The U.S. Small Business Administration is increasing thresholds for the definition of “small business,” which it says will benefit roughly 110,000 companies nationwide in several ways.
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The U.S. Small Business Administration plans to widen its definitions of “small business” to add another estimated 110,000 companies to the ranks of the 36.2 million small businesses in the country, an increase of 0.3%. The move would make these firms newly eligible for SBA loans and allow them to bid on government contracts that are reserved for the smallest businesses—though the proposed policy change likely faces months of federal review before it’s fully adopted.
According to a notice published Thursday morning in the Federal Register, the agency aims to update its “size standards” across industries to help more small firms compete with bigger businesses such as Boeing and Raytheon that tend to dominate the government contract arena.
Semiconductor manufacturers, for instance, would now be classified as “small businesses” as long as they have fewer than 2,800 employees, up from the prior threshold of 1,250 workers; shipbuilders could go from 1,300 employees to 2,300 and retain their small business status; and oil exploration firms with up to 2,650 workers would qualify, an increase from 1,000.
In addition, ranchers and other businesses in the “animal production” industry would get a significantly bigger annual revenue threshold, or average annual receipts cap — jumping from $11 million to $71 million — while still qualifying for small business benefits, the SBA said.
“These changes would enable more businesses to access SBA loans, compete for federal contracts, and participate in other federal support programs, while reducing the regulatory ambiguity and compliance costs associated with overly narrow industry classifications,” the SBA said in an announcement on Thursday morning.
Another major switch is a proposal to eliminate hundreds of North American Industry Classification System (NAICS) codes, which are used by various federal agencies to track and analyze economic activity. The SBA said it would now rely on a “market-size approach” that takes geographic limitations into consideration and “dramatically simplify” industry classifications. It plans to cut roughly 65% of the NAICS designations, chopping the list from over 1,000 codes to 338 “broader classifications.” The agency would also update the NAICS format in some cases, from six digits to four, though it was not immediately clear how many remaining codes could be shortened.
“By streamlining definitions, the SBA will expand access (to) capital, counseling, and contracting opportunities, which in turn create jobs and drive growth,” SBA Administrator Kelly Loeffler said in a release.
The practical effect of the proposed rule change, said SMB Law Group founder Eric Pacifici, is that a small fraction of U.S. businesses could get a financial and competitive boost, but most will be unaffected.
“The bullet points are, if you are an American small business as defined by the regulations, then you are eligible for benefits, which primarily are SBA loans and government contracts,” Pacifici told Forbes. “To those 110,000 businesses, it’s great. To the rest of us, it’s not earth-shattering.”
Perhaps one of the more interesting side effects of the switch, Pacifici said, is it would allow small business government contractors to grow beyond the previous cap. Pacifici said some small business contractors that work with federal agencies deliberately stunt their own growth so they can still qualify under the SBA’s definition of “small business” and continue to be eligible for the same government contracts that are their bread and butter.
But with this rule change, Pacifici said, such firms would be able to grow significantly in employee headcounts and revenue levels. An SBA official confirmed to Forbes that that is part of the intent behind the proposed rule change.
“You’ve got that class of businesses that intentionally stopped growing, because they needed those benefits, that now can grow a little bit more,” Pacifici said. “You’ve got entrepreneurs that can go out there and acquire larger businesses.”
“The interesting question that they didn’t tell us — and maybe they don’t know — is how many businesses sit at that threshold,” Pacifici wondered aloud.
It remains speculation for now. The rule change, which was first formally proposed in August of 2025, will need to go through a public comment period and gain buy-in from other federal agencies before it can be fully adopted by the SBA. But an SBA official indicated to Forbes that the agency expects the rule change to go into effect by the end of the year.
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