End of Transition Period for SBA Size Standard Calculation; Five Year Measurement Period ‎Now Required

Schwabe, Williamson & Wyatt PC

Schwabe, Williamson & Wyatt PC

This is a reminder that as of January 6, 2022, the Small Business Administration is requiring all small businesses to use a five-year period of measurement in determining their size under a revenue-based size standard.

On January 6, 2020, the SBA published its final rule providing for a five-year period of measurement for determining a small business’s size under revenue-based size standards. In recognition of the potential impacts caused by change from a three-year period of measurement to a five-year period of measurement, the SBA provided a two-year transition period in which small businesses could elect to use either a three- or five-year period of measurement.  

That transition period ended January 6, 2022, and all small businesses are now required to use the five-year period of measurement for determining a small business’s size under revenue-based size standards. Accordingly, those entities who participate in the SBA’s small business programs and have not already moved to a five-year measurement may want to consider evaluating if there is any change in their size status based on this new measurement period. 

The applicable regulation is 13 CFR § 121.104(c)(1), and the period of measurement is defined as follows:

Except for the Business Loan and Disaster Loan Programs, annual receipts of a concern that has been in business for 5 or more completed fiscal years means the total receipts of the concern over its most recently completed 5 fiscal years divided by 5.

As a reminder, “receipts” are generally considered to be “‘total income’ (or in the case of a sole proprietorship ‘gross income’) plus ‘cost of goods sold’ as these terms are defined and reported on Internal Revenue Service (IRS) tax return forms.” 13 CFR § 121.104(a).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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