[author: Emily Rouleau]
On December 6, 2018, the Senate passed the Small Business Runway Extension Act (HR 6330), which amends the Small Business Act by changing the time period for determining a company’s size based on average annual receipts. Initially, the Small Business Act required size standards to be prescribed on the basis of a company’s average annual receipts from the previous three years; the Small Business Runway Extension Act extends this time to the previous five years. The House passed the bill on September 25, 2018, and the legislation will now go to President Trump for his signature.
This change has the potential to provide businesses a longer time period to qualify as small. The House Committee on Small Business, where the bill was initially referred, reported that the modification to the size formula was designed to “reduce the impact of rapid-growth years which result in spikes in revenue that may prematurely eject a small business out of their small size standard” and give entry-level small businesses more time to grow and develop their competitiveness and infrastructure. However, as discussed in further detail by my colleague, Megan Connor, the law assumes that businesses’ revenues generally grow year by year at a steady rate, which is not true for all companies. Consequently, some businesses will benefit from the change while others may no longer qualify as small.
As Ms. Connor also mentioned, SBA will need to propose rules in order to implement the change in its regulations; we believe SBA may be open to some type of “grandfathering” provisions as it implements the change. Proposed rules will have to go through the notice and comment process, so please let us know how the new five year revenue calculation will affect your company.
