SBA Withdraws Proposal To Change Definition Of 'Small'
BY Matt Quinn
July 2, 2004 -- The Small Business Administration announced that it was backing down from its proposal to change the standards used to define what "small" means when it comes to eligibility for government funding.
However, the SBA made clear its intention to revisit the issue after obtaining more data.
The agency said it was bombarded with more than 3,700 public comments regarding the rule change since the proposal was introduced in March. A number of them raised concerns regarding the methodology for developing the proposed size standards, the impact the standards would have on existing small businesses, the determination of employee size of a business and the SBA's overall approach to simplifying the size standards.
The new standards sought to simplify the current structure, in part by reducing the number of categories from 37 to 10. The current standards rely heavily on annual revenues in determining size, while the proposal would be based largely on the number of employees. In the proposal, the SBA cited evidence that the "number of employees" method is the best indicator of "business size" because it is less volatile than annual receipts with respect to short-term economic conditions.
With the proposed changes, the SBA argued, it would be easier for more businesses to apply to SBA programs. The new standards would also reduce costs of administering SBA programs, according to the agency.
Hanging in the balance for tens of thousands of U.S. businesses is their eligibility for receiving the loans that the SBA issues small businesses each year.
Had the proposal been approved, it would have impacted nearly 70,000 businesses, according to the SBA. Although 35,200 businesses would have gained "small business" eligibility, 34,100 stood to lose it. The SBA did not release estimates of annual funding that businesses losing small business eligibility would have had to forfeit.
--with Ian Ybarra
MATT QUINN contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.