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SBA Modifies Method for Calculating Annual Revenues for Small Businesses

Release Date: 
Wednesday, December 11, 2019
Release Number: 
20-13
Contact: 
Tiffani.Clements@sba.gov, Matthew.Coleman@sba.gov

NEW YORK, NY – The U.S. Small Business Administration published in the Federal Register a final rule to modify its method for calculating annual revenues used to prescribe size standards for small businesses. The final rule is effective January 6, 2020.

 

The SBA changed its regulations on the calculation of annual revenues from a three-year averaging period to a five-year averaging period, outside of the SBA Business Loan and Disaster Loan Programs.   This is a long-awaited change and will have far-reaching impacts for government contractors.

 

The change in the averaging period for calculating annual average revenues from three years to five years may result in firms regaining or retaining their small business status. To assist small businesses with this change, the SBA is providing a two-year transition period while firms subject to the change may choose either a three-year averaging period or a five-year averaging period.  After January 6, 2022, all companies must use the five-year period of measurement in determining their size under a receipts-based calculation.

 

“This shift from using a three-year period to a five-year period for the average annual receipts calculation will affect all of SBA’s receipts-based size standards, though the change in calculation will not yet apply to the SBA Business Loan and Disaster Loan Programs,” said SBA Regional Administrator Steve Bulger who oversees agency operations throughout New York, New Jersey, Puerto Rico and the U.S. Virgin Islands.

 

This final rule implements the Small Business Runway Extension Act of 2018, Public Law No.115-324, which changed the requirements for proposed size standards prescribed by an agency without separate statutory authority to issue size standards. The intent of the law was to allow small business government contractors more time to prepare for the transition to the full and open market after they exceed the size standard.

 

“The U.S. government spends hundreds of billions of dollars in federal contracts each year for practically every category of commodity and service available.  We aim to award at least 23 percent of these contracting dollars to American small businesses; revised size standards will better allow entrepreneurs to compete with large corporations for federal dollars,” said SBA New York District Director Beth Goldberg who oversees the largest field office in the nation, encompassing New York City, Long Island and the Lower Hudson Valley.

 

While the law changed the averaging period for calculating annual revenues of businesses in services industries from three years to five years, the law did not address the averaging period for calculating the size of other businesses. To promote consistency, the SBA is adopting a five-year averaging period for all of the SBA’s and other agencies’ revenue-based size standards, regardless of whether the industry is for services.

 

As noted above, this change will not apply to the SBA Business Loan and Disaster Loan Programs. The SBA will seek comment, through a separate rulemaking, on the appropriate averaging period for the SBA Business Loan and Disaster Loan Programs.

 

The SBA's table of small business size standards helps small businesses assess their business size to determine is they qualify as a small business for government contracting purposes and compete for contracts reserved or set aside for small businesses.

 

For more information about the SBA’s revisions to its small business size standards for various industry sectors, visit  http://www.sba.gov/size.   

 

 


About the U.S. Small Business Administration

The U.S. Small Business Administration makes the American dream of business ownership a reality. 

As the only go-to resource and voice for small businesses backed by the strength of the federal government, the SBA empowers entrepreneurs and small business owners with the resources and support they need to start, grow or expand their businesses, or recover from a declared disaster. 

It delivers services through an extensive network of SBA field offices and partnerships with public and private organizations. To learn more, visit www.sba.gov