If you have done any research at all on the 8 (a) certification, then you've inevitably visited the SBA's website. As the name suggests, the Small Business Administration is concerned with providing resources and advantages for small businesses. But what does SBA consider “small”. Since that is a question that comes up often, we'll be exploring that today.
The SBA's website is full of information, but one of the most valuable resources I've found for obtaining specifics on any question relating to any of the SBA's programs is the Code of Federal Regulations. Thankfully, in today's digital age, there is an electronic version of the code that is updated daily by the Office of the Federal Registrar. If you have not embroidered your inner “nerd” or have better things to do with your time than scour through the code, then you are in the right place.
SBA defines “small” differently for every business. They consider economic characteristics of the industry that include things like competitors, barriers to entry, average firm size and a distribution of firms by size. The SBA will also look at the threat of competition from other industries, the growth cycle of the industry and unique factors that may distinguish small firms from others. Another major factor SBA auditors when calculating their size standards is if any business, at or below a certain standard, would be dominant in that industry. The main purpose of size standards is to ensure that a business at a specific size is not dominant in its industry.
Now, let's get into the fun stuff, shall we. In the Electronic Code of Federal Regulations (e-CFR for short), there is a 40 pages section that lists all of the North American Industry Classification System (NAICS) codes with the SBA's maximum size requirements for each. The SBA uses either either 1) annual receipts or 2) number of employees to qualify a business based on size. Here is an example. If you are a Heavy and Civil Engineering construction company that does highway, street and bridge construction, then your NAICS code is 237310. The annual revenue for your company would have to be less than $ 33.5 Million in order to be considered small. If however, your industry was in food manufacturing and you processed fresh and frozen seafood, your NAICS code would be 311712. Your company would have considered small if it had 500 employees or less.
One of the reasons the SBA requires an annual review is to ensure that the businesses participating in the set-aside programs are in fact “small” according to size standards. Remember, the 8 (a) Business Development Program is a 9-year program. A firm could be accepted into the 8 (a) program as a $ 6MM Testing Laboratory where the requirements for “small” are $ 12MM in annual receipts. If that company wins a $ 4MM contract in their second year and another $ 4MM in year 3, the firm is no longer eligible based on size; therefore, on or before the annual review, the firm will be excused prior to the expiration of the 9 year term and will be considered an early graduate of the program.
Like I said in the title, size matters (only to the SBA of course). So be sure that you do your homework to accurately determine the size criteria because knowingly misrepresenting the size of your small business concern comes with criminal penalties.