On August 22, 2025, the Small Business Administration (SBA) issued a proposed rule to increase its monetary based small business size standards for 263 industries (259 receipts-based and four assets-based). The SBA also announced that another proposed rule for employee-based size standards will be issued in the near future. Small business government contractors that are close to their current size standards should closely review the proposed rule to determine its potential impacts.  

Background On SBA’s Size Standards

Under SBA’s regulations, a business concern qualifies as small for a government procurement if the concern, including its affiliates, meets the size standard associated with the North American Industry Classification System (“NAICS”) code identified in the solicitation.    

As described in the NAICS Manual, the Office of Management and Budget (“OMB”) assigns NAICS codes to all domestic industries. SBA then correspondingly assigns a size standard to each NAICS code, which typically specifies either the maximum number of employees or maximum annual receipts that a company may have in order to qualify as a small business. A table including the relevant NAICS codes and their associated size standards can be found at 13 C.F.R. 121.201. A business’s average annual receipts for size purposes is generally calculated by taking the average of its total income plus cost of goods sold over the past five fiscal years. A business’s number of employees is generally calculated by taking the average of the company’s employees (both part-time and full time) over the past twenty-four months. Generally, but not always, employee-based size standards are associated with manufacturing and mining NAICS codes while annual receipts size standards are associated with services.  

When issuing a solicitation for a new contract, government contracting officers are required to assign to the solicitation the single NAICS code “which best describes the principal purpose of the product or service being acquired.” 13 C.F.R. 121.402(b). Once the NAICS code is assigned, the size standard associated with that NAICS code then applies to the solicitation, unless an interested party files an appeal within 10 calendar days after the solicitation is issued.  

Therefore, it is very important for contractors to understand the particular NAICS code assigned to the solicitation and its associated size standard. The proposed rule issued on August 22nd would make significant changes to the monetary-based size standards associated with multiple industries.  

Potential Impacts of the Proposed Rule and Your Ability to Provide Comments

The proposed rule issued on August 22nd would raise the receipt-based size standards for 259 industries. As noted in the proposed rule, as a result of these several increases “Federal agencies will have a larger pool of small businesses from which to draw for their small business procurement programs.” The SBA believes that this larger pool of small businesses will lead to more competition, which would result in lower prices to the government for procurements set aside for small businesses. As another impact of the proposal ruled, the SBA noted that: “Growing small businesses that are close to exceeding the current size standards will be able to retain their small business status for a longer period under the higher size standards, thereby enabling them to continue to benefit from the small business programs.”

However, that larger pool of competition also would mean that small businesses would need to compete directly with larger concerns that are ineligible under current standards, but would become eligible under the proposed rule standards.  Several NAICS codes will have significant increases if the proposed rule goes into effect.

The SBA is seeking comments on the proposed rule, which are due by October 21, 2025. The SBA is also going to issue a proposed rule related to the employee-based size standards in the near future, which will likely make similar significant increases and have an associated comment period.  

Conclusion

Government contractors that compete for SBA set-aside awards should closely review the proposed rule and the analysis that the SBA has relied on to make the relevant changes.  Contractors should also take advantage of the comment period to ensure that SBA understands the concerns of the contracting community related to the proposed rule. 

[1] Reflected in millions of dollars.