On August 20, 2026, the U.S. Small Business Administration (SBA) proposed two rules that, if finalized, will fundamentally transform the small business program. The first proposed rule, Revised Size Standards Methodology, will update the methodology that SBA has historically used to calculate size standards, and the second proposed rule, on Small Business Size Standards, will apply the new methodology to consolidate the number of industry-specific size standards and significantly raise size standard thresholds.
The proposed rules emerge from SBA's third five-year review of size standards under the Small Business Jobs Act of 2010. SBA anticipates that the proposed changes will result in a net increase of about 114,541 businesses classified as small, an increase of nearly 37,002 unique firms with FY 2025 contracts as newly eligible small businesses, and a reduction from 995 size standards to 338 size standards.
Comments on both proposed rules are due September 21, 2026.
Key Takeaways
SBA's proposed rules include several significant changes, including:
- Fewer Size Standards. SBA proposes to reduce the number of size standards by implementing broader NAICS codes. SBA proposes to change the current 6-digit NAICS code to a mix of 4-digit and 5-digit NAICS codes to simplify and reduce the 995 size standards currently in place to 338 size standards. SBA has also proposed to remove all size standards exceptions. SBA aims to reduce confusion for small businesses operating across closely related industry categories and enhance each small business's understanding of where it fits in the federal government ecosystem.
- Default to Employment-Based Standards. SBA proposes to use an employment-based standard for all industries where appropriate (except for NAICS 1141, which Congress has not authorized SBA to determine): of the 338 industry groups, 129 are proposed to have receipts-based size standards and 208 employee-based size standards. Through this proposed change, SBA endeavors to increase stability in size determinations by reducing fluctuation between small and other than small status termination that frequently occurs "due to business volatility, inflation, and productivity growth." SBA states this would benefit small businesses, where the revenue from winning a contract or cost of living revenue increases alone would impact the small business's size determination without a business truly growing.
- Increases to Receipt-Based Standards. SBA proposes to dramatically increase most receipt-based NAICS codes. For example, SBA proposes to increase the size standard for NAICS 541511 (Custom Computer Programming Services), NAICS 541512 (Computer Systems Design Services), and NAICS 541519 (Other Computer Related Services), from $34 million to $531 million, a 1,462% increase. SBA also proposes to increase the size standard for NAICS 541330 (Engineering Services) from $25.5 million to $252 million, an 888.2% increase; NAICS 541310 (Architectural Services) from $12.5 million to $135 million, a 980% increase; and NAICS 541611 (Administrative Management and General Management Consulting Services) from $24.5 million to $295 million, a 1,104% increase. Notably, SBA does not propose to reduce any size standard.
- Increases to Employment-Based Standards. SBA proposes to increase most employee-based size standards. For example, SBA proposes to increase the size standard for NAICS 541715 (Research and Development in the Physical, Engineering, and Life Sciences) from 1,000 employees to 2,800 employees, an 180% increase. Under the proposed rule, the lowest employee-based standard will be 500 employees.
- Updated Size Determination Factors. SBA proposes to replace the seven-factor framework for determining a firm's "dominance in its field of operation" with three factors—national industry size, number of geographic markets, and a net imports adjustment—yielding a single "average market size" measure. SBA states this better aligns with the Small Business Act's requirement that a concern not be "dominant in its field of operations," interpreting that phrase to encompass both goods/services and geographic area, consistent with the Federal Trade Commission/Department of Justice Horizontal Merger Guidelines.
- Updated Factor Formula: Instead of averaging seven factor-level standards within a narrow, capped range, which SBA states can lead to skewed results, SBA proposes to combine the three proposed factors into a single measure, average market size. SBA explains that as "average market size grows larger so to[o] do size standards, but at a decreasing rate. This means that there is no maximum size standard."
- Productivity Adjustment for Monetary-Based Standards. SBA proposes adding a productivity adjustment—alongside the existing inflation adjustment. With this adjustment, SBA aims to prevent small businesses from losing their small business size status because of the continually increasing costs for technological improvements and growing worker skills, and the general productivity growth of the entire U.S. economy.
No matter what side of this change you find yourself on, the proposed SBA overhaul of the small business size standards is an important shift that may require comment or careful analysis. Should you have questions or wish to consider commenting, please contact the authors of this article or anyone from the Venable Government Contracts team.