Small Business Size Standards: A Historical Analysis of Contemporary Issues

[Excerpt] Small business size standards are of congressional interest because the standards determine eligibility for receiving Small Business Administration (SBA) assistance as well as federal contracting and tax preferences. Although there is bipartisan agreement that the nation’s small businesses play an important role in the American economy, there are differences of opinion concerning how to define them. The Small Business Act of 1953 (P.L. 83-163, as amended) authorized the SBA to establish size standards for determining eligibility for federal small business assistance. The SBA currently uses two size standards to determine program eligibility: industry-specific size standards and an alternative size standard based on the applicant’s maximum tangible net worth and average net income after federal taxes. This report provides a historical examination of the SBA’s size standards, assesses competing views concerning how to define a small business, and discusses how the Small Business Jobs Act of 2010 might affect program eligibility. It also discusses H.R. 585, the Small Business Size Standard Flexibility Act of 2011, which would authorize the SBA’s Office of Chief Counsel for Advocacy to approve or disapprove a size standard proposed by a federal agency if it deviates from the SBA’s size standards. The SBA’s Administrator currently has that authority. It also discusses H.R. 3987, the Small Business Protection Act of 2012, which would require the SBA to make available a justification when establishing or approving a size standard that the size standard is appropriate for each individual industry classification within a grouping of four-digit NAICS codes. The bill would address the SBA’s announced intention to combine size standards within industrial groups as a means to reduce the complexity of its size standards and to provide greater consistency for industries that have similar economic characteristics