SBA Modifies Method for Calculating Annual Revenues for Small Businesses

WASHINGTON – The US Small Business Administration published in the Federal Register a final rule to modify its method for calculating annual revenues used to prescribe size standards for small businesses. The final rule is effective January 6, 2020.

The SBA changed its regulations on the calculation of annual revenues from a three-year averaging period to a five-year averaging period, outside of the SBA Business Loan and Disaster Loan Programs. The change in the averaging period for calculating annual average revenues from three years to five years may result in firms regaining or retaining their small business status. To assist small businesses with this change, the SBA is providing a two-year transition period while firms subject to the change may choose either a three-year averaging period or a five-year averaging period.

This final rule implements the Small Business Runway Extension Act of 2018, which changed the requirements for proposed size standards prescribed by an agency without separate statutory authority to issue size standards. The intent of the law was to allow small business government contractors more time to prepare for the transition to the full and open market after they exceed the size standard.

While the law changed the averaging period for calculating annual revenues of businesses in services industries from three years to five years, the law did not address the averaging period for calculating the size of other businesses. To promote consistency, the SBA is adopting a five-year averaging period for all of the SBA’s and other agencies’ revenue-based size standards, regardless of whether the industry is for services.

As noted above, this change will not apply to the SBA Business Loan and Disaster Loan Programs. The SBA will seek comment, through a separate rulemaking, on the appropriate averaging period for the SBA Business Loan and Disaster Loan Programs.

For more information about the SBA’s revisions to its small business size standards for various industry sectors, visit http://www.sba.gov/size.