[Federal Register Volume 86, Number 209 (Tuesday, November 2, 2021)]
[Proposed Rules]
[Pages 60396-60416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23439]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AH26


Small Business Size Standards: Calculation of Number of Employees 
for All Programs and of Average Annual Receipts in the Business Loan, 
Disaster Loan, and Small Business Investment Company Programs

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is 
proposing to use a 24-month average to calculate a business concern's 
number of employees for eligibility purposes in all of SBA's programs. 
SBA also proposes to permit business concerns in its Business Loan, 
Disaster Loan, and Small Business Investment Company (SBIC) Programs to 
use a 5-year averaging period, in addition to the existing 3-year 
averaging period, for the purposes of calculating annual average 
receipts. These proposed changes will allow larger small businesses to 
retain their small business size status for longer, and some mid-sized 
businesses to regain small business status.

DATES: SBA must receive comments to this proposed rule on or before 
December 2, 2021.

ADDRESSES: Identify your comments by RIN 3245-AH26 and submit them by 
one of the following methods: (1) Federal eRulemaking Portal: https://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, U.S. Small Business Administration, 409 Third Street 
SW, Mail Code 6530, Washington, DC 20416.
    SBA will post all comments to this proposed rule on https://www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at https://www.regulations.gov, you must submit such information to Khem R. 
Sharma, Ph.D., Chief, Office of Size Standards, U.S. Small Business 
Administration, 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 withhold this information as confidential. SBA will review your 
information and determine whether it will make it public.

FOR FURTHER INFORMATION CONTACT: Khem R. Sharma, Ph.D., Chief, Office 
of Size Standards, (202) 205-6618 or [email protected].

SUPPLEMENTARY INFORMATION:

I. Background Information

    This proposal seeks to implement two legislative enactments that 
affect how SBA calculates a business concern's size to determine 
whether the business qualifies as small for SBA's contracting, loan,\1\ 
and assistance programs. First, section 863 of the National Defense 
Authorization Act for Fiscal Year 2021, Public Law 116-283 (``NDAA''), 
changed the averaging period for SBA's employee-based size standards 
from 12 months to 24 months. Second, the Small Business Runway 
Extension Act of 2018, Public Law 115-324 (``SBREA'') amended section 
3(a)(2)(C)(ii)(II) of the Small Business Act, 15 U.S.C. 
632(a)(2)(C)(ii)(II), to modify the requirements for proposed small 
business size standards prescribed by an agency without separate 
statutory authority to issue size standards.
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    \1\ These changes do not apply to the Paycheck Protection 
Program because the authority for that program expired on June 30, 
2021.
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A. Changes to Calculation of Number of Employees

    Section 863 of the NDAA amended two provisions of section 3(a)(2) 
of the Small Business Act, which sets forth requirements for an agency 
that would prescribe a proposed size standard. First, the NDAA provides 
that those requirements apply to the SBA when the agency acts pursuant 
to the authority in section 3(a)(2)(A) for SBA to specify small 
business definitions or size standards. Second, the NDAA amends section 
3(a)(2)(C)(ii)(I) such that a proposed size standard for a 
manufacturing concern must provide for determining the size of the 
concern based on the employment during each of the concern's pay 
periods for the preceding 24 months. Previously, the statute specified 
the use of a 12-month period.
    SBA proposes to implement the change to a 24-month period by 
amending 13 CFR 121.106. Section 121.106 currently provides that the 
size

[[Page 60397]]

of a business concern under an employee-based size standard is 
calculated by averaging the concern's number of employees for each pay 
period in the preceding completed 12 calendar months. Part-time and 
temporary employees count as full-time employees, and the concern 
aggregates the employees of its domestic and foreign affiliates. SBA 
proposes to change the 12-month period in Sec.  121.106 to a 24-month 
period. As a result, a concern would average its employees over all pay 
periods in the preceding completed 24 months. If it has not been in 
business for 24 months, the concern would average its number of 
employees for each pay period during which it has been in business.
    This change to Sec.  121.106 would apply to all employee-based size 
standards. Those size standards predominantly apply to manufacturers 
but not exclusively. Firms also use SBA's employee-based size standards 
in certain mining, utilities, transportation, publishing, 
telecommunications, insurance, research and development, and 
environmental remediation industries. Significant to government 
contracting, nonmanufacturers also qualify for small business status 
for government procurement using an employee-based size standard. 
Though nonmanufacturers and the nonmanufacturing industries are not 
covered by the NDAA's change to proposed size standards, SBA believes 
that it would be unworkable to use a 24-month average for manufacturing 
industries but retain a 12-month average for other industries with 
employee-based size standards. Firms may participate in multiple 
industries, and it is burdensome to use different averaging periods for 
different industries with employee-based size standards. SBA seeks 
comment on whether to include nonmanufacturers and nonmanufacturing 
industries in the change to a 24-month average for employee-based 
standards.

B. Changes to Calculation of Average Annual Receipts

    In a final rule published December 5, 2019 (84 FR 66561), SBA 
implemented the SBREA by making changes to its receipts-based size 
standards for all SBA programs except the Business Loan and Disaster 
Loan Programs. The excepted programs include: (i) The 7(a) Loan 
Program, the Microloan Program, the Intermediary Lending Pilot Program, 
and the Development Company Loan Program (collectively, the ``Business 
Loan Programs''); and (ii) the Physical Disaster Business Loans, 
Economic Injury Disaster Loans, Military Reservist Economic Injury 
Disaster Loans, and Immediate Disaster Assistance Program loans 
(collectively, the ``Disaster Loan Programs'').
    This proposed rule would extend the changes to SBA's receipts-based 
size standards to the Business Loan and Disaster Loan Programs. 
Currently, applicants in those loan programs must calculate their 
average annual receipts using a 3-year average. Under this proposal, 
applicants may choose to use either a 3-year average or a 5-year 
average. Thus, an applicant might be eligible for assistance if its 5-
year average is equal to or less than the size standard, even if it 
would otherwise be ineligible because its 3-year average exceeds that 
size standard.
    SBA also proposes to use the same treatment in SBA's SBIC program 
by SBIC applicants to choose to use either a 3-year average or a 5-year 
average. Recipients of SBIC assistance were not specifically identified 
in the December 2019 rulemaking that applied to all programs. 
Therefore, interested parties likely were not attuned to the effect 
that the December 2019 final rule might have on SBIC participants. This 
proposed rule invites SBICs and their portfolio companies to comment on 
SBA's proposed changes to the size rules for that program.
    Like the changes in the December 2019 final rule, these proposed 
changes will expand the eligibility for SBA assistance to larger small 
businesses and some mid-sized businesses. An advanced small business 
may be able to retain its small business status for a longer period, if 
it is close to exceeding the size standard. A mid-sized business may be 
able to regain its small business status, if it would otherwise have 
exceeded the size standard.
    These proposed changes differ in some respects from what SBA 
implemented in the earlier final rule. In particular, this proposal 
does not use the ``transition period'' that SBA included with the 
December 2019 final rule. That rule applied size-standard changes to 
the SBA government contracting programs and other non-loan programs. 
Starting on January 6, 2020, those programs began permitting 
participants to elect whether to use a 3-year average or a 5-year 
average to calculate average annual receipts. That election will end on 
January 6, 2022, however, marking the end of the transition period for 
those changes. After January 6, 2022, all government contractors will 
use a 5-year average for average annual receipts.
    Conversely, the changes here allow for an election but do not have 
a transition period. SBA intends to make the election available 
indefinitely. This recognizes the differences between the loan programs 
and the government contracting programs, where firms are competing 
against one another. Where there is competition, businesses should be 
competing on an equal basis; therefore, the December 2019 final rule 
provided that, after the end of the transition period, government 
contractors all would use a 5-year averaging period. By contrast, in 
the loan programs, loan applicants are evaluated on an applicant-by-
applicant basis. It is thus unnecessary to ensure that applicants use 
the same size criteria. As a result, SBA does not believe it is 
necessary to limit the election in the loan programs to a two-year 
period.
    In soliciting comment for the December 2019 final rule, SBA 
received some comments from participants in the Business Loan programs. 
SBA has considered those comments in preparing this proposed rule.
    Prior commenters asked that SBA use the 5-year average only for 
calculating average annual receipts, not for other loan application 
purposes. Accordingly, this proposal only authorizes the 3-or-5-year 
election for the calculation of receipts, not for any other purpose. 
Other calculations remain unchanged.
    Prior commenters also asked that SBA authorize the Business Loan 
Programs to continue to use a 3-year average. Accordingly, this 
proposal uses an election, not a mandate. For the most part, lenders 
and applicants will continue to be able to use a 3-year average. The 
only exception will be where the applicant would not qualify as a small 
business using a 3-year average. In that case, the applicant may use a 
5-year average if that would qualify the applicant as small. The 
applicant also might be able to qualify for loan assistance using the 
alternative size standard in section 3(a)(5)(B) of the Small Business 
Act.

II. Section-by-Section Analysis

A. Section 121.104

    In paragraphs (c)(1), (c)(2), and (c)(3), SBA proposes to add the 
SBIC program to the list of programs that are excepted from SBA's 
current rule on calculating average annual receipts.
    In paragraph (c)(4), SBA proposes to amend the calculation of 
average annual receipts for the Business Loan, Disaster Loan, and SBIC 
Programs. A business in those programs may calculate its receipts using 
either a 3-year average or a 5-year average for the purposes of 
determining its size under a receipts-based size standard. This change 
does

[[Page 60398]]

not affect the calculation of any other figures in SBA's programs. In 
particular, alternative size standards are not affected by this change.

B. Section 121.106

    In paragraphs (b)(1) and (b)(3), SBA proposes to amend the current 
12-month averaging period to a 24-month averaging period. Businesses 
that have been in existence for more than 24 months would calculate 
their number of employees by averaging the number of employees for each 
pay period for the preceding completed 24 months. Businesses that have 
been in existence for fewer than 24 months would average their number 
of employees for each pay period during their existence.

C. Section 121.903

    In paragraph (a)(1)(i), SBA proposes to amend the averaging period 
for size standards proposed by other agencies from a 12-month period to 
a 24-month averaging period.

III. Request for Comments

    SBA invites comments, input, or suggestions from interested parties 
on its proposal to change the 12-month averaging period for employee-
based size standards to a 24-month averaging period.
    SBA also invites comments, input, or suggestions from interested 
parties on its proposal to permit businesses in the Business Loan, 
Disaster Loan, and SBIC programs to use either a 3-year average or a 5-
year average for calculating average annual receipts for the purposes 
of qualifying as a small business. The comments should address the 
following specific issues pertaining to the SBA's proposal:
    1. SBA invites input on its proposal to allow for a 3-or-5-year 
election indefinitely, rather than using a transition period that would 
end the election on a specified date.
    2. SBA invites input on the effects that this proposal would have 
on applicants and lenders in the Business Loan Program.
    3. SBA invites input on the effects that this proposal would have 
on SBICs.
    4. SBA invites input on the effects that this proposal would have 
on the Disaster Loan Program.

Compliance With Executive Orders 12866, 12988, 13132, and 13563, the 
Congressional Review Act (5 U.S.C. 801-808), the Regulatory Flexibility 
Act (5 U.S.C. 601-612), 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. Accordingly, below, SBA provides a benefit-cost 
analysis of this proposed rule, including: (1) A statement of the need 
for the proposed action, and (2) an evaluation of the benefits and 
costs--both quantitative and qualitative--of this regulatory action.
Congressional Review Act
    OIRA has determined that this is not a major rule under 5 U.S.C. 
804(2).
    Subtitle E of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (codified at 5 U.S.C. 801-808), also known as the 
Congressional Review Act or CRA, generally provides that before a rule 
may take effect, the agency promulgating the rule must submit a rule 
report, which includes a copy of the rule, to each House of the 
Congress and to the Comptroller General of the United States. SBA will 
submit a report containing this rule and other required information to 
the U.S. Senate, the U.S. House of Representatives, and the Comptroller 
General of the United States. A major rule under the CRA cannot take 
effect until 60 days after it is published in the Federal Register. 
OIRA has determined that this rule is not a ``major rule'' as defined 
by 5 U.S.C. 804(2).
Regulatory Impact Analysis
A. Benefit-Cost Analysis
1. What is the need for this regulatory action?
    As stated elsewhere, the Small Business Act delegates to SBA's 
Administrator the responsibility for establishing small business size 
definitions (usually referred to as ``size standards''). First, Public 
Law 116-283 changed the averaging period for SBA's employee-based size 
standards from 12 months to 24 months. Second, in 2018, Public Law 115-
324 modified the requirements for proposed small business size 
standards prescribed by an agency without separate statutory authority 
to issue size standards. Specifically, Public Law 115-324 changed the 
averaging period for receipts-based size standards for services 
industries from 3 years to 5 years.
    The need of this proposed rule is to carry out the intent of Public 
Law 116-283 and Public Law 115-324, and to ensure consistency in the 
calculation of average number of employees and average annual receipts 
for size standards across the Federal Government. In addition to the 
averaging requirements, size standards prescribed under section 
3(a)(2)(C)(ii) of the Small Business Act must meet two other 
requirements: (1) Be proposed with an opportunity for public notice and 
comment, and (2) be approved by the Administrator. Neither Public Law 
116-283 nor Public Law 115-324 repeals these 2 requirements, and this 
proposed rule satisfies these requirements.
    SBA's mission is to aid and assist small businesses through a 
variety of financial, procurement, business development and counseling, 
and disaster assistance programs. This regulatory action promotes the 
Administration's goals and objectives and meets the SBA's statutory 
responsibility to implement a new law impacting size definitions for 
small businesses. One of SBA's goals in support of promoting the 
Administration's objectives is to help small businesses succeed through 
access to capital, Federal Government contracts and purchases, and 
management, technical and disaster assistance.
2. What are the potential effects of this regulatory action?
i. Potential Effects of Changing the Calculation of Employees
    Changing the periods for calculating average number of employees 
from 12 months to 24 months may enable some mid-size businesses that 
have just exceeded size standards to regain small business status. 
Similarly, it could also allow some advanced and larger small 
businesses about to exceed size standards to retain their small status 
for a longer period. However, it could also result in some advanced 
small businesses having the 24-months employee average that happens to 
be higher than the 12-month employee average, thus ejecting them out of 
their small business status sooner. Detailed impacts of the proposed 
change are discussed below.
    It is difficult to determine the actual number of small and mid-
size businesses that would be impacted by Public Law 116-283 and this 
regulatory action because there is no data on businesses' employment by 
month or by pay period. The employment data from the Economic Census 
special tabulation are only available once every 5 years. Similarly, 
the System for Award Management (SAM) only records the data on the 
concern's average number of employees for each pay period in the 
preceding completed 12 calendar months, but not their employee counts 
for each pay period or each month. For example, the 12-month average 
employee data for January 2020 is an

[[Page 60399]]

average of number of employees for each pay period during preceding 
completed 12 calendar months (i.e., January 2019 to December 2019). 
Similarly, the 24-month average employee value for January 2020 is an 
average of number of employees for each pay period during preceding 
completed 24 calendar months (i.e., January 2018 to December 2019).
    Given the lack of employment data for each pay period or each 
month, SBA approximates a firm's 24-month average number of employees 
for January 2020 as follows:
[GRAPHIC] [TIFF OMITTED] TP02NO21.000

    To estimate the 24-month employee average using the above formula, 
SBA analyzed the 2019 SAM extracts (as of September 1, 2019) and 2018 
SAM extracts (as of September 1, 2018). The 24-month average employee 
formula would only work for businesses that were present in both 2018 
and 2019 SAM extracts. One challenge was that some businesses found in 
2019 SAM could not be found in 2018 SAM and vice versa. Excluding 
entities registered in SAM for purposes other than government 
contracting and entities ineligible for small business consideration 
(such as foreign governments and state-controlled institutions of 
higher learning), there were a total of 152,450 unique business 
concerns in 2019 SAM subject to at least one employee-based size 
standard. Of these concerns, 131,295 (or about 86.1 percent) were 
``small'' in all North American Industry Classification System (NAICS) 
industries, 2,663 (or 1.7 percent) were ``small'' in some industries 
and ``not small'' in other industries, and 18,492 (or 12.1 percent) 
were ``not small'' in any industry subject to an employee-based size 
standard.
    Excluding entities with ``null'' or ``zero'' employee values, 
128,599 firms (or about 84.4 percent) appeared both in 2019 SAM and in 
2018 SAM and were included in the 24-month average employee 
approximation and calculation of number of businesses impacted. Of 
those 128,599 matched firms subject to an employee-based size standard, 
108,541 (or about 84.4 percent) were ``small'' in all NAICS industries, 
2,526 (or 2.0 percent) were ``small'' in some industries and other than 
small (``not small'') in other industries, and 17,532 (or about 13.6 
percent) were ``not small'' in any industry. In other words, 133,958 
(or 87.9 percent) of 152,450 total concerns in SAM 2019 and 111,067 (or 
86.4 percent) of 128,599 total matched firms were small in at least one 
NAICS industry with an employee-based size standard. These results are 
summarized in Table 1, ``Size Status of Businesses in Industries 
Subject to Employee-Based Size Standards,'' below.

                                Table 1--Size Status of Businesses in Industries Subject to Employee-Based Size Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Total firms in 2019 SAM       Firms in both 2018 SAM and
                                                          subject to least one employee-        2019 SAM (matched)
                                                                based size standard      --------------------------------                    Total to
                       Size status                       --------------------------------                                    % matched     matched ratio
                                                             Number of                       Number of           %                               *
                                                               firms             %             firms
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small in at least one industry..........................         133,958            87.9         111,067            86.4            82.9           1.206
Small in all industries.................................         131,295            86.1         108,541            84.4            82.7           1.210
Small in some and not small in others...................           2,663             1.7           2,526             2.0            94.9           1.054
Large in all industries.................................          18,492            12.1          17,532            13.6            94.8           1.055
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................         152,450           100.0         128,599           100.0            84.4           1.185
--------------------------------------------------------------------------------------------------------------------------------------------------------

    According to Table 2, ``Distribution of Business Concerns Subject 
to Employee-Based Size Standards by Number of NAICS Codes,'' below, the 
distribution of firms by the number of NAICS codes in the matched data 
is very similar to that for the overall 2019 SAM data. About 45 percent 
of firms were in only one NAICS code that has an employee-based size 
standard, about 40 percent in 2-5 NAICS codes, about 9 percent in 6-10 
NAICS codes, and about 5 percent in more than 10 NAICS codes. In other 
words, 55 percent of firms were in multiple NAICS codes with employee-
based size standards. Thus, it is quite possible that the proposed 
change may impact a firm's small business status in multiple 
industries. For purposes of this analysis, an impacted firm is defined 
as one that would be impacted by the change in terms of gaining, 
regaining, extending, or losing small business status in at least one 
industry with an employee-based size standard.

[[Page 60400]]



  Table 2--Distribution of Business Concerns Subject to Employee-Based Size Standards by Number of NAICS Codes
----------------------------------------------------------------------------------------------------------------
                                                   Total firms in 2019 SAM with   Matched firms between 2019 and
                                                    at least one employee-based              2018 SAM
              Number of NAICS codes                         NAICS code           -------------------------------
                                                 --------------------------------
                                                       Count             %             Count             %
----------------------------------------------------------------------------------------------------------------
1 NAICS code....................................          70,200            46.0          57,498            44.7
2 to 5 NAICS codes..............................          61,266            40.2          52,599            40.9
6 to 10 NAICS codes.............................          13,540             8.9          11,798             9.2
>10 NAICS codes.................................           7,444             4.9           6,704             5.2
                                                 ---------------------------------------------------------------
    Total.......................................         152,450           100.0         128,599           100.0
----------------------------------------------------------------------------------------------------------------
Note: A business concern is defined in terms of a unique local (vendor) DUNS number.

    A central premise of Public Law 116-283 is that a 24-month employee 
average (as opposed to a 12-month employee average) would enable some 
mid-size businesses who have recently exceeded the size standard to 
regain small business status and some advanced small businesses close 
to exceeding the size standard to retain their small business status 
for a longer period. However, this premise would only hold true when 
businesses' monthly employees are rising. When businesses' monthly 
employees are declining, due to economic downturns or other factors, 
the 24-month employee average could be higher than the 12-month 
employee average, thereby causing small businesses close to their size 
standards based on the 12-month average to lose their small business 
status sooner. In some cases where the 24-month employee average could 
be higher than the size standard, thereby forcing small businesses to 
lose their small status immediately when the longer 24-month averaging 
period becomes effective. Additionally, such businesses with declining 
employees would have to wait longer to regain their small business 
status.
ii. Potential Effects of Changing the Calculation of Receipts
    Changing the periods for calculating average annual receipts from 3 
years to 5 years, pursuant to Public Law 115-324, may enable some mid-
size businesses that have just exceeded size standards to regain small 
business status. Similarly, it could also allow some advanced and 
larger small businesses about to exceed size standards to retain their 
small business status for a longer period. However, it could also 
result in some advanced small businesses having a 5-year receipts 
average that happens to be higher than the 3-year receipts average, 
thus ejecting them out of their small business status sooner. To 
mitigate this negative impact, SBA proposes to allow applicants to its 
Business Loan, Disaster Loan, and SBIC Programs to choose either a 3-
year average or a 5-year average. Thus, an applicant might be eligible 
for assistance if its 5-year average is equal to or less than the size 
standard, even if it would otherwise be ineligible under the 3-year 
average. Detailed impacts of the proposed change are discussed below.
    It is difficult to determine the actual number of small and mid-
size businesses that would be impacted by Public Law 115-324 and this 
regulatory action because there is no annual data on receipts of 
businesses. The annual receipts data from the Economic Census special 
tabulation are only available once every 5 years. Similarly, the System 
for Award Management (SAM) only records the data on 3-year average 
annual receipts of businesses over their 3 preceding fiscal years, but 
not their annual receipts for each fiscal year. For example, the 
receipts data for year 2019 is an average of annual receipts for 2018, 
2017, and 2016. Similarly, the receipts data for 2018 is an average of 
annual receipts for 2017, 2016, and 2015, and so on. A 5-year receipts 
average for 2019 would be an average of annual receipts for 2018, 2017, 
2016, 2015, and 2014.
    Given the lack of annual receipts for each year, SBA approximated a 
firm's 5-year average annual revenue for 2019 as follows:

[[Page 60401]]

[GRAPHIC] [TIFF OMITTED] TP02NO21.001

    This result may slightly underestimate the 5-year revenue average 
when annual revenues are rising (i.e., 2015 revenue >2014 revenue >2013 
revenue) and overestimate it if annual revenues are declining (i.e., 
2015 revenue <2014 revenue <2013 revenue).
    To estimate the 5-year receipts average for 2019 using the above 
formula, SBA analyzed the 2019 SAM extracts (as of September 1, 2019) 
and 2016 SAM extracts (as of September 1, 2016). The above 5-year 
average annual receipts formula would only work for businesses that 
were present in both 2016 and 2018 SAM extracts. One challenge was that 
some businesses found in 2019 SAM could not be found in 2016 SAM and 
vice versa. Excluding entities registered in SAM for purposes other 
than government contracting and entities ineligible for small business 
consideration (such as foreign governments and state-controlled 
institutions of higher learning), there were a total of 334,990 unique 
business concerns in 2019 SAM subject to at least one receipts-based 
size standard. Of these concerns, 282,671 (or about 84.4 percent) were 
``small'' in all North American Industry Classification System (NAICS) 
industries, 9,783 (or 2.9 percent) were ``small'' in some industries 
and ``not small'' in other industries, and 42,536 (or 12.7 percent) 
were ``not small'' in any industry.
    Excluding entities with ``null'' or ``zero'' receipts values, 
192,295 firms (or about 57.4 percent) appeared both in 2019 SAM and in 
2016 SAM and were included in the 5-year average annual receipts 
approximation and calculation of number of businesses impacted. Of 
those 192,295 matched firms subject to a receipts-based size standard, 
152,040 (or about 79 percent) were ``small'' in all NAICS industries, 
8,081 (or 4.2 percent) were ``small'' in some industries and other than 
small (``not small'') in other industries, and 32,174 (or about 16.7 
percent) were ``not small'' in any industry. In other words, 292,454 
(or 87.3 percent) of 334,990 total concerns in SAM 2019 and 160,121 (or 
83.3 percent) of 192,295 total matched firms were small in at least one 
NAICS industry with a receipts-based size standard. These results are 
summarized in Table 3, ``Size Status of Businesses in Industries 
Subject to Receipts-Based Size Standards,'' below.

                                Table 3--Size Status of Businesses in Industries Subject to Receipts-Based Size Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Total firms in 2019 SAM       Firms in both 2016 SAM and
                                                          subject to least one receipts-        2019 SAM (matched)
                                                                  based standard         --------------------------------                    Total to
                       Size status                       --------------------------------                                    % Matched     matched ratio
                                                             Number of                       Number of           %                               *
                                                               firms             %             firms
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small in at least one industry..........................         292,454            87.3         160,121            83.3            54.8           1.826
Small in all industries.................................         282,671            84.4         152,040            79.1            53.8           1.859
Small in some and not small in others...................           9,783             2.9           8,081             4.2            82.6           1.211
Large in all industries.................................          42,536            12.7          32,174            16.7            75.6           1.322
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................         334,990           100.0         192,295           100.0            57.4           1.742
--------------------------------------------------------------------------------------------------------------------------------------------------------
* To be used to translate the results from the matched data to overall 2019 SAM data.

    According to Table 4, ``Distribution of Business Concerns Subject 
to Receipts-Based Size Standards by Number of NAICS Codes,'' below, the 
distribution of firms by the number of NAICS codes in the matched data 
is very similar to that for the overall 2019 SAM data. About 41-43 
percent of firms were in only one NAICS code that has a receipts-based 
size standard, about 35 percent in 2-5 NAICS codes, about 12 percent in 
6-10 NAICS codes, and about 8-10 percent in more than 10 NAICS codes. 
In other words, 57-59 percent of firms were in multiple NAICS codes 
with receipts-based size standards. Thus, it is quite possible that the 
proposed change may impact a firm's

[[Page 60402]]

small business status in multiple industries. For purposes of this 
analysis, an impacted firm is defined as one that would be impacted by 
the change in terms of gaining, regaining, extending, or losing small 
business status in at least one industry with a receipts-based size 
standard.

  Table 4--Distribution of Business Concerns Subject to Receipts-Based Size Standards by Number of NAICS Codes
----------------------------------------------------------------------------------------------------------------
                                                   Total firms in 2019 SAM with   Matched firms between 2019 and
                                                    at least one receipts-based              2016 SAM
              Number of NAICS codes                         NAICS code           -------------------------------
                                                 --------------------------------
                                                       Count             %             Count             %
----------------------------------------------------------------------------------------------------------------
1 NAICS code....................................         145,267            43.4          79,701            41.4
2 to 5 NAICS codes..............................         120,078            35.8          68,168            35.4
6 to 10 NAICS codes.............................          40,595            12.1          24,461            12.7
>10 NAICS codes.................................          29,050             8.7          19,965            10.4
                                                 ---------------------------------------------------------------
    Total.......................................         334,990           100.0         192,295           100.0
----------------------------------------------------------------------------------------------------------------
Note: A business concern is defined in terms of a unique local (vendor) DUNS number.

    A central premise of Public Law 115-324 is that a 5-year annual 
receipts average (as opposed to a 3-year annual receipts average) would 
enable some mid-size businesses who have recently exceeded the size 
standard to regain small business status and some advanced small 
businesses close to exceeding the size standard to retain their small 
business status for a longer period. However, this premise would only 
hold true when businesses' annual revenues are rising. When businesses' 
annual revenues are declining, due to economic downturns or other 
factors, the 5-year annual receipts average could be higher than the 3-
year annual receipts average, thereby causing small businesses close to 
their size standards to lose their small business status sooner. To 
mitigate such negative impacts on small businesses, SBA proposes, in 
consideration of public comments on the prior proposed rule and the 
results from its own analysis, to permit businesses in the Business 
Loan, Disaster Loan, and SBIC Programs to use either a 3-year average 
or a 5-year average for calculating average annual receipts for the 
purposes of qualifying as a small business.
B. Impacts on Businesses From Proposed Changes in Calculation of 
Employees and Receipts for Size Standards
1. Impacts on Businesses From Changing the Averaging Period for 
Employees From 12 Months to 24 Months
    By comparing the approximated 24-month employee average with the 
current employee-based size standard for each of the 128,599 matched 
business concerns in each NAICS code subject to an employee-based size 
standard, SBA identifies the following 4 possible impacts from changing 
the averaging period for employees from 12 months to 24 months:
    i. The number of mid-size businesses that have exceeded the size 
standard and would regain small business status in at least one NAICS 
industry with an employee-based size standard (i.e., 12-month average > 
size standard >= 24-month average)--expansive impact;
    ii. The number of advanced small businesses within 10 percent below 
the size standard that would have their small business status extended 
for a longer period in at least one NAICS industry with an employee-
based standard (24-month average < 12-month average <= size standard 
and 0.9*size standard < 12-month average <= size standard)--expansive 
impact;
    iii. The number of currently small businesses that would lose their 
small business status in at least one NAICS industry subjected to an 
employee-based size standard (i.e., 12-month average <= size standard < 
24-month average)--contractive impact; and
    iv. The number of advanced small businesses within 10 percent below 
the size standard that would have their small status shortened in at 
least one NAICS industry subject to an employee-based standard (12-
month average < 24-month average <= size standard and 0.9*size standard 
< 12-month average <= size standard)--contractive impact.
    In this proposed rule, SBA is changing the period for calculation 
of average employees for all of its employee-based size standards from 
12 months to 24 months. The purpose of Public Law 116-283 is to allow 
small businesses more time to grow and develop competitiveness and 
infrastructure so that they are better prepared to succeed under full 
and open competition once they outgrow the size threshold. However, as 
stated previously, a longer 24-month averaging period may not always 
and necessarily provide relief to every small business concern. As 
discussed previously, when monthly employees are declining, the 24-
month average would be higher than the 12-month average, thereby 
ejecting some advanced small businesses out of their small business 
status sooner or rendering some small businesses under the 12-month 
average not small immediately.
    As discussed earlier, the change in the averaging period for 
employees from 12 months to 24 months results in four different types 
of impacts on small businesses: (i) Enabling current large or mid-size 
businesses to gain small business status (impact i); (ii) enabling 
current advanced small businesses to lengthen their small business 
status (impact ii); (iii) causing current small businesses to lose 
their small business status (impact iii); and (iv) causing current 
small businesses to shorten their small business status (impact iv). 
Table 5, ``Percentage Distribution of Impacted Firms with Employee 
Based Size Standards by the Number of NAICS Codes,'' below, provides 
these results based on the 2019 SAM--2018 SAM matched firms.
    It is highly notable that the distribution of impacted firms by the 
number of NAICS codes, as shown in Table 5, is very different as 
compared to a similar distribution based on the overall matched and 
total 2019 SAM data (see Table 2), especially with respect to firms 
with only one NAICS code and those with more than 5 NAICS codes. For 
example, about 45 percent of all firms in the overall data were 
associated with only one NAICS code, as compared only about 20 percent 
among impacted firms. Similarly, firms with more than 5 NAICS codes 
accounted for about 13-14 percent of all firms in the original data, as 
compared

[[Page 60403]]

to 30-40 percent among impacted firms. It is also notable that, among 
the industries with employee-based size standard, NAICS Sectors 31-33 
and 42 together accounted for about 90 percent of impacted firms (in 
terms of both contractive and expansive impacts), with Sector 31-33 
(Manufacturing) accounting for about 65 percent and Sector 42 
(Wholesale Trade) about 25 percent.

                   Table 5--Percentage Distribution of Impacted Firms With Employee Based Size Standards by the Number of NAICS Codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     % Distribution of impacted firms by number of NAICS codes
                                                             Number of   -------------------------------------------------------------------------------
                        Impact *                          impacted firms                     2-5 NAICS      6-10 NAICS       >10 NAICS
                                                                           1 NAICS code        codes           codes           codes           Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Currently small in all NAICS codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (ii).............................................             195            33.3            47.2            10.3             9.2             100
Impact (iii)............................................             178            33.1            44.4            15.7             6.7             100
Impact (iv).............................................              66            19.7            47.0            13.6            19.7             100
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Currently large business in all NAICS codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i)..............................................             188            39.9            44.1            11.2             4.8             100
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Currently small in some NAICS and not small in others
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i)..............................................             182               0            34.1            31.9            34.1             100
Impact (ii).............................................             130               0            36.2            32.3            31.5             100
Impact (iii)............................................              42               0            40.5            40.5            19.0             100
Impact (iv).............................................              20               0              50              15              35             100
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Total impact by impact type
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i)..............................................             370            20.3            39.2            21.4            19.2             100
Impact (ii).............................................             325            20.0            42.8            19.1            18.2             100
Impact (iii)............................................             220            18.2            29.5            13.8             6.2             100
Impact (iv).............................................              86            15.1            47.7            14.0            23.3             100
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Overall impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expansive...............................................             689            20.3            40.8            20.2            18.7             100
Contractive.............................................             306            23.5            44.8            18.6            13.1             100
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................             995            21.3            42.0            19.7            17.0             100
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Impact (i) = Current large businesses gaining small status; Impact (ii) = Current small businesses extending small status; Impact (iii) = Current
  small businesses losing small status; Impact (iv) = Current small businesses shortening small status.

    Each of these impacts was then multiplied by an applicable factor 
or ratio, as shown in the last column of Table 1, to obtain the 
respective impacts corresponding to all firms in 2019 SAM subject to at 
least one employee-based size standard. These results are presented 
below in Table 6, ``Impacts from Changing the Averaging Period for 
Employees from 12 Months to 24 Months.'' The last column of the table 
shows the percent of firms impacted relative to all business concerns 
in 2019 SAM. Because the SAM data only captures businesses that are 
primarily interested in Federal procurement opportunities, the SAM-
based results do not fully capture the impacts the proposed change may 
have on businesses participating in various non-procurement programs 
that apply to SBA's employee-based size standards, such as SBA loan 
programs and exemptions from compliance with paperwork and other 
regulatory requirements.
    The Economic Census, combined with the Census of Agriculture and 
County Business Patterns Reports, provides for each NAICS code 
information on the number of total small and large businesses subjected 
to an employee-based size standard. Based on the matched SAM data, SBA 
computed percentages of businesses impacted under each impact category 
for each NAICS industry subject to an employee-based size standard. By 
applying such percentages to the 2012 Economic Census tabulation (the 
latest available), SBA estimated the number of all businesses impacted 
under each impact type for each NAICS code subject to an employee-based 
size standard. These results are presented in Table 7, ``Impacts from 
Changing the Averaging Period for Employees from 12 Months to 24 Months 
(2012 Economic Census),'' below.

[[Page 60404]]



          Table 6--Impacts From Changing the Averaging Period for Employees From 12 Months to 24 Months
----------------------------------------------------------------------------------------------------------------
                                       Firms
                                    impacted in      Total to       Total firms   Total firms in
           Impact \1\                 matched      matched ratio    impacted in      2019 SAM       % Impacted
                                      dataset                        2019 SAM
----------------------------------------------------------------------------------------------------------------
                                   Entities only small under all NAICS code(s)
----------------------------------------------------------------------------------------------------------------
Impact (ii).....................             195           1.210             236         131,295             0.2
Impact (iii)....................             178           1.210             215         131,295             0.2
Impact (iv).....................              66           1.210              80         131,295             0.1
----------------------------------------------------------------------------------------------------------------
                                Entities other than small under all NAICS code(s)
----------------------------------------------------------------------------------------------------------------
Impact (i)......................             188           1.055             198          18,492             1.1
----------------------------------------------------------------------------------------------------------------
                      Entities small in some NAICS code(s) and other than small in other(s)
----------------------------------------------------------------------------------------------------------------
Impact (i)......................             182           1.054             192           2,663             7.2
Impact (ii).....................             130           1.054             137           2,663             5.1
Impact (iii)....................              42           1.054              44           2,663             1.7
Impact (iv).....................              20           1.054              21           2,663             0.8
----------------------------------------------------------------------------------------------------------------
                                           Total impact by impact type
----------------------------------------------------------------------------------------------------------------
Impact (i)......................             370  ..............             390          21,155             1.8
Impact (ii).....................             325  ..............             373         133,958             0.3
Impact (iii)....................             220  ..............             260         133,958             0.2
Impact (iv).....................              86  ..............             101         133,958             0.1
----------------------------------------------------------------------------------------------------------------
                              Overall total by expansive or contractive impact \2\
----------------------------------------------------------------------------------------------------------------
Expansive [impact (i) or impact              689           1.098             757         152,450             0.5
 (ii)]..........................
Contractive [impact (iii) or                 306           1.178             361         152,450             0.2
 impact (iv)]...................
                                 -------------------------------------------------------------------------------
    Total impact................             995  ..............           1,117         152,450             0.7
----------------------------------------------------------------------------------------------------------------
\1\ Impact (i) = Current large businesses gaining small business status; Impact (ii) = Current small businesses
  extending small status; Impact (iii) = Current small businesses losing small status; Impact (iv) = Current
  small businesses shortening small status.
\2\ Number of firms under overall positive, negative and total impacts refer to the number of unique firms. Some
  firms could appear in multiple impact types and hence individual impacts may not add up to overall impact.


          Table 7--Impacts From Changing the Averaging Period for Employees From 12 Months to 24 Months
                                             [2012 Economic census]
----------------------------------------------------------------------------------------------------------------
                                                                    Total firms     Estimate of
                           Impact \1\                              (in million)   impacted firms    % Impacted
----------------------------------------------------------------------------------------------------------------
Impact (i)......................................................          22,324             281             1.3
Impact (ii).....................................................         657,942           1,203             0.2
Impact (iii)....................................................         657,942             763             0.1
Impact (iv).....................................................         657,942             287            0.04
----------------------------------------------------------------------------------------------------------------
                                                 Overall impact
----------------------------------------------------------------------------------------------------------------
Expansive [impact (i) or impact (ii)]...........................         680,266           1,484             0.2
Contractive [impact (iii) or impact (iv)].......................         657,942           1,050             0.2
                                                                 -----------------------------------------------
    Total impact................................................         680,266           2,534             0.4
----------------------------------------------------------------------------------------------------------------
\1\ Impact (i) = Current large businesses gaining small status; Impact (ii) = Current small businesses extending
  small status; Impact (iii) = Current small businesses losing small status; Impact (iv) = Current small
  businesses shortening small status.

    Currently large or mid-size businesses regaining small business 
status would become eligible for various benefits as small business 
concerns, including access to Federal set-aside contracts, SBA's 
guaranteed loans and disaster assistance, reduced patent fees, and 
exemptions from various compliance and paperwork requirements. With 
their small business status extended, advanced small businesses would 
continue to receive such benefits for a longer period. However, the 
proposed change may also cause some small businesses to lose their 
small business status in at least one employee-based size standard and 
access to small business assistance, especially Federal set-aside 
opportunities.
2. Impacts on Businesses From Changing the Averaging Period for 
Receipts From 3 Years to 5 Years
    By comparing the approximated 5-year annual receipts average with 
the current receipts-based size standard for each of the 192,295 
matched business concerns in each NAICS code subject to a receipts-
based size standard, in this proposed rule, SBA identifies the

[[Page 60405]]

following 4 possible impacts from changing the averaging period for 
annual receipts from 3 years to 5 years:
    i. The number of mid-size businesses that have exceeded the size 
standard and would regain small business status in at least one NAICS 
industry with a receipts-based size standard (i.e., 3-year average > 
size standard >= 5-year average)--expansive impact;
    ii. The number of advanced small businesses within 10 percent below 
the size standard that would have their small business status extended 
for a longer period in at least one NAICS industry with a receipts-
based standard (5-year average < 3-year average <= size standard and 
0.9*size standard < 3-year average <= size standard)--expansive impact;
    iii. The number of currently small businesses that would lose their 
small business status in at least one NAICS industry subjected to a 
receipts-based size standard (i.e., 3-year average <= size standard < 
5-year average)--contractive impact; and
    iv. The number of advanced small businesses within 10 percent below 
the size standard that would have their small business status shortened 
in at least one NAICS industry subject to a receipts-based standard (3-
year average < 5-year average <= size standard and 0.9*size standard < 
3-year average <= size standard)--contractive impact.
    In this proposed rule, SBA is changing the period for calculation 
of average annual receipts for SBA receipts-based size standards for 
Business Loan, Disaster Loan, and SBIC Programs from 3 years to 5 
years. The purpose of Public Law 115-324 is to allow small businesses 
more time to grow and develop competitiveness and infrastructure so 
that they are better prepared to succeed under full and open 
competition once they outgrow the size threshold. However, a longer 5-
year averaging period may not always and necessarily provide relief to 
every small business concern. As discussed in the prior proposed rule, 
when annual revenues are declining or when annual revenues for the 
latest 3 years are lower than those for the earliest 2 years of the 5-
year period, the 5-year average would be higher than the 3-year 
average, thereby ejecting some advanced small businesses out of their 
small business status sooner or rendering some small businesses under 
the 3-year average not small immediately.
    There are 4 different types of impacts on small businesses from 
changes to the averaging period for annual receipts from 3 years to 5 
years as follows: (i) Enabling current large or mid-size businesses to 
gain small business status (impact i); (ii) enabling current advanced 
small businesses to lengthen their small business status (impact ii); 
(iii) causing current small businesses to lose their small business 
status (impact iii); and (iv) causing current small businesses to 
shorten their small business status (impact iv).
    However, with the SBA's proposal to permit businesses in the 
Business Loan, Disaster Loan, and SBIC programs to use either a 3-year 
average or a 5-year average for calculating average annual receipts for 
the purposes of qualifying as a small business, the two contractive 
impacts (namely impact (iii) and impact (iv)) do not apply to this 
proposed rule. Accordingly, this proposed rule provides the analysis of 
the two expansive impacts of changing the averaging periods for annual 
receipts from 3 years to 5 years (namely impact (i) and impact (ii)) 
only.
    Table 8, ``Percentage Distribution of Impacted Firms with Receipts 
Based Size Standards by the Number of NAICS Codes,'' below, provides 
these results based on the 2019 SAM--2016 SAM matched firms.

                   Table 8--Percentage Distribution of Impacted Firms With Receipts Based Size Standards by the Number of NAICS Codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     % Distribution of impacted firms by number of NAICS codes
                                                             Number of   -------------------------------------------------------------------------------
                        Impact *                          impacted firms                     2-5 NAICS      6-10 NAICS       >10 NAICS
                                                                           1 NAICS code        codes           codes           codes           Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Currently large in all NAICS codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i)..............................................             899            36.3            33.9            12.6            17.2           100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Currently small in all NAICS codes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (ii).............................................           1,227            27.3            36.3            17.8            18.6           100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Currently small in some NAICS and not small in others
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i)..............................................           1,761               0            27.4            22.7            50.0           100.0
Impact (ii).............................................           1,072               0            27.8            24.3            47.9           100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Total impact by impact type
--------------------------------------------------------------------------------------------------------------------------------------------------------
Impact (i)..............................................           2,660            12.3            29.6            19.2            38.9           100.0
Impact (ii).............................................           2,299            14.6            32.3            20.8            32.3           100.0
                                                         -----------------------------------------------------------------------------------------------
    Total expansive impact..............................           4,702            14.1            31.8            20.2            34.0           100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Impact (i) = Current large businesses gaining small business status; and Impact (ii) = Current small businesses extending small business status.

    It is highly notable that the distribution of impacted firms by the 
number of NAICS codes, as shown in Table 8, is very different as 
compared to a similar distribution based on the overall matched and 
total 2019 SAM data (see Table 4), especially with respect to firms 
with only one NAICS code and those with more than 5 NAICS codes. For 
example, as shown in Table 4, above, more than 40 percent of all firms 
in the overall data were associated with only one NAICS code, as 
compared to less than 15 percent among impacted firms in Table 8. 
Similarly, firms with more than 5 NAICS codes accounted for about 20 
percent of all firms in the original data, as compared to more than

[[Page 60406]]

50 percent among impacted firms. It is also notable that, among the 
industries with receipts based size standards, NAICS Sectors 54, 56, 
and 23 together accounted for more than 70 percent of impacted firms, 
with Sector 54 (Professional, Scientific and Technical Services) 
accounting for about 30-35 percent, followed by Sector 23 
(Construction) about 25-30 percent, and Sector 56 (Administrative and 
Support, Waste Management and Remediation Services) about 10-13 
percent.
    Each of these impacts was then multiplied by an applicable factor 
or ratio, as shown in the last column of Table 3, to obtain the 
respective impacts corresponding to all firms in 2019 SAM subject to at 
least one receipts-based size standard. These results are presented 
below in Table 9, ``Impacts from Changing the Averaging Period for 
Receipts from 3 Years to 5 Years.'' The last column of the table shows 
the percent of firms impacted relative to all business concerns in 2019 
SAM.
    Because the SAM data only captures businesses that are primarily 
interested in Federal procurement opportunities, the SAM-based results 
do not fully capture the impacts the proposed change may have on 
businesses participating in various non-procurement programs that apply 
SBA's receipts-based size standards, such as exemptions from compliance 
with paperwork and other regulatory requirements.

            Table 9--Impacts From Changing the Averaging Period for Receipts From 3 Years to 5 Years
----------------------------------------------------------------------------------------------------------------
                                       Firms
                                    impacted in      Total to       Total firms   Total firms in
           Impact \1\                 matched      matched ratio    impacted in      2019 SAM       % Impacted
                                      dataset        (Table 1)       2019 SAM
----------------------------------------------------------------------------------------------------------------
                                Entities other than small under all NAICS code(s)
----------------------------------------------------------------------------------------------------------------
Impact (i)......................             899            1.32           1,189          42,536             2.8
----------------------------------------------------------------------------------------------------------------
                                     Entities small under all NAICS code(s)
----------------------------------------------------------------------------------------------------------------
Impact (ii).....................           1,227           1.859           2,281         282,671             0.8
----------------------------------------------------------------------------------------------------------------
                      Entities small in some NAICS code(s) and other than small in other(s)
----------------------------------------------------------------------------------------------------------------
Impact (i)......................           1,761           1.211           2,132           9,783            21.8
Impact (ii).....................           1,072           1.211           1,298           9,783            13.3
----------------------------------------------------------------------------------------------------------------
                                      Total expansive impact by impact type
----------------------------------------------------------------------------------------------------------------
Impact (i)......................           2,660  ..............           3,320          52,319             6.3
Impact (ii).....................           2,299  ..............           3,579         292,454             1.2
                                 -------------------------------------------------------------------------------
    Overall total expansive                4,702           1.391           6,542         334,990             2.0
     impact \2\.................
----------------------------------------------------------------------------------------------------------------
\1\[thinsp]Impact (i) = Current large businesses gaining small business status; and Impact (ii) = Current small
  businesses extending small business status.
\2\[thinsp]Number of firms under total positive impacts refer to the number of unique firms. Some firms could
  appear in both impact types and hence individual impacts may not add up to overall impact.

    The Economic Census, combined with the Census of Agriculture and 
County Business Patterns Reports, provides for each NAICS code 
information on the number of total small and large businesses subjected 
to a receipts-based size standard. Based on the matched SAM data, SBA 
computed percentages of businesses impacted under each impact category 
for each NAICS industry subject to a receipts-based size standard. By 
applying such percentages to the 2012 Economic Census tabulation, SBA 
estimated the number of all businesses impacted under each impact type 
for each NAICS code subject to a receipts-based size standard. These 
results are presented in Table 10, ``Impacts from Changing the 
Averaging Period for Receipts from 3 Years to 5 Years (2012 Economic 
Census),'' below.

            Table 10--Impacts From Changing the Averaging Period for Receipts From 3 Years to 5 Years
                                             [2012 Economic census]
----------------------------------------------------------------------------------------------------------------
                                                                                    Estimate of
                           Impact \1\                               Total firms   impacted firms    % Impacted
----------------------------------------------------------------------------------------------------------------
Impact (i)......................................................         271,505           8,565             3.2
Impact (ii).....................................................       6,896,633          60,176             0.9
                                                                 -----------------------------------------------
    Overall expansive impact....................................       7,168,138          68,742             1.0
----------------------------------------------------------------------------------------------------------------
\1\ Impact (i) = Current large businesses gaining small business status; and Impact (ii) = Current small
  businesses extending small business status.

    Currently large or mid-size businesses regaining small business 
status would get various benefits as small business concerns, including 
access to SBA loan programs, and exemptions from various compliance and 
paperwork requirements. With their small business status extended, 
advanced small businesses would continue to receive such benefits for a 
longer period. However, the change from 3-year average receipts to 5-
year average may also harm some small businesses by causing them to 
lose or shorten their small business status in at least one

[[Page 60407]]

receipts-based size standard, thereby depriving them of access to small 
business assistance, including SBA's lending. To mitigate such impacts, 
SBA is allowing businesses to elect either the 3-year average annual 
receipts or the 5-year average annual receipts for the Business Loan, 
Disaster Loan, and SBIC programs. SBA seeks comment on implementation 
of Public Law 115-324 for the Business Loan, Disaster Loan, and SBIC 
programs.
C. The Baseline
1. Baseline for Changing the Averaging Period for Employees From 12 
Months to 24 Months
    In this rulemaking, SBA establishes an appropriate baseline to 
evaluate benefits, costs, or transfer impacts of this action and 
alternative approaches considered, if any. A baseline should represent 
the agency's best assessment of what the world would look like absent 
the regulatory action. For a new regulatory action modifying an 
existing regulation (such as changing the calculation of the average 
number of employees from 12 months to 24 months), a baseline assuming 
no change to the regulation (i.e., maintaining the status quo) 
generally provides an appropriate benchmark for evaluating benefits, 
costs, or transfer impacts of proposed regulatory changes and their 
alternatives.
    Based on the 2012 Economic Census special tabulations (the latest 
available), 2012 County Business Patterns Reports (for industries not 
covered by the Economic Census), and 2012 Agricultural Census 
tabulations (for agricultural industries), of a total of about 7.2 
million firms in all industries with employee-based size standards, 
about 96 percent were considered small and 4 percent other than small 
under the 12-month employee average. Similarly, of 334,990 businesses 
that were subject to at least one employee-based size standard and 
eligible for Federal contracting, 87.3 percent were small in at least 
one NAICS code and 12.7 percent other than small in all NAICS codes 
with an employee-based size standard.
    Based on the data from the Federal Procurement Data System--Next 
Generation (FPDS-NG) for fiscal year 2019, on average, about 39,714 
unique firms in industries subject to employee-based size standards 
received at least one Federal contract during 2019, of which 85.3 
percent were small. Businesses subject to employee-based size standards 
received $232.6 billion in annual average Federal contract dollars in 
2019, of which nearly $47 billion or about 20.2 percent went to small 
businesses. Of total dollars awarded to small businesses subject to 
employee-based size standards, $23.8 billion or 50.6 percent was 
awarded through various small business set-aside programs and 49.4 
percent was awarded through non-set aside contracts.
    Based on SBA's internal data on its loan programs, small businesses 
subject to employee-based size standards received, on an annual basis, 
a total of 7,672 7(a) and 504 loans for fiscal years 2018-2020, 
totaling $4.9 billion, of which 75 percent was issued through the 7(a) 
program and 25 percent was issued through the CDC/504 program. During 
fiscal years 2016-2018, small businesses in those industries also 
received about 400 loans through the SBA's disaster loan program, 
totaling about $0.04 billion on an annual basis. Table 11, ``Baseline 
Analysis of Employee-Based Size Standards,'' below, provides these 
baseline results.
    Besides set-aside contracting and financial assistance discussed 
above, small businesses also benefit through reduced fees, less 
paperwork, and fewer compliance requirements that are available to 
small businesses through Federal agencies that use SBA's size 
standards. However, SBA has no data to estimate the number of small 
businesses receiving such benefits.

      Table 11--Baseline Analysis of Employee-Based Size Standards
------------------------------------------------------------------------
                         Measure                               Value
------------------------------------------------------------------------
Total industries subject to employee-based size                      500
 standards..............................................
Total firms subject to at least one employee-based size          680,266
 standard (million)--2012 Economic Census...............
Total small firms subject to at least one employee-based         657,942
 size standard (million)--2012 Economic Census..........
Total small firms subject to at least one employee-based            96.7
 size standard as % of total firms--2012 Economic Census
Total business concerns in SAM \1\ (as of September 1,           403,116
 2019)..................................................
Total business concerns subject to a employee-based size         152,450
 standard in at least one NAICS code \2\ (2019 SAM).....
Total businesses that are small in at least one NAICS            133,958
 code subject to an employee-based size standard........
Small business concerns as % of total business concerns             87.9
 subject to employee-based standards (2019 SAM).........
Average total number of unique Eligible vendors getting          106,230
 Federal contracts \1\--FPDS-NG (2019)..................
Average total number of unique firms with employee-based          39,714
 size standards getting Federal contracts \2\ --FPDS-NG
 (2019).................................................
Average total contract dollars awarded to business                $232.6
 concerns, subject to employee-based standards ($
 billion)--FPDS-NG (2019)...............................
Average total small business contract dollars awarded to           $47.1
 businesses subject to employee-based standards ($
 billion)--FPDS-NG (2019)...............................
Small business dollars as % of total dollars awarded to             20.2
 firms subject to employee-based standards..............
Annual average number of 7(a) and 504 loans to                     7,672
 businesses subject to employee-based standards (2018-
 2020)..................................................
Annual average amount of 7(a) and 504 loans ($ billion)             $4.9
 (2018-2020)............................................
Number of disaster loans to businesses subject to                    399
 employee-based size standards (2016-2018)..............
Amount of disaster loans ($ billion) (2016-2018)........           $0.04
------------------------------------------------------------------------
\1\ Entities in SAM and FPDS-NG presented above only include business
  concerns that can be eligible to qualify as small for Federal
  contracting. That is, entities that can never qualify as small (e.g.,
  foreign, not-for-profit and government entities) are excluded as they
  are not impacted by this rule.
\2\ A business concern could appear in multiple NAICS industries
  involving both employee-based and size standards and those based on
  other measures (such as employees). Similarly, a business could be
  small in some industries and other than small in others.

    As mentioned previously, businesses that would regain or lose small 
business status can be identified by comparing their 24-month employee 
average with the employee-based size standard. That is, if the 24-month 
employee average of a firm currently above the size standard is lower 
than the applicable employee-based size standard, that firm will gain 
or regain small business status. Similarly, if the 24-month employee 
average of a currently small business is higher than the size standard, 
that business will lose its small business status. However, to estimate 
the number

[[Page 60408]]

of small businesses that would benefit by having their small business 
status extended for a longer period or would be penalized by having 
their small size status shortened, SBA considered small businesses 
whose 12-month employee average was within 10 percent below their 
employee-based size thresholds. Small businesses that are not 
immediately impacted may be impacted either negatively or positively 
someday as they continue to grow and approach the size standard 
threshold.
2. Baseline for Changing the Averaging Period for Receipts From 3 Years 
to 5 Years
    For this new regulatory action modifying an existing regulation 
(such as changing the average annual receipts calculation from 3 years 
to 5 years), a baseline assuming no change to the regulation (i.e., 
maintaining the status quo) generally provides an appropriate benchmark 
for evaluating benefits, costs, or transfer impacts of proposed 
regulatory changes and their alternatives.
    Based on the 2012 Economic Census special tabulations (the latest 
available), 2012 County Business Patterns Reports (for industries not 
covered by the Economic Census), and 2012 Agricultural Census 
tabulations (for agricultural industries), of a total of about 7.2 
million firms in all industries with receipts-based size standards, 
about 96 percent are considered small and 4 percent other-than-small 
under the 3-year annual receipts average. Similarly, of 334,990 
businesses in SAM 2019 that were subject to at least one receipts-based 
size standard and eligible to qualify as small business concerns, 87.3 
percent were small in at least one NAICS code and 12.7 percent other 
than small in all NAICS codes.
    Based on SBA's internal data on its loan programs, small businesses 
subject to receipts-based size standards received, on an annual basis, 
a total of about 50,150 7(a) and 504 loans for fiscal years 2018-2020, 
totaling nearly $24 billion, of which 85 percent was issued through the 
7(a) program and 15 percent was issued through the CDC/504 program. 
During fiscal years 2016-2018, small businesses in those industries 
also received about 5,585 loans through the SBA's disaster loan 
program, totaling about $0.5 billion on an annual basis. Table 12, 
``Baseline Analysis of Receipts-Based Size Standards,'' below, provides 
these baseline results.
    Besides financial assistance discussed above, small businesses also 
benefit through reduced fees, less paperwork, and fewer compliance 
requirements that are available to small businesses through Federal 
agencies that use SBA's size standards. However, SBA has no data to 
estimate the number of small businesses receiving such benefits. 
Similarly, due to the lack of data, SBA is not able to determine 
impacts the proposed rule will have on small businesses participating 
in other agencies' programs that are subject to their own size 
standards based on average annual receipts.

      Table 12--Baseline Analysis of Receipts-Based Size Standards
------------------------------------------------------------------------
                         Measure                               Value
------------------------------------------------------------------------
Total industries subject to receipts-based standards....             518
Total firms subject to at least one receipts-based                  7.17
 standard (million)--2012 Economic Census...............
Total small firms subject to at least one receipts-based             6.9
 standard (million)--2012 Economic Census...............
Total small firms subject to at least one receipts-based            96.2
 standard as % of total firms--2012 Economic Census.....
Total business concerns in SAM \1\ (as of September 1,           403,116
 2019)..................................................
Total business concerns subject to a receipts-based size         334,990
 standard in at least one NAICS code \2\ (2019 SAM).....
Total businesses that are small in at least one NAICS            292,454
 code subject to a receipts-based size standard.........
Small business concerns as % of total business concerns             87.3
 subject to receipts-based standards (2019 SAM).........
Annual average number of 7(a) and 504 loans to                    50,153
 businesses subject to receipts-based standards (2018-
 2020)..................................................
Annual average amount of 7(a) and 504 loans ($ billion)            $23.9
 (2018-2020)............................................
Number of disaster loans to businesses subject to                  5,585
 receipts-based size standards (2016-2018)..............
Amount of disaster loans ($ billion) (2016-2018)........            $0.5
------------------------------------------------------------------------
\1\ Entities in SAM presented above only include business concerns that
  can be eligible to qualify as small for Federal assistance. That is,
  entities that can never qualify as small (e.g., foreign, not-for-
  profit and government entities) are excluded as they are not impacted
  by this rule.
\2\ A business concern could appear in multiple NAICS industries
  involving both receipts-based size standards and those based on other
  measures (such as employees). Similarly, a business could be small in
  some industries and other-than-small in others.

    Businesses that would regain or expand their small business status 
can be identified by comparing the estimate of their 5-year receipts 
average with the size standard. That is, if the 5-year receipts average 
of a firm currently above the size standard is lower than the 
applicable size standard, that firm will gain or regain small business 
status. To estimate the number of small businesses that would benefit 
by having their small business status extended for a longer period or 
would be penalized by having their small business status shortened, SBA 
considered small businesses whose 3-year average annual receipts was 
within 10 percent below their receipts-based size thresholds. Depending 
upon whether their annual receipts are growing or declining, small 
businesses that are not immediately impacted may be impacted, either 
positively (i.e., gaining small business status) or negatively (i.e., 
losing small business status) someday as they continue to grow and 
approach the size standard threshold as in the current 3-year averaging 
method. However, SBA is not able to quantify such impacts now.
D. Expansions in Small Business Size Status
1. Expansive Effects of Changing the Averaging Period for Employees 
From 12 Months to 24 Months
    The most significant expansive effects to businesses from the 
proposed change in the averaging period for calculation of the number 
of employees for size standards from 12 months to 24 months include: 
(i) Enabling some mid-size businesses currently categorized above their 
corresponding size standards to gain or regain small business size 
status and thereby qualify for participation in Federal assistance 
intended for small businesses, and (ii) allowing some advanced and 
larger small businesses close to their size thresholds to lengthen 
their small business status for a longer period and thereby continue 
their participation in Federal small business programs. These programs 
include SBA's business and disaster loan programs and Federal 
procurement programs intended for small businesses.

[[Page 60409]]

Federal procurement programs provide targeted, set-aside opportunities 
for small businesses under SBA's various business development and 
contracting programs, including 8(a)/Business Development (BD), 
HUBZone, Women-Owned Small Business (WOSB), Economically Disadvantaged 
Women-Owned Small Business (EDWOSB), and Service-Disabled Veteran-Owned 
Small Business (SDVOSB) programs. Expansive effects accruing to 
businesses gaining and extending small status are presented below in 
Table 13, ``Expansive Impacts of Changing the Averaging Period for 
Employees from 12 Months to 24 Months.'' The results in Table 13 
pertain to businesses and industries subject to employee-based size 
standards only.
    As shown in Table 13, of 21,155 firms not currently considered 
small in any employee-based size standards, 390 (or 1.8 percent) would 
benefit from the proposed change by gaining or regaining small status 
under the 24-month employee average in at least one NAICS industry that 
is subject to an employee-based size standard. Additionally, 373 or 0.3 
percent of small businesses within 10 percent below size standards 
would see their average number of employees decrease under the 24-month 
averaging period, consequently enabling them to keep their size status 
for a longer period.
    Using the 2012 Economic Census, SBA estimated that about 280 or 1.3 
percent of currently large businesses would gain or regain small status 
and about 1,200 or 0.2 percent of total small businesses would see 
their small business status extended for a longer period as the result 
of the change in the calculation of employees. These results are shown 
in Table 13, below.
    With more businesses qualifying as small under the proposed change 
in the calculation of employees, Federal agencies will have a larger 
pool of small businesses from which to draw for their small business 
procurement programs. Growing small businesses that are close to 
exceeding the current employee-based size standards will be able to 
retain their small business status for a longer period under the 24-
month employee average, thereby enabling them to continue to benefit 
from the small business programs.

       Table 13--Expansive Impacts of Changing Averaging Period for Employees From 12 Months to 24 Months
----------------------------------------------------------------------------------------------------------------
                                                               Large firms       Small firms
                 Impact of proposed change                    gaining small    extending small  Total  expansive
                                                                 status            status            impact
----------------------------------------------------------------------------------------------------------------
Number of impacted industries.............................               196               184           \1\ 260
Number of large firms becoming small or/and small firms                  390               373           \2\ 757
 extending small status--SAM (as of Sept 1, 2019).........
Large firms becoming small or/and small firms with                       1.8               0.3               0.5
 extended small status as % of total large or/and small
 firms in the baseline--SAM (as of Sept 1, 2019)..........
Number of large firms becoming small or/and small firms                  281             1,203             1,484
 extending small status--2012 Economic Census.............
Large firms becoming small or/and small firms extending                  1.3               0.2               0.2
 small status as % of total large or/and small firms in
 the baseline--2012 Economic Census.......................
Number of large firms becoming small or/and small firms                  139                83               219
 extending small status for small business contracts--FPDS-
 NG (2019)................................................
Additional small business dollars available to newly                  $332.7             $90.5            $423.2
 qualified firms or/and current small firms with extended
 small status ($ million)--FPDS-NG (2019).................
Additional small business dollars as % total small                       0.7               0.2               0.9
 business contract dollars in the baseline................
Number of additional 7(a) and 504 loans to newly qualified                 1                 1                 2
 firms or/and current small firms extending small status..
Additional 7(a) and 504 loan amount to newly qualified                 $0.01             $0.02             $0.03
 firms or/and current small firms extending small status
 ($ million)..............................................
Additional 7(a) and 504 loan amount as % of total 7(a) and               0.0               0.0             0.001
 504 loan amount in the baseline..........................
Number of additional disaster loans to newly qualified                     0                 0                 0
 firms or/and small firms extending small status..........
Additional disaster loan amount to newly qualified firms                  $0                $0                $0
 or/and small firms with extended small status ($ million)
Additional disaster loan amount as % of total loan amount                  0                 0                 0
 in the baseline..........................................
----------------------------------------------------------------------------------------------------------------
\1\ Total impact represents total unique industries impacted to avoid double counting as some industries have
  large firms gaining small status and small firms extending small status.
\2\ Total impact represents total unique firms impacted to avoid double counting as some firms may gain small
  business status in at least one NAICS code, while extending small business status in at least one other NAICS
  code.

    Based on the FPDS-NG data for fiscal year 2019, as shown in Table 
13, SBA estimates that those newly qualified small businesses (i.e., 
large businesses gaining small status) under the proposed rule, if 
adopted, could receive about $333 million in small business contract 
dollars annually under SBA's small business, 8(a)/BD, HUBZone, WOSB, 
EDWOSB, and SDVOSB programs. That represents a 0.7 percent increase to 
total small business contract dollars from the baseline in Table 11, 
above. Additionally, small businesses could receive approximately $90 
million in additional small business contract dollars because of 
extension of their small business status, which is about a 0.2 percent 
increase from the total small business contract dollars in the 
baseline. That is, businesses gaining or extending small business 
status could receive about $423 million in additional small business 
contract dollars, which is a 0.9 percent increase to the total small 
business dollars in the baseline.
    Under SBA's 7(a) and 504 loan programs, based on the data for 
fiscal years 2018-2020, SBA estimates up to about 1 SBA 7(a) and 504 
loans totaling nearly $0.01 million could be made to these newly 
qualified small businesses under the proposed change. Additionally, 
small businesses could receive about 1 SBA 7(a) and 504 loans totaling 
nearly $.02 million due to the extension of their size status. These 
amounts represent a .001 percent

[[Page 60410]]

increases to the 7(a) and 504 loan amount in the baseline.
    Newly qualified small businesses and those with extended small 
business status under the 24-month averaging period may also benefit 
from the SBA's disaster loan program. However, 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. Based on the historical trends of the SBA's 
disaster loan data which shows that firms receiving loans under 
employee-based size standards are well below the industry size 
thresholds, SBA estimates that newly defined small businesses and small 
businesses extending small business status for a longer period would 
not receive any additional disaster loans under the proposed change.
    The added competition from more businesses qualifying as small may 
result in lower prices to the Federal Government for procurements set 
aside or reserved for small businesses, but SBA cannot quantify this 
impact. Costs could be higher when full and open contracts are awarded 
to HUBZone businesses that receive price evaluation preferences. 
However, with agencies likely setting aside more contracts for small 
businesses in response to a larger pool of small businesses under the 
proposed change, HUBZone firms might actually end up getting more set-
aside contracts and fewer full and open contracts, thereby resulting in 
some cost savings to Federal agencies. While SBA cannot estimate such 
costs savings, as it is impossible to determine the number and value of 
unrestricted contracts to be otherwise awarded to HUBZone firms that 
will be awarded as set-asides, such cost savings are likely to be 
relatively small as only a small fraction of full and open contracts 
are awarded to HUBZone businesses.
    Additionally, the newly defined small businesses, as well as those 
with a longer small business status, would also benefit from reduced 
fees, less paperwork, and fewer compliance requirements but SBA has no 
data to quantify this impact.
    The proposed change will also address some of the challenges and 
uncertainties small businesses face in the open market once they 
graduate from their small business status. Small and mid-size 
businesses experience a considerable disadvantage in competing for full 
and open contracts against large businesses, including the largest in 
the industry. These large businesses often have several competitive 
advantages over small and mid-size firms, including vast past 
performance qualifications and experience, strong brand-name 
recognition, a plethora of professional certifications, security 
clearances, and greater financial and marketing resources. Small and 
mid-size businesses cannot afford to maintain these resources, leaving 
them at a considerable disadvantage.
    With contracts getting bigger, one large set-aside contract could 
throw a firm out of its small business size status, thereby subjecting 
it to certain requirements that apply to other-than-small firms, such 
as developing subcontracting plans. That firm may not have the 
infrastructure, existing business processes, and/or other resources in 
place in order to comply with such requirements. This may also result 
in constant shuffling between small and other-than-small status.
    By allowing smaller mid-size companies that have just exceeded the 
size threshold to regain small business status and advanced small 
businesses close to size standards to prolong their small business 
status for a longer period, this proposed rule can expand the pool of 
qualified small firms for agencies to draw upon to meet their small 
business requirements.
2. Expansive Effects of Changing the Averaging Period for Receipts From 
3 Years to 5 Years
    The most significant benefits to businesses from the change in the 
period for calculation of average annual receipts from 3 years to 5 
years include: (i) Enabling some mid-size businesses currently 
categorized above their corresponding size standards to gain or regain 
small business status and thereby qualify for participation in Federal 
assistance intended for small businesses, including access to SBA's 
financial assistance and (ii) allowing some advanced and larger small 
businesses close to their size thresholds to lengthen their small 
business status for a longer period and thereby continue their 
participation in SBA's Business Loan, Disaster Loan and SBIC Programs. 
Benefits accruing to businesses gaining and extending small business 
status are presented below in Table 14, ``Expansive Impacts of Changing 
the Averaging Period for Receipts from 3 Years to 5 Years.'' The 
results in Table 14 pertain to businesses and industries subject to 
SBA's receipts-based size standards only.
    As shown in Table 14, of 42,536 firms not currently considered 
small in any receipts-based size standards, 3,320 (or 6.4 percent) 
would benefit from the proposed change by gaining or regaining small 
business status under the 5-year receipts average in at least one NAICS 
industry that is subject to a receipts-based size standard. 
Additionally, nearly 3,600 or 1.2 percent of small businesses within 10 
percent below size standards would see their annual receipts decrease 
under the 5-year averaging period, consequently enabling them to keep 
their small business status for a longer period.
    Using the 2012 Economic Census, SBA estimated that more than 5,900 
or 3.3 percent of currently large businesses would gain or regain small 
business status and more than 61,250 or 0.9 percent of total small 
businesses would see their small business status extended for a longer 
period as the result of this proposed rule. These results are shown in 
Table 14, below.

        Table 14--Expansive Impacts of Changing the Averaging Period for Receipts From 3 Years to 5 Years
----------------------------------------------------------------------------------------------------------------
                                                              Firms gaining    Firms extending
                 Impact of proposed change                   small business    small business    Total expansive
                                                                 status            status            impact
----------------------------------------------------------------------------------------------------------------
Number of impacted industries.............................               377               382           \1\ 447
Number of large firms becoming small or/and small firms                3,320             3,579         \2\ 6,542
 extending small business status--SAM (as of Sept 1, 2019)
Large firms becoming small or/and small firms with                      6.35              1.22              1.95
 extended small business status as % of total large or/and
 small firms in the baseline--SAM (as of Sept 1, 2019)....
Number of large firms becoming small or/and small firms                5,938            61,263            67,201
 extending small business status--2012 Economic Census....
Large firms becoming small or/and small firms extending                 3.3%              0.9%              0.9%
 small business status as % of total large or/and small
 firms in the baseline--2012 Economic Census..............

[[Page 60411]]

 
Number of additional 7(a) and 504 loans to newly qualified                 1                 4                 5
 firms or/and current small firms extending small status..
Additional 7(a) and 504 loan amount to newly qualified                  $0.2              $1.9              $2.1
 firms or/and current small firms extending small status
 ($ million)..............................................
Additional 7(a) and 504 loan amount as % of total disaster               0.0               0.0              0.01
 loan amount in the baseline..............................
Number of additional disaster loans to newly qualified                     1                 1                 2
 firms or/and small firms extending small status..........
Additional disaster loan amount to newly qualified firms               $0.00             $0.01             $0.01
 or/and small firms with extended small status ($ million)
Additional disaster loan amount as % of total loan amount                0.0               0.0             0.002
 in the baseline..........................................
----------------------------------------------------------------------------------------------------------------
\1\ Total impact represents total unique industries impacted to avoid double counting as some industries have
  large firms gaining small business status and small firms extending small business status.
\2\ Total impact represents total unique firms impacted to avoid double counting as some firms may gain small
  business status in at least one NAICS code, while extending small business status in at least one other NAICS
  code.

    Growing small businesses that are close to exceeding the current 
size standards will be able to retain their small business status for a 
longer period under the 5-year receipts average, thereby enabling them 
to continue to benefit from the small business programs.
    Under SBA's 7(a) and 504 loan programs, based on the data for 
fiscal years 2018-2020, SBA estimates that about 1 SBA 7(a) and 504 
loans totaling $0.2 million could be made to these newly qualified 
small businesses under the proposed change. Additionally, small 
businesses could receive up to 4 SBA 7(a) and 504 loans totaling $1.9 
million due to the expansion of their size status. Together, these 
amounts represent a 0.01 percent increase to the loan amount in the 
baseline.
    Newly qualified small businesses and those with extended small 
business status will also benefit from the SBA's disaster loan 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 SBA disaster loan data, SBA estimates that, on an annual 
basis, the newly defined small businesses under the proposed change 
could receive about 1 disaster loan, totaling about $0.003 million. 
Similarly, extending small business status for a longer period could 
result in small businesses receiving 1 disaster loans, totaling about 
$0.01 million. These results are presented in Table 14, above.
    Additionally, the newly defined small businesses, as well as those 
with a longer small business status, would also benefit from reduced 
fees, less paperwork, and fewer compliance requirements but SBA has no 
data to quantify this impact.
E. Contractions in Eligibility for Small Business Status
1. Contractive Effects of Changing the Averaging Period for Employees 
From 12 Months to 24 Months
    As stated previously, the change enacted under Public Law 116-283 
may not always and necessarily benefit every small business concern. 
When businesses' monthly employees are declining or when the number of 
employees for the latest 12 months are lower than those for the 
earliest 12 months of the 24-month averaging period, the 24-month 
employee average would be higher than the 12-month average, thereby 
ejecting small businesses out of their small status sooner or rendering 
some small businesses other than small immediately. Such small 
businesses would no longer be eligible for Federal small business 
opportunities, such as SBA's loans, Federal small business contracts, 
and other Federal assistance available to small businesses. These 
impacts are provided in Table 15, ``Contractive Impacts from Changing 
the Averaging Period for Employees from 12 Months to 24 Months,'' 
below.
    SBA estimates that, of 133,958 firms in 2019 SAM that were small 
under at least one employee-based size standard based on the 12-month 
employee average, 260 firms (or 0.2 percent) would lose their small 
status and another 100 firms (or 0.08 percent) would see their size 
status shortened as a result of the proposed change. Similarly, based 
on the 2012 Economic Census data, 763 firms would lose their small 
business status and 287 firms would see their size status shortened, 
which represent, respectively, 0.1 percent and 0.04 percent of total 
small firms subject to an employee-based size standard.

   Table 15--Contractive Impacts From Changing the Averaging Period for Employees From 12 Months to 24 Months
----------------------------------------------------------------------------------------------------------------
                                                               Small firms       Small firms          Total
                 Impact of proposed change                    losing small    shortening small     contractive
                                                                 status            status            impact
----------------------------------------------------------------------------------------------------------------
Number of industries impacted.............................               190                64           \1\ 211
Number of small firms losing or/and shortening small                     260               101           \2\ 361
 status--SAM (as of Sept 1, 2019).........................
Small firms losing or shortening small status as % of                    0.2              0.08               0.3
 total small firms--SAM (as of Sept 1, 2019)..............
Number of small firms losing or extending small status--                 763               287             1,050
 2012 Economic Census.....................................

[[Page 60412]]

 
Small firms losing or shortening small status as % of                    0.1              0.04               0.2
 total small firms in the baseline--2012 Economic Census..
Number of small firms losing or shortening small business                178                20               197
 eligibility for set-aside contracts--FPDS-NG (2019)......
Small business dollars unavailable to small firms losing              $197.1             $68.7            $265.8
 or shortening small status ($ million)--FPDS-NG (2019)...
Small business dollars as % of total small business                     0.42              0.15              0.56
 dollars in the baseline..................................
Number of 7(a) and 504 loans unavailable to small firms                    1                 1                 2
 losing or shortening small status........................
7(a) and 504 loan amount unavailable to small firms losing             $0.01             $0.01             $0.02
 or shortening ($ million)................................
Unavailable 7(a) and 504 loan amount as % of total loan                  0.0               0.0               0.0
 amount in the baseline (baseline = $24.5 billion)........
Number of disaster loans unavailable to small firms losing               0.0               0.0               0.0
 or shortening small status...............................
Unavailable disaster loan amount to small firms losing or               $0.0              $0.0              $0.0
 extending small status ($ million).......................
Unavailable disaster loan amount as % of total disaster                  0.0               0.0               0.0
 loan amount in the baseline (baseline = $1.0 billion)....
----------------------------------------------------------------------------------------------------------------
\1\ Total impact represents total unique industries impacted to avoid double counting as some industries have
  small firms losing small status and small firms shortening small status.
\2\ Total impact represents total unique firms impacted to avoid double counting as some firms may gain small
  business status in at least one NAICS code, while extending small business status in at least one other NAICS
  code.

    Based on the contract awards data from FPDS-NG for fiscal year 
2019, businesses losing or shortening small status would lose access to 
about $266 million in Federal small business contract collars, which is 
about a 0.6 percent decrease from the corresponding value in the 
baseline. Similarly, based on the SBA's loan data for fiscal years 
2018-2020 and the number of impacted firms from the Economic Census, 
SBA estimates that businesses losing or shortening small business 
status would also lose access to about $0.02 million in SBA 7(a) and 
504 loans. Based on the historical trends of the SBA's disaster loan 
data which shows that firms receiving loans under employee-based size 
standards are well below the industry size thresholds, SBA estimates 
that businesses losing or shortening small business status would not 
lose access to any additional disaster loans under the proposed change.
    Businesses losing small status and those with size status shortened 
would also be deprived of other Federal benefits available, including 
reduced fees and exemptions from certain paperwork and compliance 
requirements. However, there exists no data to quantify this impact.
    Additionally, by enabling mid-size businesses to regain small 
business status and lengthening the small business status of advanced 
and successful larger small businesses, the proposed rule may 
disadvantage smaller small businesses in more need of Federal 
assistance than their larger counterparts in competing for Federal 
opportunities. SBA frequently receives concerns from smaller small 
businesses that they lack resources, past performance qualifications 
and expertise to be able to compete against more resourceful, qualified 
and experienced large small businesses for Federal opportunities for 
small businesses.
    Besides having to register in SAM to be able to participate in 
Federal contracting and update the SAM profile annually, small 
businesses incur no direct costs to gain or retain their small business 
status. All businesses willing to do business with the Federal 
Government have to register in SAM and update their SAM profiles 
annually, regardless of their size status. SBA believes that a vast 
majority of businesses that are willing to participate in Federal 
contracting are already registered in SAM. Furthermore, this proposed 
rule does not establish the new size standards for the first time; 
rather, it merely proposes to modify the calculation of annual average 
receipts that apply to the existing size standards in accordance with a 
statutory requirement.
    The proposed change may entail some additional administrative costs 
to the Federal Government because more businesses may qualify as small 
for Federal small business programs. For example, there will be more 
firms seeking SBA's loans; more firms eligible for enrollment in the 
Dynamic Small Business Search (DSBS) database or in certify.sba.gov; 
more firms seeking certification as 8(a)/BD or HUBZone firms or 
qualifying for small business, WOSB, EDWOSB, and SDVOSB status; and 
more firms applying for SBA's 8(a)/BD and Mentor-Prot[eacute]g[eacute] 
programs. With an expanded pool of small businesses, it is likely that 
Federal agencies will set aside more contracts for small businesses 
under the proposed change. One may surmise that this might result in a 
higher number of small business size protests and additional processing 
costs to agencies. However, the SBA's historical data on size protests 
actually show that the number of size protests actually decreased after 
an increase in the number of businesses qualifying as small as a result 
of size standards revisions as part of the first 5-year review of size 
standards. Specifically, on an annual basis, the number of size 
protests dropped from about 600 during fiscal years 2011-2013 (review 
of most receipts-based size standards was completed by the end of 
fiscal year 2013) to less than 500 during fiscal years 2017-2019. 
However, with more months of the data to be reviewed, 24-month 
averaging may increase time needed by size specialists to process a 
size protest. Among those newly defined small businesses seeking SBA's 
loans, there could be some additional costs associated with compliance 
and verification of their small business status. 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 standard to establish eligibility for SBA's loans. For these

[[Page 60413]]

reasons, SBA believes that these added administrative costs will be 
minor because necessary mechanisms are already in place to handle these 
added requirements.
    Additionally, some Federal contracts may possibly have higher 
costs. With a greater number of businesses defined as small under the 
proposed change, Federal agencies may choose to set aside more 
contracts for competition among small businesses only instead of using 
full and open competition. The movement of contracts from unrestricted 
competition to small business set-aside contracts might result in 
competition among fewer total bidders, although there will be more 
small businesses eligible to submit offers under the proposed change. 
However, the additional costs associated with fewer bidders are 
expected to be minor since, by law, procurements may be set aside for 
small businesses under the 8(a)/BD, HUBZone, WOSB, EDWOSB, or SDVOSB 
programs only if awards are expected to be made at fair and reasonable 
prices.
    Costs may also be higher when full and open contracts are awarded 
to HUBZone businesses that receive price evaluation preferences. 
However, with agencies likely setting aside more contracts for small 
businesses in response to the availability of a larger pool of small 
businesses under the proposed change to the averaging period for 
employees from 12 months to 24 months, HUBZone firms might actually end 
up getting fewer full and open contracts, thereby resulting in some 
cost savings to agencies. However, such cost savings are likely to be 
minimal as only a small fraction of unrestricted contracts are awarded 
to HUBZone businesses.
2. Contractive Effects of Changing the Averaging Period for Receipts 
From 3 Years to 5 Years
    As stated previously, the change enacted under Public Law 115-324 
may not always and necessarily benefit every small business concern. 
When businesses' annual revenues are declining or when annual revenues 
for the latest 3 years are lower than those for the earliest 2 years of 
the 5-year period, the 5-year average would be higher than the 3-year 
average, thereby ejecting small businesses out of their small business 
status sooner or rendering some small businesses other than small 
immediately. Similarly, small businesses that lose their small business 
status would have to wait longer to qualify as small again. Such small 
businesses would no longer be eligible for Federal small business 
opportunities, such as Federal small business contracts, SBA loan 
programs and other Federal benefits (such as reduced fees and 
exemptions from certain paperwork and compliance requirements) 
available to small businesses. However, the SBA's proposal to allow 
businesses applying for its Business Loan, Disaster Loan and SBIC 
Programs to elect to use either the 3-year receipts average or the 5-
year receipts average will mitigate such impacts. Moreover, the change 
in the averaging period for receipts in this proposed rule only applies 
to businesses in the SBA Business Loan, Disaster Loan, and SBIC 
Programs. In other words, the change in the calculation of average 
annual receipts in this proposed rule will have no impacts on 
businesses participating in Federal procurement and all other non-
procurement programs except SBA loan programs.
    By enabling mid-size businesses to regain small business status and 
lengthening the small business status of advanced and successful larger 
small businesses, the proposed rule may disadvantage smaller small 
businesses in more need of Federal assistance than their larger 
counterparts in competing for Federal opportunities. SBA frequently 
receives concerns from smaller small businesses that they lack 
resources, past performance qualifications and expertise to be able to 
compete against more resourceful, qualified and experienced larger 
small businesses for Federal opportunities for small businesses. SBA 
believes that overall benefits to small businesses from this proposed 
rule change outweigh the costs to small businesses.
F. Net Impact
1. Net Impact of Changing the Averaging Period for Employees From 12 
Months to 24 Months
    As discussed elsewhere, the proposed change in averaging period for 
employees would result in four primary impacts, which can be 
categorized as either having a `expansive impact' or `contractive 
impact' on size status of both currently large and small businesses. 
Allowing some currently large firms to gain small business status and 
some advanced small firms to remain small for a longer period 
represents the expansive impact of the proposed rule. Causing some 
currently small firms to lose or shorten their small business is the 
contractive impact.
    Although businesses in a majority of industries with employee-based 
size standards would be both positively and negatively impacted by this 
proposed rule, in totality the number of firms with expansive impacts 
was generally greater than the number of firms with contractive 
impacts. The proposed rule would result in a net gain of about $158 
million (or 0.3 percent increase from the baseline) in Federal small 
business contract dollars. The net impact of the proposed rule on SBA 
loans was also positive, but very small. Specifically, SBA estimates a 
net gain of $0.01 million in 7(a) and 504 loans and no change in 
disaster loans to small firms as a result of changing the period for 
calculating the average number of employees for size standards from 12 
months to 24 months. Net impacts of the proposed rule are summarized in 
Table 16, ``Net Impact from Changing the Averaging Period for Employees 
from 12 Months to 24 Months,'' below.

        Table 16--Net Impact From Changing the Averaging Period for Employees From 12 Months to 24 Months
----------------------------------------------------------------------------------------------------------------
                                                                                    Total
                 Impact of proposed change                   Total expansive     contractive       Net impact
                                                                 impact            impact
----------------------------------------------------------------------------------------------------------------
Total number of impacted firms--SAM (as of Sept 1, 2019)..               757               361               396
Impacted firms as % of total firms in the baseline--SAM                  0.5               0.2               0.3
 (as of Sept 1, 2019).....................................
Number of impacted firms--2012 Economic Census............             1,484             1,050               435
Impacted firms as % of total firms in the baseline--2012                 0.2               0.2               0.1
 Economic Census..........................................
Number of impacted firms eligible for set-aside contracts                219               197                22
 (FPDS-NG)................................................
Small business dollars impacted ($ million)...............            $423.2            $265.8            $157.8
Small business dollars impacted as % total set-aside                     0.9               0.6               0.3
 dollars in the baseline..................................
Number of 7(a) and 504 loans impacted.....................                 2                 2                 0
7(a) and 504 loan amount impacted ($ million).............             $0.03             $0.02             $0.01
7(a) and 504 loan amount impacted as % of total 7(a) and                 0.0               0.0               0.0
 504 loan amount in the baseline..........................

[[Page 60414]]

 
Number of disaster loans impacted.........................                 0                 0                 0
Disaster loan amount impacted ($ million).................              $0.0              $0.0              $0.0
Disaster loan amount impacted as % of total disaster loan                0.0               0.0               0.0
 amount in the baseline...................................
----------------------------------------------------------------------------------------------------------------

2. Net Impact of Changing the Averaging Period for Receipts From 3 
Years to 5 Years
    Under the SBA's proposal allowing businesses to elect to choose 
either a 3-year receipts average or a 5-year receipts average to 
establish small business eligibility for its Business Loan, Disaster 
Loan, and SBIC Programs, none of the currently eligible small 
businesses will experience a contractive impact from the proposed 
change. In other words, the proposed change will not cause any 
currently small businesses to lose or shorten their small business 
status. The proposed change will enable some mid-size businesses above 
the size standard gain or regain small business status and some 
advanced small businesses close to the size standard to lengthen their 
small status. In the absence of contractive impacts, the expansive 
impacts shown in Table 14 (above) will also represent as net impacts of 
the proposed change.
G. Transfer Impacts
1. Transfer Impacts of Changing the Averaging Period for Employees From 
12 Months to 24 Months
    The proposed change may result in some redistribution of Federal 
contracts between businesses gaining or extending small status and 
large businesses, and between businesses gaining or extending small 
status and other existing small businesses. However, it would have no 
impact on the overall economic activity since the total Federal 
contract dollars available for businesses to compete for will not 
change. While SBA cannot quantify with certainty the actual outcome of 
the gains and losses from the redistribution of contracts among 
different groups of businesses, it can identify several probable 
impacts in qualitative terms. With the availability of a larger pool of 
small businesses under the proposed change, some unrestricted Federal 
contracts may be set aside for small businesses. As a result, large 
businesses may lose access to some Federal contracts. Similarly, some 
currently small businesses may obtain fewer set-aside contracts due to 
the increased competition from some large businesses qualifying as 
small and advanced small businesses remaining small for a longer 
period. This impact may be offset by a greater number of procurements 
being set aside for all small businesses. With large businesses 
qualifying as small and advanced larger small businesses remaining 
small for a longer period under the proposed rule, smaller small 
businesses could face some disadvantages in competing for set-aside 
contracts against their larger counterparts. However, SBA cannot 
quantify these impacts.
2. Transfer Impacts of Changing the Averaging Period for Receipts From 
3 Years to 5 Years
    The change from a 3-year averaging period to a 5-year averaging 
period may result in some redistribution of Federal contracts between 
businesses gaining or extending small business status and large 
businesses, and between businesses gaining or extending small business 
status and other existing small businesses. However, since the change 
in calculation of receipts in this proposed rule does not apply to 
Federal contracting, these distributional impacts are not relevant for 
changing the averaging period for receipts from 3 years to 5 years.

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, eliminate ambiguity, and reduce burden. This 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 final 
rule has no federalism implications warranting preparation of a 
federalism assessment.

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 Benefit-Cost Analysis under Executive Order 
12866. Additionally, Executive Order 13563, Section 6, calls for 
retrospective analyses of existing rules.
    Following the enactment of Public Law 115-324, SBA issued a public 
notice advising business and contracting communities that SBA must go 
through a rulemaking process to implement the new law and that 
businesses still must report their receipts based on a 3-year average 
until SBA changes its regulations. SBA updated the Small Business 
Procurement Advisory Council (SBPAC) at its March 26, 2019, April 23, 
2019, and August 26, 2019, meetings about SBA's rulemaking process to 
implement Public Law 115-324. On April 18, 2019, SBA also presented an 
update on the implementation of Public Law 115-324 at the 2019 Annual 
Government Procurement Conference. Through phone calls and emails, SBA 
also advised business and contracting communities and other interested 
parties about the SBA's process to implement the new law.

Regulatory Flexibility Act (Initial Regulatory Flexibility Analysis)

    Under the Regulatory Flexibility Act (RFA), this proposed rule may 
have a significant economic impact on a substantial number of small 
businesses in industries subject to both employee-based and receipts-
based size standards. As described above, this rule may affect small 
businesses in those industries seeking assistance under Federal small 
business programs. Specifically, the change in the averaging period for 
calculating the number employees for size standards from 12 months to 
24 months may have a significant impact on a substantial number of 
businesses in industries subject to employee based

[[Page 60415]]

size standards in terms of qualifying for Federal small business 
programs, including Federal contracts set aside for small businesses 
and SBA's loan programs. Similarly, the proposed change in the 
averaging period for receipts from 3 years to 5 years will also impact 
a substantial number of businesses in the SBA Business Loan, Disaster 
Loan, and SBIC programs.
    Immediately below, SBA sets forth an initial regulatory flexibility 
analysis (IRFA) of proposed rule to address 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?
1. What is the need for and objective of the rule?
    First, section 863 of the NDAA 2021, Public Law 116-283, changed 
the averaging period for SBA's employee-based size standards from 12 
months to 24 months. The intent of this proposed rule is to implement 
Public Law 116-283 by amending 13 CFR 121.106 such that a concern would 
average its employees over all pay periods in the preceding completed 
24 months. Second, in 2018, Public Law 115-324 amended section 
3(a)(2)(C)(ii)(II) of the Small Business Act by modifying the period 
for calculating average annual receipts for prescribing size standards 
for business concerns in services industries by an agency without 
separate statutory authority to issue size standards from 3 years to 5 
years. In a final rule published December 5, 2019 (84 FR 66561), SBA 
implemented Public Law 115-324 by making changes to its receipts-based 
size standards for all SBA programs except the Business Loan and 
Disaster Loan Programs. This proposed rule would extend the changes to 
SBA's receipts-based size standards for the Business Loan, Disaster 
Loan, and SBIC Programs.
2. What are SBA's description and estimate of the number of small 
businesses to which the rule will apply?
    This proposed rule applies to all small businesses that are subject 
to either an employee-based or a receipts-based size standard. Based on 
the 2012 Economic Census special tabulations, 2012 County Business 
Patterns Reports, and 2012 Agricultural Census tabulations, of a total 
of 680,266 firms in all industries with employee-based size standards 
to which this proposed rule will apply, 657,942 or about 96.7 percent 
are considered small under the 12-month employee average. Of 152,450 
total concerns in SAM 2019 to which an employee-based size standard 
will apply, about 133,958 or 87.9 percent were small in at least one 
NAICS industry with an employee-based size standard. Similarly, based 
on the data from FPDS-NG for fiscal year 2019, about 39,700 unique 
firms in industries subject to employee-based size standards received 
at least one Federal contract in 2019, of which 85.3 percent, or 33,867 
were small.
    Based on the same data sources listed above, of a total of 7.2 
million firms in all industries with receipts-based size standards to 
which this final rule will apply, 6.9 million or about 96 percent are 
considered small under the 3-years receipts average. Of 334,990 total 
concerns in SAM 2019 to which a receipts-based size standard will 
apply, 292,454 or 87.3 percent were small in at least one NAICS 
industry with a receipts-based size standard.
3. What are the projected reporting, record-keeping and other 
compliance requirements of the rule?
    The proposed rule changes existing reporting or record-keeping 
requirements for small businesses. To qualify for Federal procurement 
and a few other programs, businesses are required to register in SAM 
and to self-certify that they are small at least once annually. 
Therefore, businesses opting to participate in those programs must 
comply with SAM requirements. There are no costs associated with SAM 
registration or certification. The change in the calculation of 
employees from a 12-month averaging period to a 24-month averaging 
period may result in some redistribution of Federal contracts between 
businesses gaining or extending small status and large businesses, and 
between businesses gaining or extending small status and other existing 
small businesses. However, it would have no impact on the overall 
economic activity since the total Federal contract dollars available 
for businesses to compete for will not change. Since the change in the 
calculation of annual average receipts in this proposed rule only 
applies to SBA loan programs, this will have no impact on Federal 
contracting and associated record-keeping requirements.
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, 5 U.S.C. 601(3), 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. 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 or changing a measurement period, no practical 
alternative exists to the systems of numerical size standards. As 
stated elsewhere, the objective of this final rule is to change SBA's 
regulations on the calculation of business size in terms of average 
number of employees to implement Public Law 116-283 for all SBA 
programs and average annual receipts to implement Public Law 115-324 
for the SBA's Business Loan, Disaster Loan and SBIC programs.
    This rule is expected to affect a substantial number of small 
entities, but the effects are not expected to be significant. However, 
to mitigate any unintended negative impacts of a 5-year averaging 
period on small businesses and to allow small businesses to continue to 
use the 3-year receipts average, in this proposed rule, SBA is allowing 
applicants in Business Loan, Disaster Loan and SBIC programs to elect 
to calculate average annual receipts using either a 3-year averaging 
period or a 5-year averaging period.

[[Page 60416]]

Paperwork Reduction Act

    For purposes of the Paperwork Reduction Act, 44 U.S.C. Chapter 35, 
SBA has determined that this proposed rule would amend an information 
collection (SBA Form 355, Information for Small Business Size 
Determination, OMB Control Number 3245-0101). SBA will revise 
Instruction No. 5 to specify that respondents will use a 24-month 
average to calculate number of employees. In Part II, question 10, 
respondents will then provide an average number of employees over 24 
months.
    Concurrently with publication of this proposed rule, SBA is 
submitting to OMB an Information Collection Review based on the changes 
described above. SBA has determined that the changes to the Form 355 
will not impact the paperwork burden, and it will remain at 4 hours.
    SBA will revise the SBA Form 480, Size Status Declaration, for SBIC 
applicants. The form would reflect the change to the 24-month average 
for applicants using an employee-based size standard, and the change to 
an election between a 3-year average and a 5-year average for 
applicants using a receipts-based size standard. The metrics for the 
alternative size standard for SBIC applicants would not change.
    SBA will revise Part M (Size Analysis) of SBA Form 1920 (7(a) 
Lender Application), OMB Control No.: 3245-0348, and Exhibit 4 of SBA 
Form 1244 (504 Loan Application), OMB Control No.: 3245-0071. The 
revisions would reflect the change to an election between a 3-year 
average or a 5-year average for applicants using a receipts-based size 
standard. The metrics for the alternative size standard for 7(a) and 
504 applicants would not change.

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.  121.104, revise the first sentence of paragraph (c)(1) and 
paragraphs (c)(2) through (4) to read as follows:


Sec.  121.104  How does SBA calculate annual receipts?

* * * * *
    (c) Period of measurement. (1) Except for the Business Loan, 
Disaster Loan, and Small Business Investment Company (SBIC) Programs, 
annual receipts of a concern that has been in business for 5 or more 
completed fiscal years means the total receipts of the concern over its 
most recently completed 5 fiscal years divided by 5. * * *
    (2) Except for the Business Loan, Disaster Loan Programs, and SBIC 
Programs, annual receipts of a concern which has been in business for 
less than 5 complete fiscal years means the total receipts for the 
period the concern has been in business divided by the number of weeks 
in business, multiplied by 52.
    (3) Except for the Business Loan, Disaster Loan, and SBIC Programs, 
where a concern has been in business 5 or more complete fiscal years 
but has a short year as one of the years within its period of 
measurement, annual receipts means the total receipts for the short 
year and the 4 full fiscal years divided by the total number of weeks 
in the short year and the 4 full fiscal years, multiplied by 52.
    (4) For the Business Loan, Disaster Loan, and SBIC Programs, a 
concern that has been in business for three or more completed fiscal 
years may elect to calculate annual receipts using either the total 
receipts of the concern over its most recently completed 5 fiscal years 
divided by 5, or the total receipts of the concern over its most 
recently completed 3 fiscal years divided by 3. Annual receipts of a 
concern which has been in business for less than three complete fiscal 
years means the total receipts for the period the concern has been in 
business divided by the number of weeks in business, multiplied by 52. 
Where a concern has been in business three or more complete fiscal 
years but has a short year as one of the years within its period of 
measurement, annual receipts means the total receipts for the short 
year and the two full fiscal years divided by the total number of weeks 
in the short year and the two full fiscal years, multiplied by 52. For 
the purposes of this subsection, the Business Loan Programs consist of 
the 7(a) Loan Program, the Microloan Program, the Intermediary Lending 
Pilot Program, and the Development Company Loan Program (``504 Loan 
Program''). The Disaster Loan Programs consist of Physical Disaster 
Business Loans, Economic Injury Disaster Loans, Military Reservist 
Economic Injury Disaster Loans, and Immediate Disaster Assistance 
Program loans.
* * * * *
0
3. In Sec.  121.106, revise paragraphs (b)(1) and (3) to read as 
follows:


Sec.  121.106  How does SBA calculate number of employees?

* * * * *
    (b) * * *
    (1) The average number of employees of the concern is used 
(including the employees of its domestic and foreign affiliates) based 
upon numbers of employees for each of the pay periods for the preceding 
completed 24 calendar months.
* * * * *
    (3) If a concern has not been in business for 24 months, the 
average number of employees is used for each of the pay periods during 
which it has been in business.
* * * * *
0
4. In Sec.  121.903, revise paragraph (a)(1)(i) to read as follows:


Sec.  121.903  How may an agency use size standards for its programs 
that are different than those established by SBA?

    (a) * * *
    (1) * * *
    (i) The size of a manufacturing concern by its average number of 
employees based on the preceding 24 calendar months, determined 
according to Sec.  121.106;
* * * * *

Isabella Casillas Guzman,
Administrator.
[FR Doc. 2021-23439 Filed 11-1-21; 8:45 am]
BILLING CODE 8026-03-P