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How and Why to Determine if Your Business is “Small”

How and Why to Determine if Your Business is “Small”

By Caron_Beesley, Contributor
Published: October 20, 2014 Updated: July 21, 2016

Your business may not be small just because you think it is. The government actually has a say in it.

Small business size standards, established by the SBA, define the maximum size that a company (along with its affiliates) can be to qualify as a small business. These standards are used to help determine whether your business is eligible for SBA’s small business programs, including financial assistance.

Furthermore, size standards help determine which small businesses are eligible to sell to the federal government. Why? The federal government sets aside a variety of contracts for competition among small businesses, women-owned small businesses, service-disabled veteran-owned small businesses and disadvantaged small businesses. To qualify for these “set-asides,” a business must meet the SBA’s criteria for being “small.”

But what are these size standards and how do you go about certifying your business as “small” (needed for the purposes of government contracting)? Read on.

What is a Size Standard?

Whether you are a sole proprietor, LLC, partnership or corporation, the SBA defines a business as small mostly based on either the number of employees over the past 12 months or the average annual receipts over the past three years.

The two most widely used standards to qualify a business as small are 500 employees for most manufacturing and mining industries and $7.5 million in average annual receipts for many nonmanufacturing industries. There are many exceptions to these standards because size standards vary by industry.

In addition to size standards, your business needs to meet the following criteria, to qualify as small:

  • Is organized for profit
  • Has a place of business in the U.S.
  • Operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor
  • Is independently owned and operated
  • Is not dominant in its field on a national basis

Does Your Small Business Qualify as Small? Size Standards tool image

The easiest way to determine whether your business qualifies as small for government contracts is to use the SBA Size Standards Tool. Just enter your NAICS code and business size information and the tool does the rest.

SBA has also established a Table of Small Business Size Standards, which is matched to the North American Industry Classification System (NAICS) industry categories.

Size Standards Keep Changing

It’s important to note that the SBA periodically updates size standards to ensure they reflect market conditions. Currently, SBA is doing a comprehensive size standards review. Check out the What’s New with Size Standards? on www.sba.gov/size for latest updates.

Do These Size Standards also Apply to Other Programs?

SBA’s size standards also apply to service-disabled veteran-owned small businesses, women-owned small business and small disadvantaged businesses (such as Native Americans). However, it’s important to note that these businesses must also meet specific eligibility criteria in order to compete for exclusive government contracts that are set aside for these groups. Read more about these set-aside programs and eligibility requirements here:

How and When to Certify Your Business as Small

If you’re interested in one of SBA’s loan programs, you don’t need to officially register or certify your business as small. As long as you meet the criteria above, no additional steps are required other than the formal loan request and approval process.

However, if you would like to do business with the federal government you’ll need to register your company with the federal government's System for Award Management (SAM), the primary database of vendors doing business with the federal government. This registration is sometimes referred to as "self-certifying" your small business status.

SAM is a repository of all businesses that sell – or want to sell – their products and services to the federal government. Registering with SAM is just one of the first steps in preparing your business for government contracting that includes obtaining proof of past performance and more. Read more about this process here.

Additional Resources

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley