In a move that allows more companies to bid on government contracts, the U.S. Small Business Administration has changed the definition of small business. Roughly 8,500 businesses once deemed large are now considered small for SBA purposes.
The SBA made the switch July 14 to account for inflation since 2008, pulling more formerly large businesses into the tent. The government defines small business based on monetary measures.
Here’s what you need to know about the definition change and what it means for new and old small businesses.
What’s the impact on small businesses?
The new small businesses now have a shot at contracts with the federal government, while also becoming eligible to apply for SBA loans. SBA loans often have lower interest rates than those offered by various lenders.
The change in definition varies by industry. Some companies will be considered “small,” while others of the same monetary size will remain “large” because of the industry they’re in. Check out the table released by the SBA for information on the new size standards by industry.
Is this a win or a loss? For whom?
The change benefits the federal government and previously large businesses that are now considered small. The government has the option to contract with a wider range of companies, while newly designated small businesses have the opportunity to contract with the government and secure loans with favorable terms through the SBA.
Critics of the definition change say it hurts those small businesses that have always been considered small. This includes the mom-and-pop outfits and startups that benefit from the extra revenue from government purchases, as well as low-interest-rate SBA loans. With larger businesses joining the ranks of “small” businesses, these startups may struggle because they have to compete with multimillion-dollar companies for loans and contracts.
What’s a small business to do?
For those small businesses that have trouble securing loans with the SBA because of the fierce competition, there are other options, including alternative online lending websites, banks, credit unions and more. For more details about the types of small business loans available and how to get them, check out this NerdWallet article.
Bottom line: The SBA has changed the definition of a small business to include approximately 8,500 large businesses. This definition change varies by industry. Larger small businesses and the federal government may benefit, while startup-sized businesses may have a harder time getting affordable financing. Even so, there are alternative loan options for these mom-and-pop shops.
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