The U.S. Small Business Administration (SBA) has issued a proposed rule that would significantly revise how SBA small business size standards are established and applied across industries. If finalized, the proposal would replace the current framework of nearly 1,000 industry-specific size standards with a simplified structure of 338 standards. Additionally, it would significantly raise thresholds, while modifying the methodology used to determine small business eligibility.
SBA states that the proposal is intended to better reflect current market conditions and industry structures, simplify the size standards framework, and ensure that businesses qualifying as small are consistent with the Small Business Act's requirement that a small business not be dominant in its field of operation.
The rule is currently proposed and has not yet been finalized. SBA is accepting public comments through September 21, 2026.
Key Dates
Proposed Rule Published: August 20, 2026
Public Comment Deadline: September 21, 2026
Implementation Date: Not specified. The proposal is not final and may change before SBA issues a final rule.
What Is the SBA Proposed Rule?
The proposed rule would establish new SBA size standards for 338 industry groups and industries. SBA developed the proposal as part of its third comprehensive five-year review cycle mandated by the Small Business Jobs Act of 2010. The agency indicates that its updated methodology is designed to better reflect the markets in which small businesses compete and ensure continued coverage across the U.S. economy.
Under the proposal, SBA would move from a system that currently includes nearly 1,000 different size standard levels covering 995 NAICS industries and 18 exceptions to a simplified framework consisting of 338 size standards.
Key Proposed Changes for Government Contractors
Simplified Industry Classification Structure
One of the most significant changes would shift size standard calculations from primarily six-digit NAICS codes to a combination of four-digit industry groups and five-digit industries. SBA states this would reduce the number of individual size standards and eliminate existing size standard exceptions. According to SBA, the change is intended to reduce confusion when businesses determine which size standard applies to their operations.
Expanded Use of Employee-based Size Standards
The proposal would convert many industries currently using receipt-based standards to employee-based standards. SBA explains that employee-based standards may reduce situations where firms move in and out of small business status because of fluctuations in revenue, inflation, or productivity growth.
New Methodology for Determining SBA Size Standards
SBA proposes replacing its prior methodology, which relied on multiple industry competitiveness factors, with a framework built around three elements:
- National industry size
- Number of geographic markets
- An adjustment for international competition through imports and exports
These factors would be combined into an average market size measure used to determine size standards. SBA states the revised approach is intended to better align with statutory requirements regarding whether a business is dominant in its field of operation.
Productivity Adjustment for Revenue-based Standards
For the first time, SBA proposes adding a productivity-growth adjustment to monetary size standards in addition to inflation adjustments. The agency states this change recognizes that technological improvements and workforce productivity can increase business receipts beyond inflation alone.
Why SBA Is Proposing These Changes
SBA states that the proposal reflects both statutory review requirements and broader economic considerations. The agency notes that during its prior five-year review it identified industries where analytical models suggested lower size standards but chose not to reduce standards because of economic conditions and broader policy concerns associated with removing firms from small business status.
In this rulemaking, SBA again proposes not to reduce any size standard where analytical results would otherwise support a reduction. The agency states that lowering standards could cause currently eligible firms to lose access to federal contracting opportunities, SBA-backed financing programs, and other benefits tied to small business status. SBA also expresses concerns about potential impacts on competition, innovation, supply chains, manufacturing and defense industrial base resilience.
Potential Impacts on Small Business Eligibility and Federal Contracting
According to SBA's analysis, the proposal would increase the total number of firms classified as small businesses from approximately 6.34 million to 6.46 million, representing a net increase of about 114,541 firms. SBA estimates that approximately 37,002 firms currently performing federal contracts would become newly eligible as small businesses under the proposed standards. Those firms accounted for more than 105,655 contracts and roughly $71 billion in federal contract obligations during FY 2025.
For government contractors, this could create several implications if the rule is finalized, such as:
- Additional companies may become eligible to compete for small business set-aside opportunities.
- Some firms that previously exceeded SBA size standards may regain eligibility for small business programs.
- Increased participation could create greater competition within certain small business contracting markets.
- Businesses approaching current size thresholds could potentially continue growing while retaining small business status longer than under existing standards.
SBA also notes that newly qualified firms could become eligible for SBA loan programs and certain regulatory flexibilities available to small businesses.
Compliance and Strategic Planning Considerations
Although the proposal would not impose new reporting or recordkeeping requirements, government contractors should evaluate how the proposed standards may affect their future eligibility strategies. SBA specifically notes that businesses participating in federal programs must continue to maintain SAM registrations and annual self-certifications where applicable.
Contractors should consider:
- Reviewing current NAICS classifications and proposed size standards.
- Assessing whether changes could affect eligibility for small business set-asides.
- Evaluating implications for SBA loan programs and certification programs.
- Monitoring how increased competition may affect federal business development strategies and pipeline planning.
- Preparing comments if the proposal could materially impact their industry or growth strategy.
Action Steps for Government Contractors
This SBA proposed rule represents one of the most significant proposed changes to SBA size standards in recent years. While the proposal is not yet final, government contractors should evaluate how revised small business eligibility thresholds could affect their federal contracting position, growth strategy and access to small business programs.
Companies that are nearing current SBA size standards, have recently exceeded those thresholds, or operate in industries expected to see meaningful changes may benefit from reviewing the proposal in detail and assessing potential impacts ahead of any final rulemaking. As the comment period remains open through September 21, 2026, affected businesses also have an opportunity to provide feedback before SBA determines whether and how these changes will be implemented.
Cherry Bekaert’s Government Contractor Consulting team can help you assess how these proposed changes may impact SBA eligibility and help guide your evolving growth strategy. Connect with a government contracting advisor today to learn more about our comprehensive solutions.
