SBA proposal would add 114,541 firms to small-business rolls
The new methodology eliminates the 1,500-employee cap for manufacturing and defense-industrial sectors while collapsing 978 NAICS codes into 338, and not a single firm gets kicked out.
TL;DR
SBA issued a proposed rule August 20 resetting small-business size standards across the economy. The net effect: roughly 114,541 additional firms become eligible for small-business set-asides, including an estimated 37,002 that already hold FY2025 federal contracts. Fewer than 200 firms lose eligibility (SBA blocked every proposed reduction, explicitly citing 2021) 2024 inflation and regulatory burdens. The methodology powering the rule is itself out for notice-and-comment, with both dockets closing September 21. Meanwhile, the old 1,500-employee ceiling disappears for manufacturing and defense-industrial codes, pushing shipbuilding from 1,300 to 2,300 employees and oil-and-gas drilling from 1,000 to 2,650. The expansion doesn't touch SBIR/STTR, where a separate 500-employee cap remains locked.
SBA published a proposed rule on August 20 that amounts to the most significant reset of small-business size standards in the agency's modern history. The headline numbers are stark: a net increase of 114,541 firms newly eligible for small-business status, while fewer than 200 lose eligibility. Roughly 37,002 of those newly eligible firms already hold FY2025 federal contracts. They didn't have to grow into the threshold, the threshold moved to them.
The methodology is the fight, and it's happening simultaneously
The new standards were calculated using a revised methodology that SBA itself put out for notice-and-comment in a companion white paper. Both comment periods close on the same day: September 21, 2026. That's an unusual posture. Normally you'd settle the methodology first, then write the rule. SBA is running them in parallel, which means the agency is asking industry to evaluate the output before the analytical engine is final. The dockets are already filling (231 comments on the rule and 27 on the methodology as of late August) but contractors who wait for the methodology to settle before engaging risk finding the standards already locked in.
Naics consolidation and the death of the employee ceiling
The current framework spans 978 six-digit NAICS codes. The proposal collapses that to 338 industry groups. For compliance directors and contracting officers, that'll simplify classification questions that have historically generated disputes, fewer edge cases where a firm straddles two closely related codes with different thresholds.
More consequential is what SBA removed: the hard cap. Under the current framework, size standards generally couldn't exceed $47 million in receipts or 1,500 employees. The new methodology eliminates the maximum. Because "average market size" has no ceiling, several manufacturing and extractive-industry codes blow past the old 1,500-employee limit. Ship Building and Repairing (NAICS 336611) jumps from 1,300 to 2,300 employees. Drilling Oil and Gas Wells (NAICS 213111) goes from 1,000 to 2,650. These aren't marginal adjustments, they redefine who counts as small in the defense-industrial base.
Nobody loses, by design
SBA's methodology produced lower standards for 45 industries. The agency declined to adopt any of them. Instead it retained the existing standard or, where the size measure would change, effectively maintained or increased it. The stated rationale: reductions would cost experienced firms their small-business status and federal contracting eligibility, and the difficult conditions of 2021 (2024) inflation, regulatory burdens, counsel against shrinking the pool.
The result is a one-way ratchet. Gypsum Product Manufacturing (NAICS 32742) stays at 1,500 employees even though SBA's own analysis pegged the right number at 700. If you're an incumbent small-business contractor, this is pure upside. If you're a smaller firm that's been competing in a set-aside pool, you're about to face competition from companies substantially larger than you that suddenly carry the same label.
What practitioners do Monday
For now, nothing changes Monday, this is a proposed rule. But three things are worth doing before September 21.
First, map your NAICS codes. The consolidation from 978 to 338 means your current codes may map to a different bucket with a different threshold. Don't assume continuity.
Second, model the employee-based shift. If you're in a receipts-based industry that's moving to an employee standard, your growth planning changes. Revenue stops being the constraint; headcount becomes the only throttle. That rewards capital investment and productivity gains in a way receipts-based standards never did.
Third, watch the M&A side. Higher thresholds reduce the risk that affiliation rules kill small-business status post-transaction. Private equity firms (which tend to have modest headcounts) may find newly eligible portfolio companies more attractive. The valuation discount that buyers have historically applied to set-aside revenue could compress.
One program that doesn't get the expansion: SBIR and STTR. Those retain a separate 500-employee cap under 13 C.F.R. § 121.702, and this rulemaking doesn't touch it. A firm could qualify as small under the new standards and still be locked out of SBIR/STTR, which makes those programs comparatively narrower than they were before.
Published ·Deep Fathom