SBA adjusts size standards for inflation

Almost 12,000 companies will be re-classified as small businesses after a move by the Small Business Administration to factor three and one-half years of inflation into its monetary-based size standards.

Since SBA's last size adjustment for inflation in February 2002, price levels have increased 8.7 percent, according to a report released last week by SBA detailing its findings and plans.

SBA increased the size standard for business and personal services firms from $6 million to $6.5 million. Size standards for other industries that are higher than $6 million also reflect similar percentage increases, the report states.

The purpose of the reclassification is to restore SBA contracting, program and loan eligibility to companies that may have lost their small-business status solely to price level increases, rather than from increased business activity, the report stated. SBA is required to adjust size standards for inflation every five years, but did so only three and a half years after its last modification, because enough inflation had occurred to allow for a change, the report stated.

The changes are effective Jan. 5 for all federal procurement.

Under SBA's 7(a) Guaranteed Loan Program, about $86.5 million in federal loan guarantees could be made to the newly defined small businesses. Small businesses in industries with monetary-based size standards, of which SBA estimates more than 5 million such companies, received $12.5 billion in loan guarantees under the 7(a) loan program in 2005, according to the report. The 7(a) is SBA's basic loan, which it at least partially guarantees to the lender.

SBA also changed how it determines size standards when small businesses apply for Economic Injury Disaster Loans. Instead of looking only at the applicant's primary industry, SBA now will look at both its primary industry and the primary industry of the applicant together with its affiliates. This will provide additional assistance to small businesses with subsidiaries and affiliates, the report states.

Inflation has no impact on industry size standards based on number of employees, refining capacity or electric generation, and so no adjustments will be made based on those nonmonetary size standards.