Small businesses are often considered the backbone of the United States economy, and for good reason. The Small Business Administration, though, has changed what fits the definition of a “small business”
The change in definition
The definition of “small business” has been the same for the last 25 years. Generally, the government considers any business with 500 employees or less is a small business, depending on the industry of the business. In 34 business sectors, however, the government will use a formula that considers average firm size, competition, and inflation into the definition of a small business. These new standards take effect on March 12, as a part of the full review of SBA requirements that started in 2010.
Small business vs microbusiness
After the redefinition of small businesses, firms with 500 or fewer employees are generally still going to be considered small businesses. The majority of businesses in the United States, though, are considered “microbusinesses.” The federal government does not consider microbusiness as a separate classification of businesses, but advocacy groups often consider microbusinesses any business that has five employees or fewer or require less than $35,000 to get started. When it comes to awarding business contracts, the federal government considers businesses with 499 employees on the same level as businesses with one employee.
Some advocates call out this disparity as being unfair to startups and microbusinesses, while others say that for many federal contracts, some basis of a larger number of employees is necessary.
The effect of new definitions
The new definitions for small businesses will, by federal estimates, add an additional 8,350 firms to the list of businesses that qualify as a small business. This will increase competition for many small business contracts. The new standards will also increase the weight of factors such as being veteran-owned or minority-owned. The process of applying for a federal contract, as a small business, will not be significantly changed.
National Small Business Association responds
Though the National Small Business Association has not yet completed a complete review of the changes to the definition of small businesses, they have cited “areas of concern.” The biggest areas of concern include the fact that many businesses are grouped together that are not in direct competition, such as architects and construction. The NSBA is a lobbying group for many small businesses. When surveyed, 53 percent of businesses in the association did not support the redefinition.