The U.S. Small Business Administration (SBA) recently issued a final rule adopting a 24-month — as opposed to the current 12-month — average to calculate a business’s number of employees for eligibility purposes in all SBA programs that contain employee-based size standards. SBA’s new rule — which takes effect July 6, 2022 — is discussed below.

Background

• Previously, SBA required the use of a 12-month average to calculate a business’s number of employees for industries subject to an employee-based size standard.

• For manufacturers subject to SBA’s employee-based size standards, the 2021 National Defense Authorization Act changed the averaging period to 24 months.

• In November 2021, SBA issued a proposed rule to amend its regulations by changing the 12-month averaging period to 24 months for all SBA programs and all industries subject to an employee-based size standard. 

Key Features  

• SBA’s final rule applies to all employee-based sized standards — not just those that pertain to manufacturers. 

• Unlike SBA’s implementation of the Small Business Runway Extension Act of 2018 — which provided a two-year transition period during which a business could use either a five-year or a three-year average to calculate annual receipts for size purposes — SBA’s new rule does not provide for a transition period where businesses can use either a 24-month or a 12-month average to calculate their number of employees.

• However, the final rule provides that, for purposes of determining eligibility in the Business Loan, Disaster Loan, Small Business Investment Company, and Surety Bond Guarantee Programs, businesses may now use either a five-year or a three-year average.

• SBA’s final rule is effective July 6, 2022.