SBA Proposes to Increase Small Business Eligibility for Loan Programs Through Size Standard Revisions

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PilieroMazza PLLCOn May 25, 2021, the Small Business Administration (SBA) issued a proposed rule that would increase size standards for 49 industries in the Wholesale Trade (Sector 42) and Retail Trade (Sectors 44-45) sectors. The North American Industry Classification System (NAICS) codes under these sectors are not used to classify government acquisitions for supplies. Instead, procurements for supplies are classified under a manufacturing or supply NAICS code. Therefore, SBA estimates that this rule would not have any impact on federal contract dollars awarded to small businesses. However, SBA anticipates more than 1,800 firms will become eligible for SBA loans and assistance programs if this rule is adopted.

The proposed rule is part of the second five-year comprehensive size standard review required under the Small Business Jobs Act of 2010. When reviewing size standards, SBA examines the structural characteristics of an industry as a basis to assess industry differences and the overall degree of competitiveness of an industry and of firms within the industry. SBA uses a number of factors to determine whether a size standard should be increased or lowered, including average firm size, degree of competition within an industry, start-up costs and entry barriers, and distribution of firms by size.

Notably, in response to the 2008 Financial Crisis, SBA adopted a general policy in the first five-year comprehensive size standards review to not lower any size standard, even when the analytical results suggested the size standard should be lowered. SBA intends to continue that same policy and is proposing to increase size standards where the data suggest increases are warranted and to retain, in response to the ongoing COVID–19 pandemic and resultant economic impacts on small businesses, all current size standards where the data suggest lowering would be appropriate.

The Bureau of Economic Analysis (BEA) found that, in April 2021, the unemployment rate stood at 3.3% for the Wholesale Trade sector and 6.8% for the Retail Trade sector. These are improvements from April 2020, when the unemployment rates for both sectors were 9.9% and 18.6%, respectively, but they are still well above their pre-pandemic levels from February 2020. Moreover, the Federal Reserve Board’s Monetary Policy Report from June 2020 showed that the most impacted firms in these sectors are small businesses. SBA concluded from its size standard methodology analysis, the Federal Reserve Board’s report, and the BEA’s data that the economic impacts of the coronavirus pandemic merited an increase in size standards for these industries in order to make more businesses eligible for small business loans and various relief programs.

SBA is currently welcoming comments on this proposed rule, which are due by July 26, 2021. Comments can be submitted here using RIN 3245-AH10 and mailed to Khem R. Sharma, Chief, Size Standards Division, 409 3rd Street SW, Mail Code 6530, Washington, D.C. 20416.

SBA is specifically inviting comments on the following:

  1. whether SBA’s proposal is appropriate given the results from the latest available industry and federal contracting data, along with ongoing uncertainty and dramatic contraction in economic activity due to COVID-19;
  2. whether SBA should not lower any size standards in view of COVID-19 when analytical results suggest some size standards could be lowered;
  3. whether it is possible to lower size standards while mitigating the consequences of the lower standards, instead of not lowering any size standards at all;
  4. whether SBA should assign equal weight to each factor when conducting its analysis or give more weight to one or more factors for certain industries or subindustries;
  5. data sources it used to examine industry and federal market conditions, as well as relevant alternative data sources it should evaluate in reviewing or modifying size standards for industries covered by this proposed rule; and
  6. whether alternative standards would be more appropriate than the proposed size standards.

Special thanks to Firm Paralegal, Emmanuel Elone, for his assistance with this post.

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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