in some cases led size standards astray.” The 2026 revised methodology combines three factors—national industry size, number of geographic markets, and an adjustment for net imports—to derive a single “average market size” measure. This new approach is intended to align the size standards with the Small Business Act’s definition of a small business as one that is “not dominant in its field of operation.”
  • Productivity Growth Adjustment. The revised methodology also adds a productivity growth adjustment for receipts-based size standards. SBA states that adopting this change will mean that “small businesses will not lose their small business status due to the general productivity growth of the entire U.S. economy.” After accounting for inflation and productivity growth, the proposed methodology establishes a minimum receipts-based size standard of $30.6 million.

Small businesses that would be impacted by these changes are encouraged to submit public comments. Comments may be submitted online at the Federal Government’s eRulemaking Portal. Docket No. SBA-2026-0199 pertains to the proposed size standards, while Docket No. SBA-2026-0265 pertains to the Revised Size Standards Methodology. Comments on both proposals are due on September 21, 2026.