SBA Proposes Sweeping Redefinition of Small-Business Size Standards

On August 20, 2026, the U.S. Small Business Administration (SBA) published two linked proposed rules in the Federal Register that would overhaul the size-standard framework used to determine eligibility for federal small-business set-aside contracts. The proposals collapse roughly 1,000 six-digit NAICS standards into 338 broader industry groupings, shift many thresholds from revenue-based to employee-based metrics, and replace the 2024 analytical model with a new market-size formula. Comments are accepted for a 30-day period, with the deadline in late September.

SBA Proposes the Most Sweeping Overhaul of Small Business Size Standards in a Generation—338 Industry Groups, a New Methodology, and No Reductions Federal News NetworkSBA proposes sweeping rewrite of small business size standards

• NAICS Consolidation: Move from six-digit to primarily four- and five-digit NAICS codes, reducing categories from nearly 1,000 to 338 and eliminating existing “exceptions.”

SBA Proposes the Most Sweeping Overhaul of Small Business Size Standards in a Generation—338 Industry Groups, a New Methodology, and No Reductions

• Methodology Shift: Replace the prior seven-factor averaging approach with a three-factor model—national industry size, geographic market count, and a net-imports adjustment—mirroring Justice Department and FTC guidelines.

SBA Proposes the Most Sweeping Overhaul of Small Business Size Standards in a Generation—338 Industry Groups, a New Methodology, and No Reductions

• Employee-Based Default: Where discretion exists, the SBA will default to employment-based standards, reversing the 2024 preference for receipt-based thresholds outside manufacturing and services.

SBA Proposes the Most Sweeping Overhaul of Small Business Size Standards in a Generation—338 Industry Groups, a New Methodology, and No Reductions

• No Reductions Policy: Although SBA analysis identified 45 industries where a lower standard was indicated, the agency will retain or raise standards in all cases, citing the Small Business Act and Executive Order 14267.

SBA Proposes the Most Sweeping Overhaul of Small Business Size Standards in a Generation—338 Industry Groups, a New Methodology, and No Reductions

• Eligibility Expansion: The SBA estimates the new thresholds would make over 114,000 additional firms eligible for small-business contracts, a 0.3 % increase in the overall pool.

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• Revenue Threshold Jumps: In IT codes such as NAICS 541511, the receipt standard would rise from $34 million to $531 million, adding 1,343 firms. Similar increases are projected for NAICS 541512, 541519, and 518210, with added firm counts ranging from 203 to 1,469.

SBA Proposes the Most Sweeping Overhaul of Small Business Size Standards in a Generation—338 Industry Groups, a New Methodology, and No Reductions

• Employee Threshold Increases: For sectors like Electric Power Generation (NAICS 2211), the employee standard would move from 700 to 1,150; other examples include Textile Product Mills (600 -> 1,000) and Waste Collection (receipts $38 M -> $47 M).

SBA Proposes the Most Sweeping Overhaul of Small Business Size Standards in a Generation—338 Industry Groups, a New Methodology, and No Reductions

The agency noted that a new productivity adjustment would address the limitation of adjusting receipt-based standards solely for inflation.

SBA Proposes the Most Sweeping Overhaul of Small Business Size Standards in a Generation—338 Industry Groups, a New Methodology, and No Reductions

The broadened eligibility pool could ease compliance with small-business subcontracting goals for prime contractors, but it also risks diluting the competitive advantage of truly small firms. Larger companies entering the set-aside market may outcompete nascent firms, potentially leading to consolidation in sectors such as defense, construction, and IT. Removing federal-contracting disparity ratios from the size-standard calculation means historical participation rates will no longer directly influence future thresholds.

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Both proposed rules were published on August 20, 2026, initiating a 30-day comment period. Stakeholders are urged to analyze the impact on their specific NAICS classifications and submit feedback before the September deadline. Legal analysts anticipate the “no reductions” stance may become a focal point in any post-final-rule challenges.

SBA Proposes the Most Sweeping Overhaul of Small Business Size Standards in a Generation—338 Industry Groups, a New Methodology, and No Reductions