What Is a Small Business? The Small Business Administration Needs To Reexamine Its Answer

CED-78-149: Published: Aug 9, 1978. Publicly Released: Sep 1, 1978.

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The Small Business Administration's (SBA) size standards define which businesses are small and, therefore, eligible for federal small business assistance programs. SBA regulations state that, since smaller concerns often are forced to compete with middle-sized, as compared with very large, concerns, size standards should be established as low as is reasonably possible. Also, these standards should be limited to that segment of each industry that is "struggling to become or remain competitive."

The present loan and procurement size standards for most industries were established 15 or more years ago and have not been reviewed periodically to determine their continuing validity. SBA records do not indicate how size standards established before 1971 were arrived at. Analyses supporting 10 of the 64 standards established since 1971 do not demonstrate that the standards were set in conformance with agency regulations. Because SBA has not accumulated data on the size of businesses that have bid both successfully and unsuccessfully on set-aside and unrestricted contracts, it does not know the size of firms in many industries which need set-aside protection. The current size standards often define as "small" a high percentage of an industry's businesses. The size standards appear to have little effect on the size of businesses which receive section 7(a) loans.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Administrator, SBA, should reexamine the standards to ensure that agency assistance is directed where it will best preserve free competitive enterprise and protect the interests of small businesses. This review should include: (1) determining, in accordance with regulations, the size of businesses in each industry that are struggling to become or remain competitive; and (2) by collecting data on the size of bidders on set-asides and unrestricted contracts, determining the size of businesses which need set-aside protection.

    Agency Affected:


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