[Federal Register Volume 86, Number 99 (Tuesday, May 25, 2021)]
[Proposed Rules]
[Pages 28012-28038]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10487]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AH10
Small Business Size Standards: Wholesale Trade; Retail Trade
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Small Business Administration (SBA or the Agency)
proposes to increase its receipts-based and employee-based small
business size definitions (commonly referred to as ``size standards'')
for North American Industry Classification System (NAICS) sectors
related to Wholesale Trade and Retail Trade. SBA proposes to increase
size standards for 49 industries in those sectors, including 14
industries in NAICS Sector 42 (Wholesale Trade) and 35 industries in
NAICS Sector 44-45 (Retail Trade). SBA's proposed revisions rely on its
recently revised ``Size Standards Methodology'' (Methodology). SBA
seeks comments on its proposed changes to size standards in the above
sectors and the data sources it evaluated to develop the proposed size
standards.
[[Page 28013]]
DATES: SBA must receive comments to this proposed rule on or before
July 26, 2021.
ADDRESSES: Identify your comments by RIN 3245-AH10 and submit them by
one of the following methods: (1) Federal eRulemaking Portal:
www.regulations.gov. Follow the instructions for submitting comments;
or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Office
of Size Standards, 409 Third Street SW, Mail Code 6530, Washington, DC
20416.
SBA will post all comments to this proposed rule on
www.regulations.gov. If you wish to submit confidential business
information (CBI) as defined in the User Notice at www.regulations.gov,
you must submit such information to U.S. Small Business Administration,
Khem R. Sharma, Ph.D., Chief, Office of Size Standards, 409 Third
Street SW, Mail Code 6530, Washington, DC 20416, or send an email to
[email protected]. Highlight the information that you consider to
be CBI and explain why you believe SBA should hold this information as
confidential. SBA will review your information and determine whether it
will make the information public.
FOR FURTHER INFORMATION CONTACT: Jorge Laboy-Bruno, Ph.D., Economist,
Office of Size Standards, (202) 205-6618 or [email protected].
SUPPLEMENTARY INFORMATION:
Discussion of Size Standards
To determine eligibility for Federal small business assistance, SBA
establishes small business size definitions (usually referred to as
``size standards'') for private sector industries in the United States.
SBA uses two primary measures of business size for size standards
purposes: Average annual receipts and average number of employees. SBA
uses financial assets for certain financial industries and refining
capacity, in addition to employees, for the petroleum refining industry
to measure business size. In addition, SBA's Small Business Investment
Company (SBIC), Certified Development Company (504/CDC), and 7(a) Loan
Programs use either the industry-based size standards or tangible net
worth and net income-based alternative size standards to determine
eligibility for those programs.
In September 2010, Congress passed the Small Business Jobs Act of
2010 (Pub. L. 111-240, 124 Stat. 2504, September 27, 2010) (``Jobs
Act''), requiring SBA to review all size standards every 5 years and
make necessary adjustments to reflect current industry and market
conditions. In accordance with the Jobs Act, in early 2016, SBA
completed the first 5-year review of all size standards--except those
for agricultural enterprises for which size standards were previously
set by Congress--and made appropriate adjustments to size standards for
a number of industries to reflect current industry and Federal market
conditions.
During this comprehensive review of size standards, SBA is
reviewing industry size standards by groups of NAICS sectors. During
the previous 5-year comprehensive review, SBA generally reviewed NAICS
sectors independently and by their employee- based or receipt-based
size standard. Thus, during the previous comprehensive review, the
review of size standards for the industries covered by this proposed
rule was conducted under two separate rulemakings: One for receipts-
based size standards in Sector 44-45 (75 FR 61597, October 6, 2010) and
one for employee-based size standards in Sector 42 and two employee-
based industries in Sector 44-45 (81 FR 3941, January 25, 1016). Under
these rulemakings, SBA reviewed the size standards for 71 industries
within NAICS Sector 42 (Wholesale Trade) and 74 industries within NAICS
Sector 44-45 (Retail Trade). These reviews of size standards occurred
during October 2009 to January 2016. SBA's analyses of the relevant
industry data available at that time supported increasing employee-
based size standards for 46 industries and maintaining current size
standards for 25 industries in Sectors 42 and 44-45 (81 FR 3941) and
increasing receipts-based size standards for 46 industries, maintaining
current size standards for 27 industries and replacing the type of size
standard from receipts-based to employee-based size standards for 1
industry in Sector 44-45 (75 FR 61597). Table 1, Size Standards
Revisions During the First 5-Year Review, provides a summary of these
revisions by NAICS sector.
Table 1--Size Standards Revisions During the First 5-Year Review
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of type
Number of size Number of size Number of size Number of size of size
Sector Sector name standards standards standards standards standards
reviewed increased decreased maintained changed
--------------------------------------------------------------------------------------------------------------------------------------------------------
42........................................ Wholesale Trade............. 71 46 0 25 0
44-45..................................... Retail Trade *.............. 74 46 0 27 1
-------------------------------------------------------------------------------
Total................................. ............................ 145 92 0 52 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The evaluation of this sector used the 2007 NAICS structure.
Currently, there are 27 different size standards levels covering
1,023 NAICS industries and 14 subindustry activities (commonly known as
``exceptions'' in SBA's table of size standards). Of these size levels,
16 are based on average annual receipts, 9 are based on average number
of employees, and 2 are based on other measures.
SBA also adjusts its monetary-based size standards for inflation at
least once every 5 years. An interim final rule on SBA's latest
inflation adjustment to size standards, effective August 19, 2019, was
published in the Federal Register on July 18, 2019 (84 FR 34261). SBA
also updates its size standards every 5 years to adopt the Office of
Management and Budget's (OMB) quinquennial NAICS revisions to its table
of small business size standards. Effective October 1, 2017, SBA
adopted the OMB's 2017 NAICS revisions to its size standards (82 FR
44886, September 27, 2017).
This proposed rule is one of a series of proposed rules that will
review size standards of industries grouped by various NAICS sectors.
Rather than review all size standards at one time, SBA is reviewing
size standards by grouping industries within various NAICS sectors that
use the same size measure (i.e., employees or receipts). In the current
review, SBA will review size standards in 6 groups of NAICS sectors.
(In the prior review, SBA reviewed size standards mostly on a sector-
by-sector basis.) Once SBA completes its review of size standards for a
group of sectors, it issues for public comment a proposed rule to
revise size standards for those
[[Page 28014]]
industries based on the latest available data and other factors deemed
relevant by the SBA's Administrator.
Below is a discussion of SBA's revised ``Size Standards
Methodology'' (Methodology), available at www.sba.gov/size, for
establishing, reviewing, or modifying employee-based size standards
that SBA has applied to this proposed rule. SBA examines the structural
characteristics of an industry as a basis to assess industry
differences and the overall degree of competitiveness of an industry
and of firms within the industry. Industry structure is typically
examined by analyzing four primary factors--average firm size, degree
of competition within an industry, start-up costs and entry barriers,
and distribution of firms by size. To assess the ability of small
businesses to compete for Federal contracting opportunities under the
current size standards, as the fifth primary factor, SBA also examines,
for each industry averaging $20.0 million or more in average annual
Federal contract dollars, the small business share of Federal contract
dollars relative to the small business share of total industry
receipts. When necessary, SBA also considers other secondary factors
that are relevant to the industries and the interests of small
businesses, including impacts of size standards changes on small
businesses.
Size Standards Methodology
SBA has recently revised its Methodology for establishing,
reviewing, or modifying size standards when necessary. See the
notification in the April 11, 2019, edition of the Federal Register (84
FR 14587). The revised Methodology is available on SBA's size standards
web page at www.sba.gov/size. Prior to finalizing the revised
Methodology, SBA issued a notification in the April 27, 2018 edition of
the Federal Register (83 FR 18468) to solicit comments from the public
and notify stakeholders of the proposed changes to the Methodology. SBA
considered all public comments in finalizing the revised Methodology.
For a summary of comments and SBA's responses, refer to the SBA's April
11, 2019, Federal Register notification cited above.
The revised Methodology represents a major change from the previous
methodology, which was issued on October 21, 2009 (74 FR 53940).
Specifically, in its revised Methodology, SBA is replacing the
``anchor'' approach applied in the previous methodology with a
``percentile'' approach for evaluating differences in characteristics
among various industries. Under the ``anchor'' approach, SBA generally
evaluated the characteristics of individual industries relative to the
average characteristics of industries with the anchor size standard to
determine whether they should have a higher or a lower size standard
than the anchor. In the ``percentile'' approach, SBA ranks each
industry among all industries with the same measure of size standards
(such as receipts or employees) in terms of four primary industry
factors, discussed in the Industry Analysis subsection below. The
``percentile'' approach is explained more fully in the Industry
Analysis section of this proposed rule. For a more detailed
explanation, please see the revised Methodology at www.sba.gov/size.
Additionally, as the fifth factor, SBA evaluates the difference
between the small business share of Federal contract dollars and the
small business share of total industry receipts to compute the size
standard for the Federal contracting factor. The overall size standard
for an industry is then obtained by averaging all size standards
supported by each primary factor. The evaluation of the Federal
contracting factor is explained more fully in the industry analysis
section below.
SBA does not apply all aspects of its Methodology to all proposed
rules because not all features are relevant for every industry covered
by each proposed rule. For example, since NAICS codes in the Wholesale
Trade and Retail Trade sectors cannot be used to classify Government
acquisitions for supplies, and only the applicable manufacturing code
can be applied (13 CFR 121.402(b)(2)), the Federal contracting factor
is not considered in evaluating industry based size standards for these
sectors. SBA's Methodology is available on its website at www.sba.gov/size.
Industry Analysis
Congress granted SBA's Administrator discretion to establish
detailed small business size standards (15 U.S.C. 632(a)(2)).
Specifically, section 3(a)(3) of the Small Business Act (15 U.S.C.
632(a)(3)) requires that ``. . . the [SBA] Administrator shall ensure
that the size standard varies from industry to industry to the extent
necessary to reflect the differing characteristics of the various
industries and consider other factors deemed to be relevant by the
Administrator.'' Accordingly, the economic structure of an industry is
the basis for establishing, reviewing, or modifying small business size
standards. In addition, SBA considers current economic conditions, its
mission and program objectives, the Administration's current policies,
impacts on small businesses under current size and proposed or revised
size standards, suggestions from industry groups and Federal agencies,
and public comments on the proposed rule. SBA also examines whether a
size standard based on industry and other relevant data successfully
excludes businesses that are dominant in the industry.
The goal of SBA's size standards review is to determine whether its
existing small business size standards reflect the current industry
structure and Federal market conditions and revise them when the latest
available data suggest that revisions are warranted. In the past, SBA
compared the characteristics of each industry with the average
characteristics of a group of industries associated with the ``anchor''
size standard. For example, in the first 5-year comprehensive review of
size standards under the Jobs Act, $7.0 million (now $8.0 million due
to the inflation adjustment in 2019; see 84 FR 34261, July 18, 2019)
was considered the ``anchor'' for receipts-based size standards and 500
employees was the ``anchor'' for employee-based size standards. If the
characteristics of a specific industry under review were similar to the
average characteristics of industries in the anchor group, SBA
generally adopted the anchor size standard for that industry. If the
specific industry's characteristics were significantly different from
those in the anchor group, SBA assigned a size standard that was higher
or lower than the anchor. To determine a size standard above or below
the anchor size standard, SBA evaluated the characteristics of a second
comparison group of industries with higher size standards. For
industries with receipts-based standards, including the Retail Trade
industries, the second comparison group consisted of industries with
size standards between $23.0 million and $35.5 million, with the
weighted average size standard for the group equaling $29.0 million.
For manufacturing industries and other industries with employee-based
size standards (except for Wholesale Trade and Retail Trade), the
second comparison group included industries with a size standard of
1,000 employees or 1,500 employees, with the weighted average size
standard of 1,323 employees. Using the anchor size standard and average
size standard for the second comparison group, SBA computed a size
standard for an industry's characteristic (factor) based
[[Page 28015]]
on the industry's position for that factor relative to the average
values of the same factor for industries in the anchor and second
comparison groups.
For Wholesale Trade and Retail Trade industries using the employee-
based size standards, SBA used a different approach. The anchor
approach was difficult to implement in reviewing the size standards of
industries in Wholesale Trade because all the industries in the sector
were sharing the same 100-employee size standard. SBA used a quintile
approach in which industries were ranked and compared using each
industry factor based on where the factor of that industry falls within
the five ranked quintiles. The five implied size standard levels were
50 employees, 100 employees, 150 employees, 200 employees, and 250
employees. If the value of an industry factor fell in the first
quintile (i.e., less than the 20th percentile), that factor would
support a size standard of 50 employees. If the value fell in the
second quintile (i.e., the 20th to less than the 40th percentile), it
would support 100 employees. Similarly, if the value falls in the fifth
quintile (i.e., the 80th or higher percentile), the factor would
support 250 employees. Under the ``percentile'' approach, for each
industry factor, an industry is ranked and compared with the 20th
percentile and 80th percentile values of that factor among the
industries sharing the same measure of size standards (i.e., receipts
or employees). Combining that result with the 20th percentile and 80th
percentile values of size standards among the industries with the same
measure of size standards, SBA computes a size standard supported by
each industry factor for each industry. In the previous Methodology,
comparison industry groups were predetermined independent of the data,
while in the revised Methodology they are established using the actual
data. A more detailed description of the percentile method is provided
in SBA's Methodology, available at www.sba.gov/size.
The primary factors that SBA evaluates to examine industry
structure include average firm size, startup costs and entry barriers,
industry competition, and distribution of firms by size. SBA also
evaluates, as an additional primary factor, small business success in
receiving Federal contracting assistance under the current size
standards. Specifically, for the Federal contracting factor, SBA
examines the small business share of Federal contract dollars relative
to small business share of total receipts within an industry. These
are, generally, the five most important factors SBA examines when
establishing, reviewing, or revising a size standard for an industry.
However, SBA will also consider and evaluate other secondary factors
that it believes are relevant to a particular industry (such as
technological changes, growth trends, SBA financial assistance, and
other program factors). SBA also considers possible impacts of size
standard revisions on eligibility for Federal small business
assistance, current economic conditions, the Administration's policies,
and suggestions from industry groups and Federal agencies. Public
comments on proposed rules also provide important additional
information. SBA thoroughly reviews all public comments before making a
final decision on its proposed revisions to size standards. Below are
brief descriptions of each of the five primary factors that SBA has
evaluated for each industry being reviewed in this proposed rule. A
more detailed description of this analysis is provided in the SBA's
Methodology, available at www.sba.gov/size.
1. Average Firm Size
SBA computes two measures of average firm size: Simple average and
weighted average. For industries with receipts-based size standards,
the simple average is the total receipts of the industry divided by the
total number of firms in the industry. The weighted average firm size
is the summation of all the receipts of the firms in an industry
multiplied by their share of receipts in the industry. The simple
average weighs all firms within an industry equally regardless of their
size. The weighted average overcomes that limitation by giving more
weight to larger firms. The size standard supported by average firm
size is obtained by averaging size standards supported by simple
average firm size and weighted average firm size.
If the average firm size of an industry is higher than the average
firm size for most other industries, this would generally support a
size standard higher than the size standards for other industries.
Conversely, if the industry's average firm size is lower than that of
most other industries, it would provide a basis to assign a lower size
standard as compared to size standards for most other industries.
2. Startup Costs and Entry Barriers
Startup costs reflect a firm's initial size in an industry. New
entrants to an industry must have sufficient capital and other assets
to start and maintain a viable business. If firms entering an industry
under review have greater capital requirements than firms in most other
industries, all other factors remaining the same, this would be a basis
for a higher size standard. Conversely, if the industry has smaller
capital needs compared to most other industries, a lower size standard
would be considered appropriate.
Given the lack of actual data on startup costs and entry barriers
by industry, SBA uses average assets as a proxy for startup costs and
entry barriers. To calculate average assets, SBA begins with the sales
to total assets ratio for an industry from the Risk Management
Association's Annual Statement Studies, available at https://rmau.org.
SBA then applies these ratios to the average receipts of firms in that
industry obtained from the Economic Census tabulation. An industry with
average assets that are significantly higher than most other industries
is likely to have higher startup costs; this in turn will support a
higher size standard. Conversely, an industry with average assets that
are similar to or lower than most other industries is likely to have
lower startup costs; this will support either lowering or maintaining
the size standard.
3. Industry Competition
Industry competition is generally measured by the share of total
industry receipts generated by the largest firms in an industry. SBA
generally evaluates the share of industry receipts generated by the
four largest firms in each industry. This is referred to as the ``4-
firm concentration ratio,'' a commonly used economic measure of market
competition. Using the 4-firm concentration ratio, SBA compares the
degree of concentration within an industry to the degree of
concentration of the other industries with the same measure of size
standards. If a significantly higher share of economic activity within
an industry is concentrated among the four largest firms compared to
most other industries, all else being equal, SBA would set a size
standard that is relatively higher than for most other industries.
Conversely, if the market share of the four largest firms in an
industry is appreciably lower than the similar share for most other
industries, the industry will be assigned a size standard that is lower
than those for most other industries.
4. Distribution of Firms by Size
SBA examines the shares of industry total receipts accounted for by
firms of different receipts and employment sizes in an industry. This
is an additional
[[Page 28016]]
factor SBA considers in assessing competition within an industry
besides the 4-firm concentration ratio. If the preponderance of an
industry's economic activity is attributable to smaller firms, this
generally indicates that small businesses are competitive in that
industry, which would support adopting a smaller size standard. A
higher size standard would be supported for an industry in which the
distribution of firms indicates that most of the economic activity is
concentrated among the larger firms.
Concentration is a measure of inequality of distribution. To
determine the degree of inequality of distribution in an industry, SBA
computes the Gini coefficient, using the Lorenz curve. The Lorenz curve
presents the cumulative percentages of units (firms) along the
horizontal axis and the cumulative percentages of receipts (or other
measures of size) along the vertical axis. (For further detail, see
SBA's Methodology on its website at www.sba.gov/size.) Gini coefficient
values vary from zero to one. If receipts are distributed equally among
all the firms in an industry, the value of the Gini coefficient will
equal zero. If an industry's total receipts are attributed to a single
firm, the Gini coefficient will equal one.
SBA compares the degree of inequality of distribution for an
industry under review with other industries with the same type of size
standards. If an industry shows a higher degree of inequality of
distribution (hence, a higher Gini coefficient value) compared to most
other industries in the group, this would, all else being equal,
warrant a size standard that is higher than the size standards assigned
to most other industries. Conversely, an industry with lower degree of
inequality (i.e., a lower Gini coefficient value) than most others will
be assigned a lower size standard relative to others.
5. Federal Contracting
As the fifth factor, SBA examines the success small businesses are
having in winning Federal contracts under the current size standard, as
well as the possible impact a size standard change may have on Federal
small business contracting opportunities. The Small Business Act
requires the Federal Government to ensure that small businesses receive
a ``fair proportion'' of Federal contracts. The legislative history
also discusses the importance of size standards in Federal contracting.
To incorporate the Federal contracting factor in the size standards
analysis, SBA evaluates small business participation in Federal
contracting in terms of the share of total Federal contract dollars
awarded to small businesses relative to the small business share of the
industry's total receipts. In general, if the share of Federal contract
dollars awarded to small businesses in an industry is significantly
smaller than the small business share of total industry receipts, all
else remaining the same, a justification would exist for considering a
size standard higher than the current size standard. In cases where
small business share of the Federal market is already appreciably high
relative to the small business share of the overall market, SBA
generally assumes that the existing size standard is adequate with
respect to the Federal contracting factor.
The disparity between the small business Federal market share and
industry-wide small business share may be due to various factors, such
as extensive administrative and compliance requirements associated with
Federal contracts, the different skill set required to perform Federal
contracts as compared to typical commercial contracting work, and the
size of Federal contracts. These, as well as other factors, are likely
to influence the type of firms within an industry that compete for
Federal contracts. By comparing the small business Federal contracting
share with the industry-wide small business share, SBA includes in its
size standards analysis the latest Federal market conditions. In
addition to the impact on Federal contracting, SBA also examines
impacts on SBA's loan programs both under the current and revised size
standards.
As explained above, the Federal contracting factor is not evaluated
for Sectors 42 and 44-45, because the NAICS codes in these sectors
cannot be used to classify Government acquisitions for supplies, and
only the applicable manufacturing NAICS codes can be applied (13 CFR
121.402(b)(2)).
Sources of Industry and Program Data
SBA used a tabulation of the Economic Census from the U.S. Census
Bureau as its primary source of industry data to evaluate industry
characteristics and develop size standards for this proposed rule
(www.census.gov/programs-surveys/economic-census.html). The tabulation
based on the 2012 Economic Census was the latest available at the time
this proposed rule was developed. The special tabulation provides
industry data on the number of firms, number of establishments, number
of employees, annual payroll, and annual receipts of companies by
Industry (6-digit level), Industry Group (4-digit level), Subsector (3-
digit level), and Sector (2-digit level). These data are arrayed by
various classes of firms' size based on the overall number of employees
and receipts of the entire enterprise (all establishments and
affiliated firms) from all industries. The special tabulation also
contains information for different levels of NAICS categories on
average and median firm size in terms of both receipts and employment,
total receipts generated by the four and eight largest firms, the
Herfindahl-Hirschman Index (HHI), the Gini coefficient, and size
distributions of firms by various receipts and employment size
groupings.
In some cases where data were not available due to disclosure
prohibitions in the Census Bureau's tabulation, SBA either estimated
missing values using available relevant data or examined data at a
higher level of industry aggregation, such as at the NAICS Sector (2-
digit), Subsector (3-digit), or Industry Group (4-digit) level. In some
instances, SBA's analysis was based only on those factors for which
data were available or estimates of missing values were possible.
To evaluate some industries that are not covered by the Economic
Census, SBA used a similar special tabulation of the latest County
Business Patterns (CBP) published by the U.S. Census Bureau
(www.census.gov/programs-surveys/cbp.html). Similarly, to evaluate
industries in NAICS Sector 11 that are also not covered by the Economic
Census and CBP, SBA evaluated a similar special tabulation based on the
2012 Census of Agriculture (www.nass.usda.gov) from the National
Agricultural Statistics Service (NASS). Besides the Economic Census,
Agricultural Census and CBP tabulations, SBA also evaluates relevant
industry data from other sources when necessary, especially for
industries that are not covered by the Economic Census or CBP. These
include the Quarterly Census of Employment and Wages (QCEW, also known
as ES-202 data) (www.bls.gov/cew/) and Business Employment Dynamics
(BED) data (www.bls.gov/bdm/) from the U.S. Bureau of Labor Statistics.
Similarly, to evaluate certain financial industries that have asset-
based size standards, SBA examines the data from the Statistics on
Depository Institutions (SDI) database (www5.fdic.gov/sdi/main.asp) of
the Federal Depository Insurance Corporation (FDIC) data. Finally, to
evaluate the capacity component of the Petroleum Refiners (NAICS
324110) size standard, SBA evaluates the petroleum production data from
the Energy Information Administration (www.eia.gov).
[[Page 28017]]
To calculate average assets, SBA used sales to total assets ratios
from the Risk Management Association's Annual eStatement Studies
(https://rmau.org). To evaluate Federal contracting trends and evaluate
exceptions or sub-industries under different 6-digit NAICS industries,
SBA examined the data on Federal prime contract awards from the Federal
Procurement Data System--Next Generation (FPDS-NG) (www.fpds.gov). To
assess the impact on financial assistance to small businesses, SBA
examined its internal data on 7(a) and 504 loan programs. For some
portion of impact analysis, SBA also evaluated the data from the System
of Award Management (SAM) (www.sam.gov).
Data sources and estimation procedures SBA uses in its size
standards analysis are documented in detail in SBA's Methodology, which
is available at www.sba.gov/size.
Dominance in Field of Operation
Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) defines a
small business concern as one that is: (1) Independently owned and
operated; (2) not dominant in its field of operation; and (3) within a
specific small business definition or size standard established by the
SBA Administrator. SBA considers as part of its evaluation whether a
business concern at a proposed size standard would be dominant in its
field of operation. For this, SBA generally examines the industry's
market share of firms at the proposed or revised size standard as well
as the distribution of firms by size. Market share and size
distribution may indicate whether a firm can exercise a major
controlling influence on a national basis in an industry where a
significant number of business concerns are engaged. If a contemplated
size standard includes a dominant firm, SBA will consider a lower size
standard to exclude the dominant firm from being defined as small.
Selection of Size Standards
In the 2009 Methodology, which SBA applied to the first 5-year
comprehensive review of size standards, SBA adopted a fixed number of
size standards levels as part of its effort to simplify size standards.
In response to public comments to the 2009 Methodology white paper, and
the 2013 amendment to the Small Business Act (section 3(a)(8)) under
section 1661 of the National Defense Authorization Act for Fiscal Year
2013 (``NDAA 2013'') (Pub. L. 112-239, January 2, 2013), in the revised
Methodology, SBA has relaxed the limitation on the number of small
business size standards. Specifically, section 1661 of NDAA 2013 states
``SBA cannot limit the number of size standards, and shall assign the
appropriate size standard to each industry identified by NAICS.''
In the revised Methodology, SBA calculates a separate size standard
for each NAICS industry. However, to account for errors and limitations
associated with various data SBA evaluates in the size standards
analysis, SBA rounds the calculated size standard value for a receipts-
based size standard to the nearest $500,000, except for agricultural
industries in Subsectors 111 and 112 for which the calculated size
standards will be rounded to the nearest $250,000. Similarly, the
calculated value for an employee-based size standard is rounded to the
nearest 50 employees for industries in manufacturing and other sectors
(except Wholesale Trade and Retail Trade) and to the nearest 25
employees for industries in Wholesale Trade and Retail Trade. This
rounding procedure is applied both in calculating a size standard for
each of the five primary factors and in calculating the overall size
standard for the industry.
As a policy decision, SBA continues to maintain the minimum and
maximum levels for both receipts and employee-based size standards.
Accordingly, SBA will not generally propose or adopt a size standard
that is either below the minimum level or above the maximum, even
though the calculations yield values below the minimum or above the
maximum. The minimum size standard reflects the size an established
small business should be to have adequate capabilities and resources to
be able to compete for and perform Federal contracts (but does not
account for small businesses that are newly formed or just starting
operations). On the other hand, the maximum size standard represents
the level above which businesses, if qualified as small, would
outcompete much smaller businesses when accessing Federal assistance.
With respect to employee-based size standards, SBA has established
250 employees and 1,500 employees, respectively, as the minimum and
maximum size standard levels for Manufacturing and other industries
(excluding Wholesale and Retail Trade).
The industry data suggests that a 250 employee minimum and 1,500
employee maximum size standards would be too high for Wholesale and
Retail Trade industries. Accordingly, SBA has established 50 employees
as the minimum size standard and 250 employees as the maximum size
standard for Wholesale and Retail Trade industries.
Evaluation of Industry Factors
As mentioned earlier, to assess the appropriateness of the current
size standards, SBA evaluates the structure of each industry in terms
of four economic characteristics or factors: average firm size, average
assets size as a proxy for startup costs and entry barriers, the 4-firm
concentration ratio as a measure of industry competition, and size
distribution of firms using the Gini coefficient. For each size
standard type (i.e., receipts-based or employee-based), SBA ranks
industries both in terms of each of the four industry factors and in
terms of the existing size standard and computes the 20th percentile
and 80th percentile values for both. SBA then evaluates each industry
by comparing its value for each industry factor to the 20th percentile
and 80th percentile values for the corresponding factor for industries
under a particular type of size standard.
If the characteristics of an industry under review within a
particular size standard type are similar to the average
characteristics of industries within the same size standard type in the
20th percentile, SBA will consider adopting as an appropriate size
standard for that industry the 20th percentile value of size standards
for those industries. For each size standard type, if the industry's
characteristics are similar to the average characteristics of
industries in the 80th percentile, SBA will assign a size standard that
corresponds to the 80th percentile in the size standard rankings of
industries. A separate size standard is established for each factor
based on the amount of differences between the factor value for an
industry under a particular size standard type and 20th percentile and
80th percentile values for the corresponding factor for all industries
in the same type. Specifically, the actual level of the new size
standard for each industry factor is derived by a linear interpolation
using the 20th percentile and 80th percentile values of that factor and
corresponding percentiles of size standards. Each calculated size
standard is bounded between the minimum and maximum size standards
levels, as discussed before. As noted earlier, the calculated value for
an employee-based size standard is rounded to the nearest 50 employees
for industries in manufacturing and other sectors (except Wholesale
Trade and Retail Trade) and to the nearest 25 employees for industries
in Wholesale Trade and Retail Trade. SBA rounds the calculated size
standard value for a receipts-based
[[Page 28018]]
size standard to the nearest $500,000, except for agricultural
industries in Subsectors 111 and 112 for which the calculated size
standards will be rounded to the nearest $250,000.
Table 2, 20th and 80th Percentiles of Industry Factors for
Receipts-Based Size Standards, and Table 3, 20th and 80th Percentiles
of Industry Factors for Employee-Based Size Standards, show the 20th
percentile and 80th percentile values for average firm size (simple and
weighted), average assets size, 4-firm concentration ratio, and Gini
coefficient for industries with receipt-based and employee-based size
standards, respectively.
Table 2--20th and 80th Percentiles of Industry Factors for Receipts-Based Size Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple average Weighted average Four-firm
Industries/percentiles receipts size ($ receipts size ($ Average assets concentration Gini coefficient
million) million) size ($ million) ratio (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industries, excluding Subsectors 111 and 112:
20th percentile...................................... 0.83 19.42 0.34 7.9 0.686
80th percentile...................................... 7.52 830.65 5.19 42.4 0.834
Industries in Subsectors 111 and 112:
20th percentile...................................... 0.06 1.48 0.07 1.7 0.608
80th percentile...................................... 0.83 13.32 0.88 12.3 0.908
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 3--20th and 80th Percentiles of Industry Factors for Employee-Based Size Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple average Weighted average Four-firm
Industries/percentiles firm size (no. of firm size (no. of Average assets concentration Gini coefficient
employees) employees) size ($ million) ratio (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Manufacturing and other industries, excluding Sectors 42
and 44-45:
20th percentile...................................... 29.5 250.7 4.18 24.7 0.760
80th percentile...................................... 118.3 1,629.0 45.4 61.3 0.853
Industries in Sectors 42 and 44-45:
20th percentile...................................... 12.6 199.8 3.19 16.1 0.794
80th percentile...................................... 27.9 1,693.8 11.99 38.9 0.865
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimation of Size Standards Based on Industry Factors
Receipts-Based Size Standards
An estimated size standard supported by each industry factor is
derived by comparing its value for a specific industry to the 20th
percentile and 80th percentile values for that factor. If an industry's
value for a particular factor is near the 20th percentile value in the
distribution, the supported size standard will be one that is close to
the 20th percentile value of size standards for industries in the size
standards group, which is $8.0 million. If a factor for an industry is
close to the 80th percentile value of that factor, it would support a
size standard that is close to the 80th percentile value in the
distribution of size standards, which is $35.0 million. For a factor
that is within, above, or below the 20-80th percentile range, the size
standard is calculated using linear interpolation based on the 20th
percentile and 80th percentile values for that factor and the 20th
percentile and 80th percentile values of size standards.
For example, if an industry's simple average receipts are $1.9
million, that would support a size standard of $12.5 million. According
to Table 2, the 20th percentile and 80th percentile values of average
receipts are $0.83 million and $7.52 million, respectively. The $1.9
million is 15.9% between the 20th percentile value ($0.83 million) and
the 80th percentile value ($7.52 million) of simple average receipts
(($1.9 million - $0.83 million) / ($7.52 million - $0.83 million) =
0.159 or 15.9%). Applying this percentage to the difference between the
20th percentile value ($8 million) and 80th percentile ($35.0 million)
value of size standards and then adding the result to the 20th
percentile size standard value ($8.0 million) yields a calculated size
standard value of $12.32 million ([{$35.0 million - $8.0 million{time}
* 0.159] + $8.0 million = $12.32 million). The final step is to round
the calculated $12.32 million size standard to the nearest $500,000,
which in this example yields $12.5 million. This procedure is applied
to calculate size standards supported by other industry factors.
Employee-Based Size Standards
An estimated size standard supported by each industry factor is
derived by comparing its value for a specific industry to the 20th
percentile and 80th percentile values for that factor. If an industry's
value for a particular factor is near the 20th percentile value in the
distribution, the supported size standard will be one that is close to
the 20th percentile value of size standards for industries in the size
standards group, which is 50 employees for Sector 42, Wholesale Trade
and 2 industries from sector 44-45, Retail Trade that have employee-
based size standards. If a factor for an industry is close to the 80th
percentile value of that factor, it would support a size standard that
is close to the 80th percentile value in the distribution of size
standards, which is 250 employees. For a factor that is within, above,
or below the 20-80th percentile range, the size standard is calculated
using linear interpolation based on the 20th percentile and 80th
percentile values for that factor and the 20th percentile and 80th
percentile values of size standards.
For example, if an industry's simple average firm size in number of
employees is 19 employees, that would support a size standard of 125
employees. According to Table 3, the 20th percentile and 80th
percentile values of average number of employees are 12.6 and 27.9
employees, respectively. The 19 employee average firm size is 41.8%
between the 20th percentile value (12.6 employees) and
[[Page 28019]]
the 80th percentile value (27.9 employees) of simple average firm size
in number of employees ((19 employees - 12.6 employees) / (250
employees - 50 employees) = 0.4183 or 41.8%). Applying this percentage
to the difference between the 20th percentile value (50 employees) and
80th percentile (250 employees) value of size standards and then adding
the result to the 20th percentile size standard value (50 employees)
yields a calculated size standard value of 125 employees ([{250
employees - 50 employees{time} * 0.4183] + 50 employees = 134
employees). The final step is to round the calculated 134 employee size
standard to the nearest 25 employees, which in this example yields 125
employees. This procedure is applied to calculate size standards
supported by other industry factors. Detailed formulas involved in
these calculations are presented in SBA's Methodology, which is
available on its website at www.sba.gov/size.
Derivation of Size Standards Based on Federal Contracting Factor
Besides industry structure, SBA also evaluates Federal contracting
data to assess the success of small businesses in getting Federal
contracts under the existing size standards. For each industry with
$20.0 million or more in annual Federal contract dollars, SBA evaluates
the small business share of total Federal contract dollars relative to
the small business share of total industry receipts. However, since
NAICS codes in the Wholesale Trade and Retail Trade sectors cannot be
used to classify Government acquisitions for supplies, and only the
applicable manufacturing code can be applied, the Federal contracting
factor is not considered in evaluating industry-based size standards
for these sectors (13 CFR 121.402(b)). For a detail explanation of the
evaluation of the Federal Contracting Factor, see the SBA Methodology
at www.sba.gov/size.
The SBA's Methodology presented above results in five separate size
standards based on evaluation of the five primary factors (i.e., four
industry factors and one Federal contracting factor). As discussed in
more detail above, the Federal contracting factor is not considered in
evaluating the Wholesale Trade and Retail Trade sectors. SBA typically
derives an industry's overall size standard by assigning equal weights
to size standards supported by each of these five factors. However, if
necessary, SBA's Methodology would allow assigning different weights to
some of these factors in response to its policy decisions and other
considerations. For detailed calculations, see SBA's Methodology,
available on its website at www.sba.gov/size.
Calculated Size Standards Based on Industry Factors
Table 5 and Table 6 below, Size Standards Supported by Each Factor
for Each Industry (Employees) and Size Standards Supported by Each
Factor for Each Industry (Receipts), show the results of analyses of
industry by measure of size for each industry covered by this proposed
rule. NAICS industries in columns 3, 4, 5, 6 and 7 show two numbers.
The upper number is the value for the industry factor on the top of the
column and the lower number is the size standard supported by that
factor (number of employees in Table 5 and receipts in Table 6). Column
8 shows a calculated new size standard for each industry. This is the
average of the size standards supported by each factor (the size
standard for average firm size is an average of size standards
supported by simple average firm size, and weighted average firm size),
rounded to the nearest 25 employees for industries using employee-based
size standards in Wholesale Trade and Retail Trade, and to the nearest
$500,000 for industries in retail trade using receipts-based size
standards. Analytical details involved in the averaging procedure are
described in SBA's Methodology, which is available on its website at
www.sba.gov/size. For comparison with the calculated new size
standards, the current size standards are in column 9 of Table 5 and
Table 6.
Table 5--Size Standards Supported by Each Factor for Each Industry (Employees)
[For Columns 3-7: Upper value = Calculated factor; Lower value = size standard supported by that factor]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted Calculated Current
average average Average size size
NAICS code NAICS industry title Type firm size firm size assets size Four-firm Gini standard standard
(number of (number of ($ million) ratio (%) coefficient (number of (number of
employees) employees) employees) employees)
(1) (2).................... (3) (4) (5) (6) (7) (9) (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
423110 Automobile and Other Motor Factor................. 21.4 657.2 37.1 47.4 0.883 225 250
Vehicle Merchant Wholesalers. Size Std............... 175 100 250 250 250
423120 Motor Vehicle Supplies and Factor................. 21.5 749.6 7.8 19.4 0.847 150 200
New Parts Merchant Wholesalers. Size Std............... 175 125 150 75 200
423130 Tire and Tube Merchant Factor................. 28.2 580.6 9.5 24.8 0.828 175 200
Wholesalers. Size Std............... 250 100 200 125 150
423140 Motor Vehicle Parts (Used) Factor................. 9.9 767.5 1.0 39.3 0.759 125 100
Merchant Wholesalers. Size Std............... 50 125 50 250 50
423210 Furniture Merchant Factor................. 12.0 103.0 2.3 16.1 0.798 50 100
Wholesalers. Size Std............... 50 50 50 50 75
423220 Home Furnishing Merchant Factor................. 14.1 225.1 3.8 17.7 0.794 75 100
Wholesalers. Size Std............... 75 50 75 75 50
423310 Lumber, Plywood, Millwork, Factor................. 18.8 396.0 4.3 13.0 0.802 75 150
and Wood Panel Merchant Wholesalers. Size Std............... 125 75 75 50 75
[[Page 28020]]
423320 Brick, Stone, and Related Factor................. 12.7 220.9 4.7 30.1 0.815 100 150
Construction Material Merchant Size Std............... 50 50 75 175 100
Wholesalers.
423330 Roofing, Siding, and Factor................. 32.6 1403.0 11.5 46.6 0.847 225 200
Insulation Material Merchant Size Std............... 250 200 250 250 200
Wholesalers.
423390 Other Construction Material Factor................. 14.9 168.2 2.4 18.5 0.749 75 100
Merchant Wholesalers. Size Std............... 75 50 50 75 50
423410 Photographic Equipment and Factor................. 17.8 399.7 6.2 56.1 0.832 150 200
Supplies Merchant Wholesalers. Size Std............... 125 75 125 250 150
423420 Office Equipment Merchant Factor................. 49.4 10864.6 5.2 49.2 0.849 200 200
Wholesalers. Size Std............... 250 250 100 250 200
423430 Computer and Computer Factor................. 31.0 4333.1 10.1 31.9 0.872 225 250
Peripheral Equipment and Software Size Std............... 250 250 200 200 250
Merchant Wholesalers.
423440 Other Commercial Equipment Factor................. 12.8 164.2 2.2 12.4 0.775 50 100
Merchant Wholesalers. Size Std............... 50 50 50 50 50
423450 Medical, Dental, and Hospital Factor................. 26.9 2500.2 8.4 22.6 0.873 200 200
Equipment and Supplies Merchant Size Std............... 225 250 175 100 250
Wholesalers.
423460 Ophthalmic Goods Merchant Factor................. 24.3 1532.8 4.0 35.0 0.839 175 150
Wholesalers. Size Std............... 200 225 75 225 175
423490 Other Professional Equipment Factor................. 17.0 417.9 3.5 36.7 0.823 125 150
and Supplies Merchant Wholesalers. Size Std............... 100 75 50 225 125
423510 Metal Service Centers and Factor................. 19.7 653.7 12.0 15.9 0.842 150 200
Other Metal Merchant Wholesalers. Size Std............... 150 100 250 50 175
423520 Coal and Other Mineral and Factor................. 8.5 64.6 27.0 58.9 0.866 200 100
Ore Merchant Wholesalers. Size Std............... 50 50 250 250 250
423610 Electrical Apparatus and Factor................. 20.7 1693.8 5.5 16.1 0.836 125 200
Equipment, Wiring Supplies, and Size Std............... 150 250 100 50 175
Related Equipment Merchant
Wholesalers.
423620 Household Appliances, Factor................. 20.8 442.3 14.4 36.0 0.870 225 200
Electric Housewares, and Consumer Size Std............... 150 75 250 225 250
Electronics Merchant Wholesalers.
423690 Other Electronic Parts and Factor................. 31.5 6181.3 11.4 32.8 0.871 225 250
Equipment Merchant Wholesalers. Size Std............... 250 250 225 200 250
423710 Hardware Merchant Wholesalers Factor................. 15.9 425.2 3.6 19.8 0.812 75 150
Size Std............... 100 75 50 75 100
423720 Plumbing and Heating Factor................. 24.2 2136.3 5.6 32.6 0.811 150 200
Equipment and Supplies (Hydronics) Size Std............... 200 250 100 200 100
Merchant Wholesalers.
[[Page 28021]]
423730 Warm Air Heating and Air- Factor................. 28.3 1400.6 6.4 39.2 0.821 175 150
Conditioning Equipment and Supplies Size Std............... 250 200 125 250 125
Merchant Wholesalers.
423740 Refrigeration Equipment and Factor................. 18.5 431.0 3.7 29.5 0.790 100 100
Supplies Merchant Wholesalers. Size Std............... 125 75 50 175 50
423810 Construction and Mining Factor................. 30.4 603.3 18.2 32.7 0.840 200 250
(except Oil Well) Machinery and Size Std............... 250 100 250 200 175
Equipment Merchant Wholesalers.
423820 Farm and Garden Machinery and Factor................. 19.0 168.8 8.3 22.6 0.794 100 100
Equipment Merchant Wholesalers. Size Std............... 125 50 175 100 50
423830 Industrial Machinery and Factor................. 15.1 498.3 4.1 10.8 0.795 75 100
Equipment Merchant Wholesalers. Size Std............... 75 100 75 50 50
423840 Industrial Supplies Merchant Factor................. 17.6 654.3 5.1 18.5 0.805 100 100
Wholesalers. Size Std............... 125 100 100 75 75
423850 Service Establishment Factor................. 14.9 885.3 1.9 27.9 0.789 100 100
Equipment and Supplies Merchant Size Std............... 75 150 50 150 50
Wholesalers.
423860 Transportation Equipment and Factor................. 17.2 223.1 10.4 34.9 0.829 175 150
Supplies (except Motor Vehicle) Size Std............... 100 50 225 225 150
Merchant Wholesalers.
423910 Sporting and Recreational Factor................. 10.9 199.8 3.1 11.0 0.806 50 100
Goods and Supplies Merchant Size Std............... 50 50 50 50 75
Wholesalers.
423920 Toy and Hobby Goods and Factor................. 16.2 559.8 6.2 37.8 0.841 175 150
Supplies Merchant Wholesalers. Size Std............... 100 100 125 250 175
423930 Recyclable Material Merchant Factor................. 16.0 291.3 4.5 19.9 0.816 100 100
Wholesalers. Size Std............... 100 50 75 75 125
423940 Jewelry, Watch, Precious Factor................. 7.1 183.5 4.0 27.4 0.817 100 100
Stone, and Precious Metal Merchant Size Std............... 50 50 75 150 125
Wholesalers.
423990 Other Miscellaneous Durable Factor................. 9.5 273.5 1.9 16.8 0.805 50 100
Goods Merchant Wholesalers. Size Std............... 50 50 50 50 75
424110 Printing and Writing Paper Factor................. 22.4 589.6 12.5 42.5 0.876 225 200
Merchant Wholesalers. Size Std............... 175 100 250 250 250
424120 Stationery and Office Factor................. 18.6 2997.2 3.1 29.5 0.845 150 150
Supplies Merchant Wholesalers. Size Std............... 125 250 50 175 200
424130 Industrial and Personal Factor................. 16.4 267.5 5.3 29.7 0.832 125 150
Service Paper Merchant Wholesalers. Size Std............... 100 50 100 175 150
424210 Drugs and Druggists' Sundries Factor................. 44.8 3002.2 36.8 43.5 0.890 250 250
Merchant Wholesalers. Size Std............... 250 250 250 250 250
[[Page 28022]]
424310 Piece Goods, Notions, and Factor................. 9.0 83.8 2.3 15.4 0.775 50 100
Other Dry Goods Merchant Size Std............... 50 50 50 50 50
Wholesalers.
424320 Men's and Boys' Clothing and Factor................. 15.7 281.1 5.8 21.3 0.836 125 150
Furnishings Merchant Wholesalers. Size Std............... 100 50 100 100 175
424330 Women's, Children's, and Factor................. 12.4 182.2 3.4 15.9 0.814 75 100
Infants' Clothing and Accessories Size Std............... 50 50 50 50 100
Merchant Wholesalers.
424340 Footwear Merchant Wholesalers Factor................. 17.8 439.7 9.6 41.0 0.849 200 200
Size Std............... 125 75 200 250 200
424410 General Line Grocery Merchant Factor................. 62.9 9786.9 16.6 38.2 0.883 250 250
Wholesalers. Size Std............... 250 250 250 250 250
424420 Packaged Frozen Food Merchant Factor................. 27.5 871.9 8.3 21.4 0.822 150 200
Wholesalers. Size Std............... 250 150 175 100 125
424430 Dairy Product (except Dried Factor................. 27.9 952.2 8.7 28.4 0.862 200 200
or Canned) Merchant Wholesalers. Size Std............... 250 150 175 150 250
424440 Poultry and Poultry Product Factor................. 24.5 334.4 4.9 26.5 0.783 125 150
Merchant Wholesalers. Size Std............... 200 75 100 150 50
424450 Confectionery Merchant Factor................. 30.5 11213.6 7.7 60.3 0.873 225 200
Wholesalers. Size Std............... 250 250 150 250 250
424460 Fish and Seafood Merchant Factor................. 11.2 90.0 2.0 10.9 0.725 50 100
Wholesalers. Size Std............... 50 50 50 50 50
424470 Meat and Meat Product Factor................. 19.9 271.3 4.3 22.7 0.813 100 150
Merchant Wholesalers. Size Std............... 150 50 75 100 100
424480 Fresh Fruit and Vegetable Factor................. 24.0 293.2 3.2 12.2 0.767 75 100
Merchant Wholesalers. Size Std............... 200 75 50 50 50
424490 Other Grocery and Related Factor................. 27.7 7804.5 8.9 25.8 0.874 200 250
Products Merchant Wholesalers. Size Std............... 250 250 175 125 250
424510 Grain and Field Bean Merchant Factor................. 21.8 375.0 42.3 31.6 0.831 175 200
Wholesalers. Size Std............... 175 75 250 175 150
424520 Livestock Merchant Factor................. 7.9 31.8 4.4 21.5 0.817 100 100
Wholesalers. Size Std............... 50 50 75 100 125
424590 Other Farm Product Raw Factor................. 9.6 54.3 10.2 35.0 0.857 175 100
Material Merchant Wholesalers. Size Std............... 50 50 200 225 225
424610 Plastics Materials and Basic Factor................. 12.6 117.2 5.9 26.4 0.825 125 150
Forms and Shapes Merchant Size Std............... 50 50 100 150 150
Wholesalers.
424690 Other Chemical and Allied Factor................. 18.6 1443.2 9.9 13.7 0.857 175 150
Products Merchant Wholesalers. Size Std............... 125 225 200 50 225
424710 Petroleum Bulk Stations and Factor................. 26.1 425.6 58.6 38.9 0.865 225 200
Terminals. Size Std............... 225 75 250 250 250
424720 Petroleum and Petroleum Factor................. 15.4 253.7 49.9 33.6 0.881 200 200
Products Merchant Wholesalers Size Std............... 75 50 250 200 250
(except Bulk Stations and
Terminals).
424810 Beer and Ale Merchant Factor................. 70.4 498.2 14.7 14.5 0.733 125 200
Wholesalers. Size Std............... 250 100 250 50 50
[[Page 28023]]
424820 Wine and Distilled Alcoholic Factor................. 40.9 3125.0 15.2 31.7 0.872 225 250
Beverage Merchant Wholesalers. Size Std............... 250 250 250 175 250
424910 Farm Supplies Merchant Factor................. 20.2 1343.1 15.0 20.3 0.838 175 200
Wholesalers. Size Std............... 150 200 250 75 175
424920 Book, Periodical, and Factor................. 24.8 1541.6 4.7 41.9 0.868 200 200
Newspaper Merchant Wholesalers. Size Std............... 200 225 75 250 250
424930 Flower, Nursery Stock, and Factor................. 14.9 200.8 1.2 9.2 0.749 50 100
Florists' Supplies Merchant Size Std............... 75 50 50 50 50
Wholesalers.
424940 Tobacco and Tobacco Product Factor................. 41.4 2419.0 11.6 55.4 0.859 250 250
Merchant Wholesalers. Size Std............... 250 250 250 250 225
424950 Paint, Varnish, and Supplies Factor................. 16.7 359.6 5.4 41.0 0.829 150 150
Merchant Wholesalers. Size Std............... 100 75 100 250 150
424990 Other Miscellaneous Factor................. 7.2 92.2 1.4 14.4 0.799 50 100
Nondurable Goods Merchant Size Std............... 50 50 50 50 75
Wholesalers.
425110 Business to Business Factor................. 3.8 20.1 3.0 33.7 0.792 100 100
Electronic Markets. Size Std............... 50 50 50 200 50
425120 Wholesale Trade Agents and Factor................. 6.9 5713.0 4.3 24.9 0.834 125 100
Brokers. Size Std............... 50 250 75 125 150
441110 New Car Dealers.............. Factor................. 54.5 870.2 12.1 5.8 0.632 150 200
Size Std............... 250 150 250 50 50
454310 Fuel Dealers................. Factor................. 14.8 1890.5 2.1 17.4 0.723 75 100
Size Std............... 75 250 50 50 50
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 6--Size Standards Supported by Each Factor for Each Industry (Receipts)
[For columns 3-7: Upper value = Calculated factor; Lower value = size standard supported by that factor]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple Weighted Calculated Current
average average Average Four-firm Gini size size
NAICS code NAICS industry title Type firm size firm size assets size ratio (%) coefficient standard ($ standard ($
($ million) ($ million) ($ million) million) million)
(1) (2).................... (3) (4) (5) (6) (7) (9) (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------
441120 Used Car Dealers............. Factor................. 3.0 1,604.2 0.8 18.0 0.704 ........... ...........
Size Std............... 16.5 41.5 10.5 16.0 11.5 17.0 27.0
441210 Recreational Vehicle Dealers. Factor................. 6.4 219.3 2.8 18.8 0.724 ........... ...........
Size Std............... 30.5 14.5 21.5 16.5 15.0 19.0 35.0
441222 Boat Dealers................. Factor................. 2.7 79.2 1.3 14.4 0.677 ........... ...........
Size Std............... 15.5 10.0 13.0 13.0 6.5 11.5 35.0
441228 Motorcycle, ATV, and All Factor................. 3.4 25.8 1.5 4.4 0.656 ........... ...........
Other Motor Vehicle Dealers. Size Std............... 18.5 8.0 14.5 6.0 6.0 10.0 35.0
441310 Automotive Parts and Factor................. 2.7 2,949.6 1.0 45.1 0.767 ........... ...........
Accessories Stores. Size Std............... 15.5 41.5 12.0 37.0 22.5 25.0 16.5
441320 Tire Dealers................. Factor................. 3.0 1,312.0 1.0 33.7 0.759 ........... ...........
Size Std............... 16.5 41.5 11.5 28.0 21.5 22.5 16.5
442110 Furniture Stores............. Factor................. 3.3 631.2 1.2 17.3 0.774 ........... ...........
Size Std............... 18.0 28.5 13.0 15.5 24.0 19.0 22.0
442210 Floor Covering Stores........ Factor................. 1.5 18.1 0.4 4.7 0.616 ........... ...........
Size Std............... 10.5 8.0 8.5 6.0 6.0 7.5 8.0
442291 Window Treatment Stores...... Factor................. 0.6 17.2 0.2 21.7 0.621 ........... ...........
Size Std............... 7.0 8.0 7.5 19.0 6.0 10.0 8.0
442299 All Other Home Furnishings Factor................. 2.9 3,614.3 1.1 59.8 0.836 ........... ...........
Stores. Size Std............... 16.0 41.5 12.0 41.5 35.5 29.5 22.0
[[Page 28024]]
443141 Household Appliance Stores... Factor................. 2.5 513.0 0.8 28.2 0.767 ........... ...........
Size Std............... 14.5 24.5 10.5 24.0 23.0 19.5 12.0
443142 Electronics Stores........... Factor................. 4.4 15,362.2 1.3 63.8 0.854 ........... ...........
Size Std............... 22.5 41.5 13.0 41.5 38.5 31.5 35.0
444110 Home Centers................. Factor................. 61.9 ........... 23.8 ........... ........... ........... ...........
Size Std............... 41.5 ........... 41.5 ........... ........... 41.5 41.5
444120 Paint and Wallpaper Stores... Factor................. 5.1 ........... 1.8 ........... ........... ........... ...........
Size Std............... 25.5 ........... 16.0 ........... ........... 21.0 30.0
444130 Hardware Stores.............. Factor................. 1.9 493.3 0.9 25.9 0.674 ........... ...........
Size Std............... 12.5 24.0 11.0 22.0 6.0 14.5 8.0
444190 Other Building Material Factor................. 3.3 271.8 1.1 9.1 0.729 ........... ...........
Dealers. Size Std............... 18.0 16.5 12.5 9.0 16.0 14.0 22.0
444210 Outdoor Power Equipment Factor................. 1.5 17.9 0.7 8.2 0.612 ........... ...........
Stores. Size Std............... 11.0 8.0 10.0 8.0 6.0 8.5 8.0
444220 Nursery, Garden Center, and Factor................. 3.0 755.2 1.2 21.6 0.749 ........... ...........
Farm Supply Stores. Size Std............... 17.0 32.5 12.5 18.5 19.5 19.0 12.0
445110 Supermarkets and Other Factor................. 12.7 20,298.0 2.5 31.1 0.863 ........... ...........
Grocery (except Convenience) Stores. Size Std............... 41.5 41.5 20.0 26.0 40.0 32.0 35.0
445120 Convenience Stores........... Factor................. 1.0 126.3 0.2 12.5 0.606 ........... ...........
Size Std............... 8.5 11.5 7.0 11.5 6.0 8.5 32.0
445210 Meat Markets................. Factor................. 1.2 9.2 0.3 5.5 0.583 ........... ...........
Size Std............... 9.5 7.5 7.5 6.0 6.0 7.0 8.0
445220 Fish and Seafood Markets..... Factor................. 1.1 6.0 0.3 5.8 0.622 ........... ...........
Size Std............... 9.0 7.5 7.5 6.5 6.0 7.0 8.0
445230 Fruit and Vegetable Markets.. Factor................. 1.3 13.0 0.2 7.9 0.677 ........... ...........
Size Std............... 10.0 8.0 7.0 8.0 6.5 7.5 8.0
445291 Baked Goods Stores........... Factor................. 0.6 83.7 0.2 35.8 0.694 ........... ...........
Size Std............... 7.0 10.0 7.0 30.0 9.5 14.0 8.0
445292 Confectionery and Nut Stores. Factor................. 0.9 104.7 0.3 37.6 0.741 ........... ...........
Size Std............... 8.5 11.0 8.0 31.0 18.0 17.0 8.0
445299 All Other Specialty Food Factor................. 0.7 23.8 0.2 15.6 0.659 ........... ...........
Stores. Size Std............... 7.5 8.0 7.5 14.0 6.0 9.0 8.0
445310 Beer, Wine, and Liquor Stores Factor................. 1.5 163.9 0.5 10.1 0.607 ........... ...........
Size Std............... 10.5 13.0 8.5 9.5 6.0 9.0 8.0
446110 Pharmacies and Drug Stores... Factor................. 12.1 41,475.3 2.5 69.5 0.797 ........... ...........
Size Std............... 41.5 41.5 19.5 41.5 28.5 33.0 30.0
446120 Cosmetics, Beauty Supplies, Factor................. 2.1 1,347.4 0.8 56.3 0.817 ........... ...........
and Perfume Stores. Size Std............... 13.0 41.5 10.5 41.5 32.0 28.0 30.0
446130 Optical Goods Stores......... Factor................. 2.0 1,672.9 0.6 57.2 0.780 ........... ...........
Size Std............... 13.0 41.5 9.5 41.5 25.0 26.0 22.0
446191 Food (Health) Supplement Factor................. 1.2 518.0 0.4 45.0 0.734 ........... ...........
Stores. Size Std............... 9.5 24.5 8.0 37.0 17.0 20.0 16.5
446199 All Other Health and Personal Factor................. 1.4 28.4 0.5 7.6 0.681 ........... ...........
Care Stores. Size Std............... 10.5 8.5 8.5 8.0 7.0 8.5 8.0
447110 Gasoline Stations with Factor................. 7.7 3,327.0 1.5 13.2 0.746 ........... ...........
Convenience Stores. Size Std............... 36.0 41.5 14.5 12.0 19.0 21.0 32.0
447190 Other Gasoline Stations...... Factor................. 10.5 7,328.2 2.2 38.7 0.784 ........... ...........
Size Std............... 41.5 41.5 18.0 32.0 26.0 29.5 16.5
448110 Men's Clothing Stores........ Factor................. 2.0 495.9 0.9 42.4 0.780 ........... ...........
Size Std............... 13.0 24.0 11.0 35.0 25.0 22.5 12.0
448120 Women's Clothing Stores...... Factor................. 3.2 1,087.6 1.2 25.8 0.839 ........... ...........
Size Std............... 17.5 41.5 12.5 22.0 36.0 25.0 30.0
448130 Children's and Infants' Factor................. 4.4 1,116.2 1.7 61.1 0.871 ........... ...........
Clothing Stores. Size Std............... 22.5 41.5 15.5 41.5 41.5 32.5 35.0
448140 Family Clothing Stores....... Factor................. 12.8 6,648.7 5.1 49.6 0.882 ........... ...........
Size Std............... 41.5 41.5 34.5 40.5 41.5 39.5 41.5
448150 Clothing Accessories Stores.. Factor................. 2.3 1,314.2 1.0 58.3 0.840 ........... ...........
Size Std............... 14.0 41.5 11.5 41.5 36.0 29.5 16.5
448190 Other Clothing Stores........ Factor................. 2.0 1,894.8 0.8 51.3 0.806 ........... ...........
Size Std............... 12.5 41.5 10.5 41.5 30.0 27.5 22.0
[[Page 28025]]
448210 Shoe Stores.................. Factor................. 5.2 1,301.1 2.2 34.3 0.841 ........... ...........
Size Std............... 25.5 41.5 18.0 28.5 36.5 29.0 30.0
448310 Jewelry Stores............... Factor................. 1.7 580.1 1.0 24.0 0.752 ........... ...........
Size Std............... 11.5 26.5 12.0 20.5 20.0 18.0 16.5
448320 Luggage and Leather Goods Factor................. 5.0 983.0 3.1 75.0 0.848 ........... ...........
Stores. Size Std............... 24.5 40.0 23.0 41.5 37.5 33.5 30.0
451110 Sporting Goods Stores........ Factor................. 2.5 1,481.1 1.0 32.6 0.782 ........... ...........
Size Std............... 15.0 41.5 12.0 27.5 25.5 23.5 16.5
451120 Hobby, Toy, and Game Stores.. Factor................. 3.5 3,091.1 1.4 77.4 0.851 ........... ...........
Size Std............... 18.5 41.5 14.0 41.5 38.0 31.0 30.0
451130 Sewing, Needlework, and Piece Factor................. 1.1 1,257.0 0.5 ........... 0.776 ........... ...........
Goods Stores. Size Std............... 9.0 41.5 8.5 ........... 24.5 19.5 30.0
451140 Musical Instrument and Factor................. 1.4 536.2 0.7 41.8 0.734 ........... ...........
Supplies Stores. Size Std............... 10.5 25.0 10.0 34.5 17.0 20.0 12.0
451211 Book Stores.................. Factor................. 3.9 3,005.3 1.6 69.7 0.853 ........... ...........
Size Std............... 20.5 41.5 14.5 41.5 38.5 31.5 30.0
451212 News Dealers and Newsstands.. Factor................. 1.0 242.4 0.4 57.3 0.742 ........... ...........
Size Std............... 8.5 15.5 8.5 41.5 18.0 20.0 8.0
452210 Department Stores............ Factor................. 11,030.9 25,982.4 5,014.0 82.7 0.555 ........... ...........
Size Std............... 41.5 41.5 41.5 41.5 6.0 32.5 35.0
452311 Warehouse Clubs and Factor................. 44,853.1 210,447.9 15,466.6 93.6 ........... ........... ...........
Supercenters. Size Std............... 41.5 41.5 41.5 41.5 ........... 41.5 32.0
452319 All Other General Merchandise Factor................. 7.1 7,543.1 2.4 66.1 0.876 ........... ...........
Stores. Size Std............... 33.0 41.5 19.5 41.5 41.5 35.0 35.0
453110 Florists..................... Factor................. 0.3 1.5 0.1 1.6 0.527 ........... ...........
Size Std............... 6.0 7.5 6.5 6.0 6.0 6.5 8.0
453210 Office Supplies and Factor................. 5.0 4,645.9 1.4 85.1 0.862 ........... ...........
Stationery Stores. Size Std............... 24.5 41.5 14.0 41.5 40.0 32.0 35.0
453220 Gift, Novelty, and Souvenir Factor................. 0.8 165.7 0.3 18.8 0.713 ........... ...........
Stores. Size Std............... 8.0 13.0 8.0 16.5 13.0 12.0 8.0
453310 Used Merchandise Stores...... Factor................. 0.9 73.6 0.4 12.7 0.756 ........... ...........
Size Std............... 8.5 10.0 8.5 11.5 21.0 12.5 8.0
453910 Pet and Pet Supplies Stores.. Factor................. 2.8 3,479.3 0.8 69.0 0.814 ........... ...........
Size Std............... 16.0 41.5 10.5 41.5 31.0 28.0 22.0
453920 Art Dealers.................. Factor................. 1.4 55.3 0.7 14.4 0.779 ........... ...........
Size Std............... 10.0 9.0 10.0 13.0 25.0 14.5 8.0
453930 Manufactured (Mobile) Home Factor................. 2.4 235.3 1.4 31.4 0.696 ........... ...........
Dealers. Size Std............... 14.5 15.0 14.0 26.5 10.0 16.5 16.5
453991 Tobacco Stores............... Factor................. 1.2 17.1 0.4 5.7 0.656 ........... ...........
Size Std............... 9.5 8.0 8.0 6.5 6.0 7.5 8.0
453998 All Other Miscellaneous Store Factor................. 1.2 55.7 0.4 10.1 0.712 ........... ...........
Retailers (except Tobacco Stores). Size Std............... 9.5 9.0 8.5 9.5 13.0 10.0 8.0
454110 Electronic Shopping and Mail- Factor................. 11.4 9,493.0 3.3 30.2 0.868 ........... ...........
Order Houses. Size Std............... 41.5 41.5 24.5 25.5 41.0 33.0 41.5
454210 Vending Machine Operators.... Factor................. 1.6 254.9 0.6 28.2 0.787 ........... ...........
Size Std............... 11.0 16.0 9.5 24.0 26.5 18.5 12.0
454390 Other Direct Selling Factor................. 1.1 202.5 0.4 15.1 0.749 ........... ...........
Establishments. Size Std............... 9.0 14.0 8.0 13.5 19.5 13.0 8.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Summary of Calculated Size Standards
Of the 137 industries reviewed in this proposed rule, the results
from analyses of the latest available data on the four primary industry
factors (i.e., average firm size, average assets size, four-firm ratio,
and Gini coefficient) from Table 5 and Table 6 above support increasing
size standards for 49 industries, decreasing size standards for 66
industries, and maintaining size standards for 22 industries. Table 7,
Summary of Calculated Size Standards, summarizes these results by NAICS
sector.
[[Page 28026]]
Table 7--Summary of Calculated Size Standards
----------------------------------------------------------------------------------------------------------------
Number of size Number of size Number of size Number of size
Sector Sector name standards standards standards standards
reviewed increased decreased maintained
----------------------------------------------------------------------------------------------------------------
42............................ Wholesale Trade. 71 14 38 19
44-45......................... Retail Trade.... 66 35 28 3
---------------------------------------------------------------
Total..................... ................ 137 49 66 22
----------------------------------------------------------------------------------------------------------------
Evaluation of SBA Loan Data
Before proposing or deciding on an industry's size standard
revision, SBA also considers the impact of size standards revisions on
SBA's loan programs. Accordingly, SBA examined its internal 7(a) and
504 loan data for fiscal years 2016-2018 to assess whether the
calculated size standards in Table 5 and Table 6 need further
adjustments to ensure credit opportunities for small businesses through
those programs. For the industries reviewed in this rule, the data
shows that it is mostly businesses much smaller than the current or
proposed size standards that receive SBA's 7(a) and 504 loans. For
example, for industries covered by this rule, more than 96.9% of 7(a)
and 504 loans in fiscal years 2016-2018 went to businesses below the
current or proposed size standards.
Special Considerations
On March 13, 2020, the ongoing Coronavirus Disease 2019 (COVID-19)
was declared a pandemic of enough severity and magnitude to warrant an
emergency declaration for all states, territories, and the District of
Columbia. With the COVID-19 emergency, many small businesses nationwide
are experiencing economic hardship as a direct result of the Federal,
State, and local public health measures that are being taken to
minimize the public's exposure to the virus. In addition, based on the
advice of public health officials, other measures, such as keeping a
safe distance from others or even stay-at-home orders, are being
implemented, resulting in a dramatic decrease in economic activity as
the public avoids malls, retail stores, and other businesses.
The Coronavirus Aid, Relief, and Economic Security Act (the CARES
Act or the Act) (Pub. L. 116-136) was signed on March 27, 2020, to
provide emergency assistance and health care response for individuals,
families, and businesses affected by the coronavirus pandemic. Section
1102 of the Act temporarily permits SBA to guarantee 100% of 7(a) loans
under a new program titled the Paycheck Protection Program (PPP).
Section 1106 of the Act provides for forgiveness of up to the full
principal amount of qualifying loans guaranteed under the PPP. The PPP
and loan forgiveness are intended to provide economic relief to small
businesses nationwide adversely impacted by COVID-19. On April 24,
2020, additional funding for the CARES Act, including for the PPP, was
provided (see The Paycheck Protection Program and Health Care
Enhancement Act, Pub. L. 116-139). On December 27, 2020, Congress
passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and
Venues Act as part of the Consolidation Appropriations Act, approving
additional funding for the PPP loans program and allowing the hardest-
hit small businesses to receive a second draw PPP loan (Pub. L. 116-
260). Additionally, the law approved grants for shuttered-venue
operators. On March 11, 2021, the American Rescue Plan Act of 2021
(Pub. L. 117-2) was signed into law. This act provides additional
relief for the nation's small businesses and hard-hit industries by
adding new support to the recovery effort, including additional funding
for the Paycheck Protection Program and the Shuttered Venue Operators
Grant program. The act also adds additional funding for targeted
Economic Injury Disaster Loan (EIDL) Advance payments.
The Agency is following closely the development of the pandemic and
the economic situation. A variety of economic indicators such as the
Gross Domestic Product (GDP) and the unemployment rate show that this
recession is significantly worse than any other recession since World
War II. According to the Bureau of Economic Analysis (BEA), real GDP
decreased 5% and real personal consumption in goods and services
decreased 6.9% in the first quarter of 2020. In the second quarter,
real GDP decreased 31.4% and real personal consumption in goods and
services decreased 33.2%. In the third quarter, real GDP increased
33.4%, and real personal consumption in goods and services increased
41.0%. Real GDP showed a more moderate increase of 4.3% and real
personal consumption expenditures increased 2.3% in the fourth quarter
of 2020. Real GDP decreased 3.5% in 2020 from 2019 (from the 2019
annual level to the 2020 annual level), compared with an increase of
2.2 percent in 2019 from 2018. According to the BEA's `advance'
estimate, real GDP increased 6.4% and real personal consumption
expenditures increased 10.7% in the first quarter of 2021.
In April 2021, both the unemployment rate, at 6.1%, and the number
of unemployed persons, at 9.8 million, were little changed from the
previous month. These measures are down considerably from their April
2020 highs (14.8% and 23.1 million, respectively) but remain well above
their pre-pandemic levels in February 2020 (3.5% and 5.7 million,
respectively). Specifically, for the sectors evaluated in this proposed
rule, in April 2021, the unemployment rate for the Wholesale Trade
sector was 3.3%, and the unemployment rate for the Retail Trade sector
was 6.8%. In April 2020, the unemployment rates for these sectors were
9.9% and 18.6%, respectively. The Federal Reserve Board's Monetary
Policy Report, published in June 2020, shows that, in general, the most
impacted firms in these sectors are small businesses.\1\
---------------------------------------------------------------------------
\1\ See the special section titled ``Small Businesses during the
COVID-19 Crisis'' on page 24 of the Monetary Policy Report prepared
by the Board of Governors of the Federal Reserve System in June
2020. (https://www.federalreserve.gov/monetarypolicy/files/20200612_mprfullreport.pdf). The latest publication of the Monetary
Policy Report was published on February 19, 2021. Also, see https://portal.census.gov/pulse/data. This report is a recent survey created
by the Census Bureau to provide high-frequency, detailed information
on participation in small business-specific initiatives such as the
PPP.
---------------------------------------------------------------------------
Proposed Changes to Size Standards
Accordingly, in view of the analytical data discussed above and the
economic impacts of the COVID-19 pandemic, SBA proposes to adopt
increases to size standards for 49 industries and to retain the current
size standards for 88 industries.
The proposed size standards are presented by measure of size in
Table 8, Proposed Size Standards Revisions (Employees) and Table 9,
Proposed Size
[[Page 28027]]
Standards Revisions (Receipts). Also presented in Table 8 and Table 9
are current and calculated size standards for comparison.
Table 8--Proposed Size Standards Revisions (Employees)
----------------------------------------------------------------------------------------------------------------
Calculated Proposed size Current size
NAICS code NAICS industry title size standard standard standard
(employees) (employees) (employees)
----------------------------------------------------------------------------------------------------------------
423140............................. Motor Vehicle Parts (Used) 125 125 100
Merchant Wholesalers.
423330............................. Roofing, Siding, and 225 225 200
Insulation Material
Merchant Wholesalers.
423460............................. Ophthalmic Goods Merchant 175 175 150
Wholesalers.
423520............................. Coal and Other Mineral and 200 200 100
Ore Merchant Wholesalers.
423620............................. Household Appliances, 225 225 200
Electric Housewares, and
Consumer Electronics
Merchant Wholesalers.
423730............................. Warm Air Heating and 175 175 150
Air[dash]Conditioning
Equipment and Supplies
Merchant Wholesalers.
423860............................. Transportation Equipment 175 175 150
and Supplies (except Motor
Vehicle) Merchant
Wholesalers.
423920............................. Toy and Hobby Goods and 175 175 150
Supplies Merchant
Wholesalers.
424110............................. Printing and Writing Paper 225 225 200
Merchant Wholesalers.
424450............................. Confectionery Merchant 225 225 200
Wholesalers.
424590............................. Other Farm Product Raw 175 175 100
Material Merchant
Wholesalers.
424690............................. Other Chemical and Allied 175 175 150
Products Merchant
Wholesalers.
424710............................. Petroleum Bulk Stations and 225 225 200
Terminals.
425120............................. Wholesale Trade Agents and 125 125 100
Brokers.
----------------------------------------------------------------------------------------------------------------
Table 9--Proposed Size Standards Revisions (Receipts)
----------------------------------------------------------------------------------------------------------------
Calculated Proposed size Current size
NAICS code NAICS industry title size standard standard ($ standard ($
($ million) million) million)
----------------------------------------------------------------------------------------------------------------
441310............................. Automotive Parts and 25.0 25.0 16.5
Accessories Stores.
441320............................. Tire Dealers............... 22.5 22.5 16.5
442291............................. Window Treatment Stores.... 10.0 10.0 8.0
442299............................. All Other Home Furnishings 29.5 29.5 22.0
Stores.
443141............................. Household Appliance Stores. 19.5 19.5 12.0
444130............................. Hardware Stores............ 14.5 14.5 8.0
444210............................. Outdoor Power Equipment 8.5 8.5 8.0
Stores.
444220............................. Nursery, Garden Center, and 19.0 19.0 12.0
Farm Supply Stores.
445291............................. Baked Goods Stores......... 14.0 14.0 8.0
445292............................. Confectionery and Nut 17.0 17.0 8.0
Stores.
445299............................. All Other Specialty Food 9.0 9.0 8.0
Stores.
445310............................. Beer, Wine, and Liquor 9.0 9.0 8.0
Stores.
446110............................. Pharmacies and Drug Stores. 33.0 33.0 30.0
446130............................. Optical Goods Stores....... 26.0 26.0 22.0
446191............................. Food (Health) Supplement 20.0 20.0 16.5
Stores.
446199............................. All Other Health and 8.5 8.5 8.0
Personal Care Stores.
447190............................. Other Gasoline Stations.... 29.5 29.5 16.5
448110............................. Men's Clothing Stores...... 22.5 22.5 12.0
448150............................. Clothing Accessories Stores 29.5 29.5 16.5
448190............................. Other Clothing Stores...... 27.5 27.5 22.0
448310............................. Jewelry Stores............. 18.0 18.0 16.5
448320............................. Luggage and Leather Goods 33.5 33.5 30.0
Stores.
451110............................. Sporting Goods Stores...... 23.5 23.5 16.5
451120............................. Hobby, Toy, and Game Stores 31.0 31.0 30.0
451140............................. Musical Instrument and 20.0 20.0 12.0
Supplies Stores.
451211............................. Book Stores................ 31.5 31.5 30.0
451212............................. News Dealers and Newsstands 20.0 20.0 8.0
452311............................. Warehouse Clubs and 41.5 41.5 32.0
Supercenters.
453220............................. Gift, Novelty, and Souvenir 12.0 12.0 8.0
Stores.
453310............................. Used Merchandise Stores.... 12.5 12.5 8.0
453910............................. Pet and Pet Supplies Stores 28.0 28.0 22.0
453920............................. Art Dealers................ 14.5 14.5 8.0
453998............................. All Other Miscellaneous 10.0 10.0 8.0
Store Retailers (except
Tobacco Stores).
454210............................. Vending Machine Operators.. 18.5 18.5 12.0
454390............................. Other Direct Selling 13.0 13.0 8.0
Establishments.
----------------------------------------------------------------------------------------------------------------
[[Page 28028]]
Table 10, Summary of Proposed Size Standards Revisions by Sector,
below, summarizes the proposed changes to size standards by NAICS
sector.
Table 10--Summary of Proposed Size Standards Revisions by Sector
----------------------------------------------------------------------------------------------------------------
Number of size Number of size Number of size Number of size
Sector Sector name standards standards standards standards
reviewed increased decreased maintained
----------------------------------------------------------------------------------------------------------------
42............................ Wholesale Trade. 71 14 0 57
44-45......................... Retail Trade.... 66 35 0 31
---------------------------------------------------------------
Total..................... ................ 137 49 0 88
----------------------------------------------------------------------------------------------------------------
Evaluation of Dominance in Field of Operation
SBA has determined that for the industries that it has evaluated in
this proposed rule, no individual firm at or below the proposed size
standard would be large enough to dominate its field of operation. At
the proposed size standards levels, if adopted, the small business
share of total industry receipts would be, on average, 0.4%, varying
from 0.01% to 3.4%.
Alternatives Considered
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance programs
and to review every five years all size standards and make necessary
adjustments to reflect the current industry structure and Federal
market conditions. Other than varying the levels of size standards by
industry and changing the measures of size standards (e.g., using
annual receipts vs. the number of employees), no practical alternatives
exist to the systems of numerical size standards.
The proposal is to increase size standards where the data suggested
increases are warranted, and to retain, in response to COVID-19
emergency and resultant economic impacts on small businesses, all
current size standards where the data suggested lowering is
appropriate.
Nonetheless, SBA considered two other alternatives. Alternative
Option 1 was to propose changes exactly as suggested by the analytical
results. In other words, Option 1 would entail increasing size
standards for 49 industries, decreasing them for 66 industries, and
retaining them at their current levels for 22 industries. Alternative
Option 2 was to retain all current size standards.
Alternative Option 1 would cause a substantial number of currently
small businesses to lose their small business status and hence to lose
their access to Federal small business assistance, especially SBA's
financial assistance in some cases.
However, in the present situation with the global COVID-19 pandemic
resulting in high levels of risk and dramatic reductions in economic
activity of unprecedented nature, SBA presents the impacts of adopting
the analytical results without adjustment in Alternative Option 1 and
proposes to retain all size standards for which the evaluation of
principal factors suggested reductions, and to adopt only the increases
suggested by the evaluation. SBA will adopt this approach temporarily
and may reevaluate as the economic situation evolves.
Under Option 2, given the current COVID-19 pandemic, SBA considered
retaining the current level of all size standards even though the
current analysis may suggest changing them. SBA considers that the
option of retaining all size standards at this moment provides the
opportunity to reassess the economic situation once the economic
recovery starts. Under this option, as the current situation develops,
SBA will be able to assess new data available on economic indicators,
federal procurement, and SBA loans before adopting changes to size
standards. However, SBA is not adopting Option 2 because the Regulatory
Impact Analysis conducted for this rule in accordance with Executive
Order 12866 (see below) shows that retaining all size standards at
their current levels is more onerous for the small businesses than the
option of adopting 49 increases and retaining 88 size standards. SBA
may reevaluate this approach as the current economic situation evolves.
Request for Comments
SBA invites public comments on this proposed rule, especially on
the following issues:
1. SBA seeks feedback on whether SBA's proposal to increase 49 size
standards and retain 88 size standards is appropriate given the results
from the latest available industry and Federal contracting data of each
industry and subindustry (exception) reviewed in this proposed rule,
along with ongoing uncertainty and dramatic contraction in economic
activity due to the global COVID-19 pandemic. SBA also seeks
suggestions, along with supporting facts and analysis, for alternative
standards, if they would be more appropriate than the proposed size
standards.
2. SBA also seeks comments on whether SBA should not lower any size
standards in view of the COVID-19 pandemic and its adverse impacts on
small businesses as well as on the overall economic situation when
analytical results suggest some size standards could be lowered. SBA
believes that lowering size standards under the current economic
environment would run counter to Congress's and the Federal
Government's efforts to aid and provide relief to the nation's small
businesses impacted by the COVID-19 pandemic.
3. Given the uncertainty produced by the global COVID-19 pandemic
and the economic consequences, SBA would like to receive comments from
the public on the possibility of lowering size standards while
mitigating the consequences of the lower standards, instead of not
lowering any size standards at all.
4. In calculating the overall industry size standard, SBA has
assigned equal weight to each of the four primary factors in all
industries and subindustries covered by this proposed rule. SBA seeks
feedback on whether it should assign equal weight to each factor or
whether it should give more weight to one or more factors for certain
industries or subindustries. Recommendations to weigh some factors
differently than others should include suggested weights for each
factor along with supporting facts and analysis.
5. Finally, SBA seeks comments on data sources it used to examine
industry and Federal market conditions, as well as suggestions on
relevant alternative data sources that the Agency should evaluate in
reviewing or modifying size
[[Page 28029]]
standards for industries covered by this proposed rule.
Public comments on the above issues are very valuable to SBA for
validating its proposed size standards revisions in this proposed rule.
Commenters addressing size standards for a specific industry or a group
of industries should include relevant data and/or other information
supporting their comments.
Compliance With Executive Order 12866, the Regulatory Flexibility Act
(5 U.S.C. 601-612), Executive Orders 13563, 12988, and 13132, and the
Paperwork Reduction Act (44 U.S.C. Ch. 35)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is a significant regulatory action for purposes of
Executive Order 12866. However, this rule is not a ``major rule'' under
the Congressional Review Act, 5 U.S.C. 800. Accordingly, in the next
section SBA provides a Regulatory Impact Analysis of this proposed
rule, including: (1) A statement of the need for the proposed action,
(2) an evaluation of the benefits and costs--both quantitative and
qualitative--of the proposed action, and (3) an examination of the
alternative approaches considered.
Regulatory Impact Analysis
1. What is a need for this regulatory action?
Under the Small Business Act, SBA's Administrator is responsible
for establishing small business size definitions (or ``size
standards'') and ensuring that such definitions vary from industry to
industry to reflect differences among various industries. The Jobs Act
requires SBA to review every 5 years all size standards and make
necessary adjustments to reflect current industry and Federal market
conditions. This proposed rule is part of the second 5-year review of
size standards in accordance with the Jobs Act. The first 5-year review
of size standards was completed in early 2016. Such periodic reviews of
size standards provide SBA with an opportunity to incorporate ongoing
changes to industry structure and Federal market environment into size
standards and to evaluate the impacts of prior revisions to size
standards on small businesses. This also provides SBA with an
opportunity to seek and incorporate public input to the size standards
review and analysis. SBA believes that proposed size standards
revisions for industries being reviewed in this rule will make size
standards more reflective of the current economic characteristics of
businesses in those industries and the latest trends in Federal
marketplace.
SBA's mission is to aid and assist small businesses through a
variety of financial, procurement, business development and counseling,
and disaster assistance programs. To determine the actual intended
beneficiaries of these programs, SBA establishes numerical size
standards by industry to identify businesses that are deemed small.
The proposed revisions to the existing size standards for 49
industries or subindustries in NAICS Sectors 42 and 44-45 are
consistent with SBA's statutory mandates to help small businesses grow
and create jobs and to review and adjust size standards every five
years. This regulatory action promotes the Administration's goals and
objectives as well as meets the SBA's statutory responsibility. One of
SBA's goals in support of promoting the Administration's objectives is
to help small businesses succeed through fair and equitable access to
capital and credit, Federal Government contracts and purchases, and
management and technical assistance. Reviewing and modifying size
standards, when appropriate, ensures that intended beneficiaries are
able to access Federal small business programs that are designed to
assist them to become competitive and create jobs.
2. What are the potential benefits and costs of this regulatory action?
OMB directs agencies to establish an appropriate baseline to
evaluate any benefits, costs, or transfer impacts of regulatory actions
and alternative approaches considered. The baseline should represent
the agency's best assessment of what the world would look like absent
the regulatory action. For a new regulatory action promulgating
modifications to an existing regulation (such as modifying the existing
size standards), a baseline assuming no change to the regulation (i.e.,
making no changes to current size standards) generally provides an
appropriate benchmark for evaluating benefits, costs, or transfer
impacts of proposed regulatory changes and their alternatives.
Proposed Changes to Size Standards
Based on the results from analyses of latest industry data, as well
as consideration of impact of size standards changes on small
businesses and significant adverse impacts of the COVID-19 emergency on
small businesses and the overall economic activity, of the total of 137
industries in Sectors 42 and 44-45, SBA proposes to increase size
standards for 49 industries and maintain current size standards for
remaining 88 industries.
The Baseline
For purposes of this regulatory action, the baseline represents
maintaining the ``status quo,'' i.e., making no changes to the current
size standards. Using the number of small businesses and levels of
benefits (such as SBA's loans, disaster assistance, etc.) they receive
under the current size standards, one can examine the potential
benefits, costs, and transfer impacts of proposed changes to size
standards on small businesses and on the overall economy.
Based on the 2012 Economic Census (the latest available), of a
total of about 975,569 businesses in industries in Sectors 42 and 44-
45, 97.4% are considered small under the current size standards. That
percentage varies from 96.6% in Sector 42 to 97.9% in Sector 44-45.
Based on the SBA's internal data on its loan programs for fiscal years
2016-2018, small businesses in those industries received, on an annual
basis, a total of 11,666 7(a) and 504 loans in that period, totaling
about $5.5 billion, of which 84.7% was issued through the 7(a) program
and 15.3% was issued through the 504/CDC program. During fiscal years
2016-2018, small businesses in those industries also received 667 loans
through the SBA's EIDL program, totaling about $63.2 million on an
annual basis. Table 11, Baseline for All Industries, below, provides
these baseline results by sector.
Table 11--Baseline for All Industries
----------------------------------------------------------------------------------------------------------------
Sector 42 Sector 44-45 Total
----------------------------------------------------------------------------------------------------------------
Baseline All Industries (current size standards)....... 71 66 137
Total firms (Economic Census).......................... 319,716 655,853 975,569
Total small firms under current size standards 308,710 641,995 950,705
(Economic Census).....................................
Small firms as % of total firms........................ 96.6 97.9 97.5
[[Page 28030]]
No. of 7(a) and 504/CDC loans (FY 2016-2018)........... 3,249 8,417 11,666
Amount of 7(a) and 504 loans ($ million) (FY 2016-2018) $1,836.7 $3,692.9 $5,529.6
No. of EIDL loans (FY 2016-2018)....................... 137 530 667
Amount of EIDL loans ($ million) (FY 2016-2018)........ $16.7 $46.6 $63.2
----------------------------------------------------------------------------------------------------------------
Totals may not sum due to rounding.
Increases to Size Standards
As stated above, of the 137 employee-based and receipts-based size
standards in Sectors 42 and 44-45 that were reviewed in preparation for
this rule, based on the results from analyses of latest industry data
as well as impacts of size standards changes on small businesses, SBA
proposes to increase 49 size standards. Below are descriptions of the
benefits, costs, and transfer impacts of these proposed increases to
size standards.
A. Benefits of Increases to Size Standards
The most significant benefit to businesses from proposed increases
to size standards would be gaining eligibility for Federal small
business assistance programs or retaining that eligibility for a longer
period. These include SBA's business loan programs, such as the 7(a)
and EIDL loan programs. SBA's regulations specify that NAICS codes for
the Wholesale and Retail Trade industries shall not be used to classify
Government acquisition for supplies (13 CFR 121.402(b)). As such, for
purposes of federal contracts set-aside for small businesses the size
standard for all industries included in the Wholesale Trade and Retail
Trade sectors is 500 employees under the nonmanufacturer rule (see 13
CFR 121.406). SBA is not evaluating the size standard for the
nonmanufacturer rule in this rulemaking. Thus, SBA estimates that the
proposed increases to size standards as part of this rulemaking will
not impact the market for federal contracts using small business set-
asides.
Besides the access to SBA financial assistance programs discussed
above, small businesses also benefit through reduced fees, less
paperwork, and fewer compliance requirements that are available to
small businesses through the Federal Government. However, SBA has no
data to estimate the number of small businesses receiving such
benefits.
Based on the 2012 Economic Census (latest available), SBA estimates
that in 49 industries in NAICS Sectors 42 and 44-45 for which it has
proposed to increase size standards, 1,839 firms (see Table 12, below)
not considered small under the current size standards will become small
under the proposed size standards increases and therefore would become
eligible for SBA assistance programs. That represents about 0.5% of all
firms classified as small under the current size standards in
industries for which SBA has proposed increasing size standards. If the
proposed increase is adopted, SBA estimates that this would result in
an increase to the small business share of total receipts in those
industries from 30.4% to 31.5%.
Based on the data for fiscal years 2016-2018, SBA estimates up to
29 SBA 7(a) and 504 loans totaling about $10.9 million could be made to
these newly qualified small businesses. That represents a 0.6% increase
to the loan amount compared to the Group baseline.\2\
---------------------------------------------------------------------------
\2\ Note that these figures refer to the standard 7(a) and 504
loans, not the Paycheck Protection Program (PPP) under the CARES
Act, the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and
Venues Act, and the American Rescue Plan Act of 2021.
---------------------------------------------------------------------------
Newly qualified small businesses could also benefit from the SBA's
EIDL program. Since the benefit provided through this program is
contingent on the occurrence and severity of a disaster in the future,
SBA cannot make a meaningful estimate of this impact. However, based on
the historical trends of the EIDL data, SBA estimates that, on an
annual basis, the newly defined small businesses under the proposed
increases to size standards, if adopted, could receive 3 EIDL loans,
totaling about $0.31 million.\3\
---------------------------------------------------------------------------
\3\ Note that these figures refer to the standard EIDL loans,
not COVID EIDL loans under the CARES Act, the Economic Aid to Hard-
Hit Small Businesses, Non-Profits, and Venues Act, and the American
Rescue Plan Act of 2021.
---------------------------------------------------------------------------
Additionally, the newly defined small businesses would also benefit
through reduced fees, less paperwork, and fewer compliance requirements
that are available to small businesses through the Federal Government,
but SBA has no data to quantify this impact. Table 12, Impacts of
Proposed Increases to Size Standards, provides these results by NAICS
sector.
Table 12--Impacts of Proposed Increases to Size Standards
----------------------------------------------------------------------------------------------------------------
Sector 42 Sector 44-45 Total
----------------------------------------------------------------------------------------------------------------
No. of industries with proposed increases to size 14 35 49
standards.............................................
Total current small businesses in industries with 63,984 286,758 350,742
Proposed increases to size standards (Economic Census
2012).................................................
Additional firms qualifying as small under proposed 145 1,694 1,839
standards (2012 Economic Census)......................
Percentage of additional firms qualifying as small 0.2 0.6 0.5
relative to current small businesses in industries
with proposed increases to size standards.............
Total no. of 7(a) and 504 loans to small business in 349 4,510 4,859
industries with proposed increases to size standards
(FY 2016-2018)........................................
Total amount of 7(a) and 504 loans to small businesses $182.8 $1,633.1 $1,815.9
in industries with proposed increases to size
standards ($ million) (FY 2016-2018)..................
Estimated no. of 7(a) and 504 loans to newly qualified 1 28 29
small firms...........................................
Estimated 7(a) and 504 loan amount to newly qualified $0.5 $10.3 $10.9
small firms ($ million)...............................
% increase to 7(a) and 504 loan amount relative to the 0.3 0.6 0.6
total amount of 7(a) and 504 loans in industries with
proposed increases to size standards..................
[[Page 28031]]
Total no. of EIDL loans to small businesses in 12 288 300
industries with proposed increases to size standards
(FY 2016-2018)........................................
Total amount of EIDL loans to small businesses in $1.9 $21.5 $23.4
industries with proposed increases to size standards
($ million) (FY 2016-2018)............................
Estimated no. of EIDL loans to newly qualified small 1 2 3
firms.................................................
Estimated EIDL loan amount to newly qualified small $0.15 $0.15 $0.31
firms ($ million).....................................
% increase to EIDL loan amount relative to the total 8.3 0.7 1.3
amount of EIDL loans in industries with proposed
increases to size standards...........................
----------------------------------------------------------------------------------------------------------------
Totals may not sum due to rounding.
B. Costs of Increases to Size Standards
To the extent that newly qualified small businesses could seek
assistance from SBA's financial assistance programs, the proposed
increases to size standards, if adopted, may entail some additional
administrative costs to the Government. However, small business lenders
have an option of using the tangible net worth and net income-based
alternative size standard instead of using the industry-based size
standards to establish eligibility for SBA's loans. Moreover, this
proposed rule does not establish new size standards for the very first
time; rather it intends to modify the existing size standards in
accordance with a statutory requirement and the latest data and other
relevant factors. For these reasons, SBA believes that these added
administrative costs will be minor because necessary mechanisms are
already in place to handle the additional burden.
C. Transfer Impacts of Increases to Size Standards
The proposed increases to size standards, if adopted, may result in
some redistribution of SBA loans between the newly qualified small
businesses and small businesses under the current size standards.
However, SBA estimates this impact to be de minimus because the vast
majority of the SBA loans go to small businesses that are much smaller
than the current size standards. Moreover, SBA estimates that this rule
would not have any impact on Federal contract dollars awarded to small
businesses since SBA's regulations specify that NAICS codes for the
Wholesale and Retail Trade industries shall not be used to classify
Government acquisition for supplies.
3. What alternatives have been considered?
Under OMB Circular A-4, SBA is required to consider alternative
regulatory approaches. In this section, SBA describes and analyzes two
such alternatives to the proposed rule. Under Alternative Option 1, SBA
would propose adopting size standards based solely on the analytical
results. In other words, SBA would raise the size standards of 49
industries for which the analytical results suggest raising size
standards and would lower the size standards of 66 industries for which
the analytical results suggest lowering size standards. For the 22
remaining industries, size standards would be maintained at their
current levels. Under Alternative Option 2, SBA would propose retaining
all size standards for all industries, given the uncertainty generated
by the ongoing COVID-19 pandemic. Below, SBA discusses and presents the
net impacts of each option.
Alternative Option 1: Consider Adopting All Calculated Size Standards
As discussed before, in this proposed rule, Alternative Option 1
would cause a substantial number of currently small businesses to lose
their small business status and hence to lose their access to Federal
small business assistance, including SBA's financial assistance in some
cases. Because we have discussed already the benefits and costs of
increasing 49 size standards, here we will emphasize the discussion on
the benefits and costs of decreasing 66 size standards.
The primary benefit of adopting Alternative Option 1 is that SBA's
procurement, management, technical and financial assistance resources
would be targeted to the most appropriate beneficiaries of such
programs according to the analytical results. Adopting the size
standards suggested by the analytical results would also promote
consistency with analytical results in SBA's exercise of its authority
to determine size standards.
As explained in the Size Standards Methodology White Paper, in
addition to adopting all results of the primary analysis, SBA evaluates
other relevant factors as needed such as the impact of the reductions
or increases of size standards on the distribution of contracts awarded
to small businesses, and may adopt different results with the intention
of mitigating potential negative impacts.
A. Benefits of Decreases to Size Standards
The most significant benefit to businesses from decreases to size
standards when SBA's analysis suggests such decreases, is that it may
help ensure that size standards are more reflective of latest industry
structure and that Federal small business assistance is more
effectively targeted to its intended beneficiaries. The adoption of
smaller size standards when the results support them diminishes the
risk of providing assistance to firms that are not small anymore.
Decreasing size standards may reduce the administrative costs of
the Government, because the risk of providing assistance to other than
small businesses may diminish when the size standards better reflect
the structure of the market. The risks of providing SBA's loans to
firms that are not in need of financial assistance will provide for a
better chance for smaller firms to benefit from the opportunities
available to them through the Federal Government. Although SBA did not
quantify the impact associated with this risk, SBA considers the
impacts associated with this risk to be small since the majority of
firms receiving financial assistance from SBA are below the calculated
size standards.
B. Costs of Decreases to Size Standards
Decreases to size standards would have a very minor impact on small
businesses applying for SBA's 7(a) and 504 loans because a vast
majority of such loans are issued to businesses that are far below the
reduced size standards. For example, based on the loan data for fiscal
years 2016-2018, SBA estimates that 67 of SBA's 7(a) and 504 loans,
totaling $38.0 million, could not be made to those small businesses
that would lose eligibility under the reduced size standards (before
[[Page 28032]]
mitigation). That represents a 1.2% decrease of the loan amounts
compared to the baseline. Table 13, below, shows these results by
sector. However, the actual impact could be much less as businesses
losing small business eligibility under the decreases to industry-based
size standards could still qualify for SBA's loans under the tangible
net worth and net income-based alternative size standard.
Businesses losing small business status would also be impacted in
terms of access to loans through the SBA's EIDL program. However, SBA
expects such impact to be minimal as only a small number of businesses
in those industries received such loans during fiscal years 2016-2018.
Additionally, the majority of those businesses were below the reduced
size standards. Since this program is contingent on the occurrence and
severity of a disaster in the future, SBA cannot make a meaningful
estimate of this impact. However, based on the historical trends of the
available EIDL data, SBA estimates that, on an annual basis, 5 EIDL
loans, totaling about $0.5 million, would be made unavailable to firms
that no longer qualify as small based on the industry size standard.
Small businesses becoming other than small if size standards were
decreased might lose the benefits of reduced fees, paperwork and
compliance requirements that are available to small businesses through
the Federal Government, but SBA has no data to quantify this impact.
However, if agencies determine that SBA's size standards do not
adequately serve their purposes, they can establish a different size
standard with an approval from SBA if they are required to use SBA's
size standards for their programs.
SBA may adopt mitigating measures to reduce the negative impact
under the assumptions of Option 1. SBA could adopt one or more of the
following three actions: 1. To accept decreases in size standards as
suggested by the analytical results; 2. to decrease size standards by a
smaller amount than the calculated values; and 3. to retain the size
standards at their current levels. For example, in response to the 2008
Financial Crisis, SBA adopted a general policy in the first 5-year
comprehensive size standards review to not lower any size standard
(except to exclude one or more dominant firms) even when the analytical
results suggested the size standard should be lowered. Currently,
because of the economic challenges presented by the COVID-19 pandemic
and the measures taken to protect public health, SBA has decided to
propose the same general policy of not lowering size standards in the
ongoing second 5-year comprehensive size standards review as well.
Nevertheless, the impact on the overall loan activity is likely to
be de minimus because SBA estimates that the majority of firms
currently eligible for its loan programs would continue to remain
eligible under the reduced size standards. SBA's regulations specify
that NAICS codes for the Wholesale and Retail Trade industries shall
not be used to classify Government acquisition for supplies (13 CFR
121.402(b)). As such, for purposes of federal contracting, the size
standard for all industries included in the Wholesale and Retail Trade
industries is 500 employees (13 CFR 121.406). Thus, SBA estimates that
any decreases to size standards as part of this rulemaking will not
impact the market for federal contracts.
Table 13--Impacts of Decreases to Size Standards Under Alternative Option 1
----------------------------------------------------------------------------------------------------------------
Sector 42 Sector 44-45 Total
----------------------------------------------------------------------------------------------------------------
No. of industries for which SBA considered decreasing 38 28 66
size standards (2012 Economic Census).................
Total current small businesses in industries for which 184,837 343,639 528,476
SBA considered decreasing size standards (2012
Economic Census)......................................
Estimated no. of firms losing small status for which 2,735 2,774 5,509
SBA considered decreasing size standards (2012
Economic Census)......................................
% of Firms losing small status relative to current 1.5 0.8 1.0
small businesses in industries for which SBA
considered decreasing size standards..................
Total no. of 7(a) and 504 loans to small businesses in 2,236 3,859 6,095
industries for which SBA considered decreasing size
standards (FY 2016-2018)..............................
Total amount of 7(a) and 504 loans to small businesses $1,300.2 $1,931.0 $3,231.2
in industries for which SBA considered decreasing size
standards ($ million) (FY 2016-2018)..................
Estimated no. of 7(a) and 504 loans not available to 34 33 67
firms that would have lost small business status......
Estimated 7(a) and 504 loan amount not available to $19.8 $18.2 $38.0
firms that would have lost small business status ($
million)..............................................
% decrease to 7(a) and 504 loan amount relative to the 1.5 0.9 1.2
total amount of 7(a) and 504 loans in industries for
which SBA considered decreasing size standards........
Total no. of EIDL loans to small businesses in 86 239 325
industries for which SBA considered decreasing size
standards (FY 2016-2018)..............................
Total amount of EIDL loans to small businesses in $10.0 $24.4 $34.4
industries for which SBA considered decreasing size
standards ($ million) (FY 2016-2018)..................
Estimated no. of EIDL loans not available to firms that 2 3 5
would have lost small business status.................
Estimated EIDL loan amount not available to firms that $0.23 $0.27 $0.50
would have lost small business status ($ million).....
% decrease to EIDL loan amount relative to the baseline 2.3 1.1 1.5
----------------------------------------------------------------------------------------------------------------
Totals may not sum due to rounding.
C. Transfer Impacts of Decreases to Size Standards
If the size standards were decreased under Alternative Option 1, it
may result in a redistribution of loans between the newly qualified
small businesses and large businesses and between the newly qualified
small businesses and small businesses under the current standards.
However, SBA estimates this impact to be de minimus. Moreover, SBA
estimates that this rule would not have an impact on Federal contract
dollars awarded to small businesses since SBA's regulations
[[Page 28033]]
specify that NAICS codes for the Wholesale and Retail Trade industries
shall not be used to classify Government acquisition for supplies.
While SBA cannot estimate with certainty the actual outcome of the
gains and losses among different groups of businesses from this
redistribution, it can identify several probable impacts. With a
smaller pool of small businesses under the decreases to size standards,
some Federal assistance to be otherwise awarded to small businesses may
be diverted to other uses or programs. However, since the total benefit
provided through this program is contingent on the availability of
funds and the occurrence and severity of a disaster in the future, SBA
cannot make a meaningful estimate of this impact.
D. Net Impact of Alternative Option 1
To estimate the net impacts of Alternative Option 1, SBA followed
the same methodology used to evaluate the impacts of the proposed size
standards (see Table 12 above). However, under Alternative Option 1,
SBA used the calculated size standards instead of the proposed ones to
determine the impacts of changes to current thresholds. The impact of
the increases of size standards were already shown in Table 12 above.
Table 13, above, and Table 14, Net Impacts of Size Standards Changes
under Alternative Option 1, below, present the impact of the decreases
of size standards and the net impact of adopting the calculated results
under Alternative Option 1, respectively.
Based on the 2012 Economic Census, SBA estimates that in 100
industries in NAICS Sectors 42 and 44-45 for which the analytical
results suggested to change size standards, about 3,625 firms (see
Table 14, below), would become other-than-small under Alternative One.
That represents about 0.4% of all firms classified as small under the
current size standards.
Based on the SBA's loan data for fiscal years 2016-2018, the total
number of 7(a) and 504 loans may decrease by 38 loans, and the loan
amounts by about $27.1 million. This represents a 0.5% decrease of the
loan amounts relative to the Group baseline.
Firms' participation under SBA's EIDL program will be affected as
well. Since the benefit provided through this program is contingent on
the occurrence and severity of a disaster in the future, SBA cannot
make a meaningful estimate of this impact. However, based on the
historical trends of the EIDL data, SBA estimates that the total number
of EIDL loans may decrease by about 2 loans, and the loan amount by
about $0.19 million. This represents a 0.3% decrease of the loan
amounts relative to the Group baseline. Table 14, below, provides these
results by NAICS sector.
Table 14--Net Impacts of Size Standards Changes Under Alternative Option 1
----------------------------------------------------------------------------------------------------------------
Sector 42 Sector 44-45 Total
----------------------------------------------------------------------------------------------------------------
No. of industries with proposed changes to size 52 63 115
standards.............................................
Total no. of small businesses under the current size 248,821 630,396 879,217
standards (2012 Economic Census)......................
Additional firms qualifying as small (2012 Economic -2,591 -1,079 -3,670
Census)...............................................
% of additional firms qualifying as small relative to -1.0 -0.2 -0.4
total current small businesses........................
Total no. of 7(a) and 504 loans to small businesses (FY 3,249 8,417 11,666
2016-2018)............................................
Total amount of 7(a) and 504 loans to small businesses $1,836.7 $3,692.9 $5,529.6
(FY 2016-2018)........................................
Estimated no. of additional 7(a) and 504 loans to newly -33 -5 -38
qualified small firms.................................
Estimated additional 7(a) and 504 loan amount to newly -$19.2 -$7.9 -$27.1
qualified small firms ($ million).....................
% increase to 7(a)and 504 loan amount relative to the -1.0 -0.2 -0.5
total amount of 7(a) and 504 loans to small businesses
Total no. of EIDL loans to small businesses (FY 2016- 137 530 667
2018).................................................
Total amount of EIDL loans to small businesses (FY 2016- $16.7 $46.6 $63.2
2018).................................................
Estimated no. of additional EIDL loans to newly -1 -1 -2
qualified small firms.................................
Estimated additional EIDL loan amount to newly -$0.08 -$0.12 -$0.19
qualified small firms ($ million).....................
% increase to EIDL loan amount relative to the total -0.5 -0.3 -0.3
amount of EIDL loans to small businesses..............
----------------------------------------------------------------------------------------------------------------
Totals may not sum due to rounding.
Alternative Option 2: To Retain All Current Size Standards
As discussed elsewhere in this rule, SBA considered retaining the
current levels of all size standards, despite the results of its
analytical data, due to the ongoing pandemic. SBA considered this
option because it would provide the opportunity to reassess the
economic situation once the economic recovery starts. Under this
option, SBA would be able to assess new data on economic indicators,
federal procurement, and SBA loans before making any changes to size
standards. When compared to the baseline, Alternative Option 2 has a
net impact of zero. As described previously, SBA believes the proposed
increases in size standards will generate positive net benefits. Thus,
SBA is not proposing Alternative Option 2.
Initial Regulatory Flexibility Analysis
According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601-
612, when an agency issues a rulemaking, it must prepare a regulatory
flexibility analysis to address the impact of the rule on small
entities.
This proposed rule, if adopted, may have a significant impact on a
substantial number of small businesses in the industries covered by
this proposed rule. As described above, this rule may affect small
businesses seeking financial assistance under SBA's 7(a), 504 and EIDL
Programs, and assistance under other Federal small business programs.
Immediately below, SBA sets forth an initial regulatory flexibility
analysis (IRFA) of this proposed rule addressing the following
questions: (1) What is the need for and objective of the rule?; (2)
What is SBA's description and estimate of the number of small
businesses to which the rule will apply?; (3) What are the projected
reporting, record keeping, and other compliance requirements of the
rule?; (4) What are the relevant Federal rules that may duplicate,
overlap, or conflict with the rule?; and (5) What alternatives will
allow the Agency to accomplish its regulatory objectives while
minimizing the impact on small businesses?
[[Page 28034]]
1. What is the need for and objective of the rule?
Changes in industry structure, technological changes, productivity
growth, mergers and acquisitions, and updated industry definitions have
changed the structure of many the industries covered by this proposed
rule. Such changes can be enough to support revisions to current size
standards for some industries. Based on the analysis of the latest data
available, SBA believes that the revised standards in this proposed
rule more appropriately reflect the size of businesses that need
Federal assistance. The 2010 Jobs Act also requires SBA to review all
size standards and make necessary adjustments to reflect market
conditions.
2. What is SBA's description and estimate of the number of small
businesses to which the rule will apply?
Based on data from the 2012 Economic Census, SBA estimates that
there are about 350,742 small firms covered by this rulemaking under
industries with proposed changes to size standards. If the proposed
rule is adopted in its present form, SBA estimates that an additional
1,839 businesses will be defined as small.
3. What are the projected reporting, record keeping and other
compliance requirements of the rule?
The proposed size standard changes impose no additional reporting
or record keeping requirements on small businesses. Changing size
standards alters the access to SBA's programs that assist small
businesses but does not impose a regulatory burden because size
standards neither regulate nor control business behavior. Moreover,
SBA's regulations specify that NAICS codes for the Wholesale Trade and
Retail Trade sectors shall not be used to classify Government
acquisition for supplies (13 CFR 121.402(b)). As such, SBA estimates
that there will be no additional costs as a result of this rule for
firms to update their entity registrations in the Federal Government's
System for Award Management (SAM).
4. What are the relevant Federal rules, which may duplicate, overlap or
conflict with the rule?
Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C.
632(a)(2)(c), Federal agencies must use SBA's size standards to define
a small business, unless specifically authorized by statute to do
otherwise. In 1995, SBA published in the Federal Register a list of
statutory and regulatory size standards that identified the application
of SBA's size standards as well as other size standards used by Federal
agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any
Federal rule that would duplicate or conflict with establishing size
standards.
However, the Small Business Act and SBA's regulations allow Federal
agencies to develop different size standards if they believe that SBA's
size standards are not appropriate for their programs, with the
approval of SBA's Administrator (13 CFR 121.903). The Regulatory
Flexibility Act authorizes an Agency to establish an alternative small
business definition, after consultation with the Office of Advocacy of
the U.S. Small Business Administration (5 U.S.C. 601(3)).
5. What alternatives will allow the Agency to accomplish its regulatory
objectives while minimizing the impact on small entities?
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance
programs. Other than varying size standards by industry and changing
the size measures, no practical alternative exists to the systems of
numerical size standards.
However, SBA considered two alternatives to its proposal to
increase 49 size standards and maintain 88 size standards at their
current levels. The first alternative SBA considered was adopting size
standards based solely on the analytical results. In other words, the
size standards of 49 industries for which the analytical results
suggest raising size standards would be raised. However, the size
standards of 66 industries for which the analytical results suggest
lowering size standards would be lowered. This would cause a
significant number of small businesses to lose their small business
status. Under the second alternative, in view of the COVID-19 pandemic,
SBA considered retaining all size standards at the current levels, even
though the analytical results may suggest increasing 49 size standards
and decreasing 66. Retaining all size standards at their current levels
would be more onerous for small businesses than the option of adopting
increases to size standards in 49 industries and retaining the current
size standards for the rest of the industries, because the net benefit
from adopting the proposal is greater than the net benefit of
maintaining all size standards at their current levels.
Executive Order 13563
Executive Order 13563 emphasizes the importance of quantifying both
costs and benefits, reducing costs, harmonizing rules, and promoting
flexibility. A description of the need for this regulatory action and
benefits and costs associated with this action, including possible
distributional impacts that relate to Executive Order 13563, is
included above in the Regulatory Impact Analysis under Executive Order
12866. Additionally, Executive Order 13563, section 6, calls for
retrospective analyses of existing rules.
The review of size standards in the industries covered by this
proposed rule is consistent with section 6 of Executive Order 13563 and
the 2010 Jobs Act, which requires SBA to review all size standards and
make necessary adjustments to reflect market conditions. Specifically,
the 2010 Jobs Act requires SBA to review at least one-third of all size
standards during every 18-month period from the date of its enactment
(September 27, 2010) and to review all size standards not less
frequently than once every 5 years, thereafter. SBA had already
launched a comprehensive review of size standards in 2007. In
accordance with the Jobs Act, SBA completed the comprehensive review of
the small business size standard for each industry, except those for
agricultural enterprises previously set by Congress, and made
appropriate adjustments to size standards for a number of industries to
reflect current Federal and industry market conditions. The first
comprehensive review was completed in 2016. Prior to 2007, the last
time SBA conducted a comprehensive review of all size standards was
during the late 1970s and early 1980s.
SBA issued a White Paper entitled ``Size Standards Methodology''
and published a notice in the April 11, 2019, edition of the Federal
Register (84 FR 14587) to advise the public that the document was
available for public review and comments. The ``Size Standards
Methodology'' White Paper explains how SBA establishes, reviews, and
modifies its receipts-based and employee-based small business size
standards. SBA gave appropriate consideration to all input,
suggestions, recommendations, and relevant information obtained from
industry groups, individual businesses, and Federal agencies in
developing size standards for those industries covered by this proposed
rule.
Executive Order 12988
This action meets applicable standards set forth in sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation,
[[Page 28035]]
eliminate ambiguity, and reduce burden. The action does not have
retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this
proposed rule will not have substantial, direct effects on the States,
on the relationship between the National Government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Therefore, SBA has determined that this proposed
rule has no federalism implications warranting preparation of a
federalism assessment.
Paperwork Reduction Act
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this rule will not impose any new reporting or
record keeping requirements.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Reporting and recordkeeping
requirements, Small businesses.
For the reasons set forth in the preamble, SBA proposes to amend 13
CFR part 121 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, and
694a(9); Pub. L. 116-136, Section 1114.
0
2. In Sec. 121.201, amend the table ``Small Business Size Standards by
NAICS Industry'' by revising entries ``423140,'' ``423330,''
``423460,'' ``423520,'' ``423620,'' ``423730,'' ``423860,'' ``423920,''
424110,'' ``424450,'' ``424590,'' ``424690,'' ``424710,'' ``425120,''
``441310,'' ``441320,'' ``442291,'' ``442299,'' ``443141,'' ``444130,''
``444210,'' ``444220,'' ``445291,'' ``445292,'' ``445299,'' ``445310,''
``446110,'' ``446130,'' ``446191,'' ``446199,'' ``447190,'' ``448110,''
``448150,'' ``448190,'' ``448310,'' ``448320,'' ``451110,'' ``451120,''
``451140,'' ``451211,'' ``451212,'' ``452311,'' ``453220,'' ``453310,''
``453910,'' ``453920,'' ``453998,'' ``454210,'' and ``454390'' to read
as follows:
Sec. 121.201 What size standards has SBA identified by North American
Industry Classification System codes?
* * * * *
Small Business Size Standards by Naics Industry
----------------------------------------------------------------------------------------------------------------
Size standards in Size standards in
NAICS NAICS U.S. industry title millions of number of
dollars employees
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Sector 42--Wholesale Trade
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Subsector 423--Merchant Wholesalers, Durable Goods
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
423140............................ Motor Vehicle Parts (Used) Merchant ................. 125
Wholesalers.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
423330............................ Roofing, Siding, and Insulation ................. 225
Material Merchant Wholesalers.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
423460............................ Ophthalmic Goods Merchant Wholesalers. ................. 175
* * * * * * *
----------------------------------------------------------------------------------------------------------------
423520............................ Coal and Other Mineral and Ore ................. 200
Merchant Wholesalers.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
423620............................ Household Appliances, Electric ................. 225
Housewares, and Consumer Electronics
Merchant Wholesalers.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
423730............................ Warm Air Heating and Air-Conditioning ................. 175
Equipment and Supplies Merchant
Wholesalers.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
423860............................ Transportation Equipment and Supplies ................. 175
(except Motor Vehicle) Merchant
Wholesalers.
[[Page 28036]]
* * * * * * *
----------------------------------------------------------------------------------------------------------------
423920............................ Toy and Hobby Goods and Supplies ................. 175
Merchant Wholesalers.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Subsector 424--Merchant Wholesalers, Nondurable Goods
----------------------------------------------------------------------------------------------------------------
424110............................ Printing and Writing Paper Merchant ................. 225
Wholesalers.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
424450............................ Confectionery Merchant Wholesalers.... ................. 225
* * * * * * *
----------------------------------------------------------------------------------------------------------------
424590............................ Other Farm Product Raw Material ................. 175
Merchant Wholesalers.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
424690............................ Other Chemical and Allied Products ................. 175
Merchant Wholesalers.
424710............................ Petroleum Bulk Stations and Terminals. ................. 225
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Subsector 425--Wholesale Electronic Markets and Agents and Brokers
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
425120............................ Wholesale Trade Agents and Brokers.... ................. 125
----------------------------------------------------------------------------------------------------------------
Sector 44-45--Retail Trade
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Subsector 441--Motor Vehicle and Parts Dealers
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
441310............................ Automotive Parts and Accessories 25.0 .................
Stores.
441320............................ Tire Dealers.......................... 22.5 .................
----------------------------------------------------------------------------------------------------------------
Subsector 442--Furniture and Home Furnishings Stores
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
442291............................ Window Treatment Stores............... 10.0 .................
442299............................ All Other Home Furnishings Stores..... 29.5 .................
----------------------------------------------------------------------------------------------------------------
Subsector 443--Electronics and Appliance Stores
----------------------------------------------------------------------------------------------------------------
443141............................ Household Appliance Stores............ 19.5 .................
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Subsector 444--Building Material and Garden Equipment and Supplies Dealers
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
444130............................ Hardware Stores....................... 14.5 .................
* * * * * * *
444210............................ Outdoor Power Equipment Stores........ 8.5 .................
444220............................ Nursery, Garden Center, and Farm 19.0 .................
Supply Stores.
----------------------------------------------------------------------------------------------------------------
[[Page 28037]]
Subsector 445--Food and Beverage Stores
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
445291............................ Baked Goods Stores.................... 14.0 .................
445292............................ Confectionery and Nut Stores.......... 17.0 .................
445299............................ All Other Specialty Food Stores....... 9.0 .................
445310............................ Beer, Wine, and Liquor Stores......... 9.0 .................
----------------------------------------------------------------------------------------------------------------
Subsector 446--Health and Personal Care Stores
----------------------------------------------------------------------------------------------------------------
446110............................ Pharmacies and Drug Stores............ 33.0 .................
* * * * * * *
446130............................ Optical Goods Stores.................. 26.0 .................
446191............................ Food (Health) Supplement Stores....... 20.0 .................
446199............................ All Other Health and Personal Care 8.5 .................
Stores.
----------------------------------------------------------------------------------------------------------------
Subsector 447--Gasoline Stations
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
447190............................ Other Gasoline Stations............... 29.5 .................
----------------------------------------------------------------------------------------------------------------
Subsector 448--Clothing and Clothing Accessories Stores
----------------------------------------------------------------------------------------------------------------
448110............................ Men's Clothing Stores................. 22.5 .................
----------------------------------------------------------------------------------------------------------------
* * * * * * *
448150............................ Clothing Accessories Stores........... 29.5 .................
448190............................ Other Clothing Stores................. 27.5 .................
* * * * * * *
448310............................ Jewelry Stores........................ 18.0 .................
448320............................ Luggage and Leather Goods Stores...... 33.5 .................
----------------------------------------------------------------------------------------------------------------
Subsector 451--Sporting Good, Hobby, Book and Music Stores
----------------------------------------------------------------------------------------------------------------
451110............................ Sporting Goods Stores................. 23.5 .................
----------------------------------------------------------------------------------------------------------------
451120............................ Hobby, Toy, and Game Stores........... 31.0 .................
----------------------------------------------------------------------------------------------------------------
* * * * * * *
451140............................ Musical Instrument and Supplies Stores 20.0 .................
451211............................ Book Stores........................... 31.5 .................
451212............................ News Dealers and Newsstands........... 20.0 .................
----------------------------------------------------------------------------------------------------------------
Subsector 452--General Merchandise Stores
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
452311............................ Warehouse Clubs and Supercenters...... 41.5 .................
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
* * * * * * *
Subsector 453--Miscellaneous Store Retailers
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
453220............................ Gift, Novelty, and Souvenir Stores.... 12.0 .................
453310............................ Used Merchandise Stores............... 12.5 .................
453910............................ Pet and Pet Supplies Stores........... 28.0 .................
453920............................ Art Dealers........................... 14.5 .................
[[Page 28038]]
* * * * * * *
453998............................ All Other Miscellaneous Store 10.0 .................
Retailers (except Tobacco Stores).
----------------------------------------------------------------------------------------------------------------
Subsector 454--Nonstore Retailers
----------------------------------------------------------------------------------------------------------------
* * * * * * *
----------------------------------------------------------------------------------------------------------------
454210............................ Vending Machine Operators............. 18.5 .................
* * * * * * *
454390............................ Other Direct Selling Establishments... 13.0 .................
* * * * * * *
----------------------------------------------------------------------------------------------------------------
Dated: May 13, 2021.
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2021-10487 Filed 5-24-21; 8:45 am]
BILLING CODE 8026-03-P