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SBA Changes Definition Of 'Small Business'

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Small talk: SBA Administrator Karen Mills and President Obama both say they want to help small businesses, but will the SBA's new size standards help or hurt?
Small talk: SBA Administrator Karen Mills and President Obama both say they want to help small businesses, but will the SBA's new size standards help or hurt?

In an effort to boost access to federal contracts and financial assistance, the Small Business Administration recently changed its definition of "small business" in a variety of industries for the first time in about 25 years.

Small-business advocates, however, aren't yet sure if or how the move will affect small businesses' ability to get federal government contracts. The SBA released 37 updated revenue-based size definitions of small businesses in 34 professional, scientific and technical services sectors, after starting work on the definitions in 2007. The new size standards take effect March 12.

The SBA took into account factors such as inflation and current economic conditions, as well as federal contracting trends, average firm size and degree of competition within the individual industries, and was motivated to make the changes by the Small Business Jobs Act of 2010, which requires the SBA to continue a comprehensive review of size standards for the next several years, according to an SBA spokesperson.

The SBA, which negotiates small-business contracting goals with various federal agencies, estimates the new definitions will make as many as 8,350 more firms eligible for contracts and financial assistance. "It allows small businesses to retain their small-business status and contracting officers to have a larger selection of small businesses to choose from for contracting opportunities," the spokesperson said.

But the National Small Business Association isn't so sure these changes will be beneficial to small businesses. Although the NSBA is planning a thorough analysis, the Washington, D.C.-based advocacy group cited "a couple areas of concern," NSBA spokesperson Molly Brogan said. "Some industries, such as architecture and engineering, are grouped together, and the combination can cause some issues. Another concern is there may be enhanced competition from businesses on the larger end of the scale that are now classified as a small business. For the majority of businesses that have about nine to 11 employees, it's hard to compete against a company that has 500 employees."

While the National Federation of Independent Business, a Nashville, Tenn.-based advocacy group, doesn't define small business by size, about 70 percent of its members have 10 or fewer employees, according to NFIB spokesperson Cynthia Magnuson. Still, Magnuson said government contracts aren't necessarily what will help their small-business members. "We represent 350,000 small businesses and not a tremendous number of them vie for government contracts," Magnuson said. "Our top priorities tend to be things that affect our whole membership, like taxes, health care and regulation."

By contrast, Brogan of NSBA said leveling the playing field for small-business contracts is one of its members longtime concerns. "Our board has revised our top priority issues for 2012, and contracting is among those," Magnuson said. "Ensuring small businesses do have an equal opportunity through small business set-asides is a big issue."

This definition of small businesses in relation to federal contracts is also being addressed by the House Small Business Committee. The Protect American Small Businesses Act, introduced by Reps. Joe Walsh (R-Ill.) and Gerry Connolly (D-Va.), would require that the size standard be assigned by each group's North American Industry Classification System (NAICS) code. "My bill ensures that small businesses do not have to compete with global corporations to create jobs in our local communities," Walsh said in a statement. "Size standards assure the viability of America's biggest job creators -- small businesses."

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