The SBA says its proposed size standards would give growing businesses more room to succeed. Some of the changes could go too far, bringing substantially larger companies into the small business marketplace and increasing competition for federal set-asides.
On August 20, 2026, the U.S. Small Business Administration (SBA) published proposed changes to its small business size standards and the methodology used to establish them.
The proposal would reduce nearly 1,000 individual size standards to 338, increase many existing thresholds, and change how size is measured for some industries. SBA estimates the changes would result in approximately 114,541 additional businesses qualifying as small, including 37,002 companies already participating in federal contracting. Those federal contractors received approximately $71 billion in federal contract dollars during Fiscal Year 2025.
For existing small businesses, those numbers deserve attention.
SCM believes the proposed changes go too far. While we support giving successful small businesses room to grow, dramatically expanding certain size standards could allow substantially larger companies to compete for opportunities intended to support small businesses. We are particularly concerned about the effect on veteran-owned businesses and other socioeconomic contracting programs.
Why Size Standards Matter
SBA size standards determine whether a company qualifies as small under a particular North American Industry Classification System (NAICS) code. That status can determine eligibility for small business set-asides and is also an important component of eligibility for programs serving Service-Disabled Veteran-Owned Small Businesses (SDVOSBs), Historically Underutilized Business Zone (HUBZone) businesses, Women-Owned Small Businesses (WOSBs), and 8(a) Business Development Program participants.
Size is currently measured primarily through average annual receipts or number of employees, depending on the industry. Under the proposed methodology, SBA would increase many thresholds and consolidate standards across broader NAICS industry groups.
There is a legitimate reason to review these standards. Successful small businesses can reach a point where continued growth causes them to lose small business status and suddenly compete against much larger companies. SBA refers to this problem as the “benefit cliff.” Raising appropriate thresholds could give successful small businesses more room to grow, hire and develop their capabilities before graduating from small business programs.
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A Small Methodology Change Could Have an Outsized Impact
One of the most consequential changes, in SCM’s view, is SBA’s proposal to significantly expand the use of employee-based size standards. Sixty-four industries would move from annual receipts to number of employees, while another six would move from a combination of receipts and employment measures. Under the proposal, 208 of the 338 industry standards would be employee-based.
Revenue and employee count measure very different things, and that distinction could become increasingly important as businesses adopt artificial intelligence, automation, robotics and other labor-saving technologies. A company may be able to substantially increase its revenue and contract capacity without increasing its workforce at the same rate, allowing it to grow economically while remaining below an employee-based size threshold.
SCM believes the increased reliance on employee-based standards deserves particular scrutiny. Revenue and headcount are increasingly disconnected as companies adopt artificial intelligence, automation, robotics and machinery. A company can increase revenue and contract capacity substantially without growing its workforce at the same rate.
Employee-based standards could therefore allow companies with significant revenue to continue qualifying as small. They could also create an unintended incentive to limit workforce growth or replace labor with automation to remain below an employee threshold. Federal small business policy should not create a system where a company’s economic size grows dramatically while its eligibility for small business protections remains largely unchanged.
SBA is not proposing employee-based standards for every industry. Federal law generally requires receipts-based standards for services industries, and the proposed changes vary by industry. Small businesses should therefore review the standard proposed for their specific industries.
The Impact Could Vary Dramatically by Industry
SBA estimates that 37,002 existing federal contractors would become newly eligible for small business status under the proposed standards. These companies already participate in the federal marketplace and collectively accounted for approximately $71 billion in Fiscal Year 2025 federal contracting dollars.
The impact becomes clearer when looking at individual industries.
Janitorial Services (NAICS 561720) would move from a $22 million receipts standard to approximately $58 million.
Landscaping Services (NAICS 561730) would see an even larger change, moving from $9.5 million to approximately $58 million. A landscaping company generating $50 million annually could therefore potentially qualify as small despite generating more than five times today’s small business threshold.
The impact extends into professional services. Administrative Management and General Management Consulting Services (NAICS 541611) would move from $24.5 million to approximately $55 million, with SBA estimating that 1,818 additional firms in that industry could qualify as small.
For contractors generating only a few million dollars annually, these changes could significantly alter who they encounter in the small business marketplace.
What This Means for Veteran-Owned Businesses
SCM is particularly concerned about the downstream effect on veteran-owned and other socioeconomic small business programs.
Raising a size standard does not automatically qualify a company as a Service-Disabled Veteran-Owned Small Business (SDVOSB), Women-Owned Small Business (WOSB), Historically Underutilized Business Zone (HUBZone) business, or 8(a) participant. Each program has additional eligibility requirements.
But size is a gatekeeper. A company that satisfies the other requirements but is currently too large to qualify as small could potentially regain access to these contracting programs if the applicable size threshold increases. That could introduce substantially larger and more established contractors into competitions currently reserved for smaller businesses.
For veteran-owned businesses that have spent years building capabilities within the small business marketplace, this is not an abstract concern. Changes to the definition of “small” can change who they compete against for federal opportunities.
SCM opposes changes that would expand small business eligibility so broadly that they undermine the businesses these programs were designed to support.
Small Businesses Have an Opportunity to Respond
These changes are proposed, not final. SBA is accepting public comments through September 21, 2026, and history shows that participation can matter.
In 2004, SBA considered expanding the use of employee-based size standards but ultimately withdrew the proposal following significant public opposition. Among the concerns raised was the possibility that businesses with very high receipts but relatively few employees could qualify as small. Read SBA’s discussion of the 2004 proposal
The small business community has an opportunity to speak again.
SCM encourages small businesses, veteran-owned businesses, trade associations and advocacy organizations to review the proposed standards for their industries and submit substantive comments to SBA.
View the proposal and submit a public comment
We also encourage businesses that believe these changes could harm the small business marketplace to contact their congressional representatives. Give them specifics: your NAICS code, the current standard, the proposed standard, and what the expanded threshold would mean for competition in your industry.
SCM supports policies that allow small businesses to grow and succeed. We do not believe that goal requires redefining “small” so broadly that substantially larger businesses gain access to opportunities created to develop America’s small business industrial base.
Growth should not become a penalty, but “small business” still has to mean something.
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