[Federal Register Volume 89, Number 32 (Thursday, February 15, 2024)]
[Rules and Regulations]
[Pages 11703-11713]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02776]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 115 and 121

RIN 3245-AG16


Small Business Size Standards: Adjustment of Alternative Size 
Standard for SBA's 7(a) and CDC/504 Loan Programs for Inflation; and 
Surety Bond Limits: Adjustments for Inflation

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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SUMMARY: This rule finalizes, without change, the U.S. Small Business 
Administration's (SBA or Agency) July 28, 2023, proposed rule to adopt 
the current statutory alternative size standard for its 7(a) Business 
and Certified Development Company (CDC/504) Loan Programs (collectively 
``Business Loan Programs''), subject to a 34.46 percent adjustment for 
inflation that has occurred since the establishment of the statutory 
alternative size standard in 2010. The inflation adjustment would 
increase the size standard's level for tangible net worth to $20 
million and for net income to $6.5 million. SBA also is adjusting for

[[Page 11704]]

inflation the applicable statutory limits for contract size under the 
Surety Bond Guarantee (SBG) Program. The adjustment increases the 
contract limit to $9 million and the contract limit for Federal 
contracts if a Federal contracting officer certifies that such a 
guarantee is necessary to $14 million.

DATES: This rule is effective March 18, 2024.

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

SUPPLEMENTARY INFORMATION:

I. Background for Small Business Size Standards

    To determine eligibility for Federal small business assistance, SBA 
establishes small business size definitions (usually referred to as 
``size standards'') for private sector industries in the United States. 
SBA uses two primary measures of business size for size standards 
purposes: average annual receipts over the last several years (either 
three years or five years for SBA financial assistance programs) and 
average number of employees over the last 24 months. SBA uses assets 
for certain financial industries and refining capacity, in addition to 
employees, for the petroleum refining industry to measure business 
size. In addition, SBA's Small Business Investment Company (SBIC), 
Certified Development Company (CDC/504), and 7(a) Loan Programs use 
either the industry-based size standards or tangible net worth and net 
income-based alternative size standards to determine eligibility for 
those programs.
    SBA reviews small business size standards and makes necessary 
adjustments to them for three reasons: (i) changes in industry 
structure and Federal market conditions under the Small Business Jobs 
Act of 2010 (Jobs Act), Public Law 111-240, section 1344, Sep. 27, 
2010; (ii) inflation in accordance with 13 CFR 121.102(c); and (iii) 
adoption of the latest North American Industry Classification System 
(NAICS) revision by the Office of Management and Budget. Updating size 
standards based on inflation--in addition to updating size standards 
based on the latest industry and Federal contracting data under the 
five-year rolling review--not only satisfies the Jobs Act's mandate 
that SBA review all size standards every five years, but also is 
consistent with Executive Order 13563 on improving regulation and 
regulatory review.
    Although SBA is required to assess the impact of inflation on its 
monetary-based size standards at least once every five years (67 FR 
3041; January 23, 2002) (13 CFR 121.102(c)), SBA may modify the timing 
of its adjustments to size standards and consider adjustments even more 
frequently than five-year intervals based on the prevailing economic 
conditions and the important policy objective of maintaining the value 
of size standards in inflation-adjusted terms.

II. Background on Alternative Size Standards

    Section 1116 of the Jobs Act added a new Section 3(a)(5) to the 
Small Business Act that directed SBA to establish an alternative size 
standard using maximum tangible net worth and average net income for 
applicants of the SBA's 7(a) Business and CDC/504 Loan Programs 
(collectively ``Business Loan Programs''). The Jobs Act also 
established for applicants for the SBA's Business Loan Programs an 
interim alternative size standard of not more than $15 million in 
tangible net worth and of not more than $5 million in the average net 
income after Federal income taxes (excluding any carry-over losses) of 
the applicant for the two full fiscal years before the date of the 
application (referred to as ``Interim Rule''). Under the Jobs Act, this 
interim statutory alternative size standard would remain in effect 
until SBA established a new alternative size standard for the Business 
Loan Programs through rulemaking. 15 U.S.C. 632(a)(5). Prior to that, 
SBA had a lower regulatory alternative size standard that applied to 
the CDC/504 Loan Program and applied temporarily to the 7(a) Loan 
Program for the period beginning on May 5, 2009, and ending on 
September 30, 2010. 13 CFR 120.301(b)(2).
    On September 29, 2010, SBA issued Information Notice 5000-1175 
(available at https://www.sba.gov/sites/default/files/files/bank_5000-1175_0.pdf) providing that, effective September 27, 2010, the new 
statutory alternative size standard applied to its Business Loan 
Programs, thereby replacing and superseding the lower existing 
alternative size standard of $8.5 million in tangible net worth and $3 
million in average net income, as set forth in 13 CFR 121.301(b)(2). 
The Information Notice further stated that the new statutory 
alternative size standard would remain in effect until SBA established 
a permanent alternative size standard for the Business Loan Programs 
through rulemaking.
    In accordance with its regulations, SBA is required to assess the 
impact of inflation on its monetary-based size standards at least once 
every five years (67 FR 3041; January 23, 2002) and 13 CFR 121.102(c)). 
Accordingly, except for the statutory alternative size standard for the 
SBA Business Loan Programs, SBA adjusted its monetary-based size 
standards for inflation three times since the Congress enacted the 
Interim Rule in 2010.\1\ In its rulemaking for each adjustment, SBA 
provided that the statutorily set alternative size standard would 
remain in effect until SBA established a permanent alternative size 
standard for the 7(a) and CDC/504 Loan Programs.
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    \1\ Small Business Size Standards: Inflation Adjustment to 
Monetary Based Size Standards (Interim Final Rule) (79 FR 33647; 
June 12, 2014), finalized on January 25, 2016 (81 FR 3949); Small 
Business Size Standards: Adjustment of Monetary-Based Size Standards 
for Inflation (Interim Final Rule) (84 FR 34261; July 18, 2019), 
finalized on November 17, 2022 (87 FR 69118); Small Business Size 
Standards: Adjustment of Monetary-Based Size Standards, Disadvantage 
Thresholds, and 8(a) Eligibility Thresholds for Inflation (Joint 
Final and Interim Rule) (87 FR 69118; November 17, 2022).
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    To move toward codifying a permanent alternative size standard, in 
March 2018, SBA published in the Federal Register an advanced notice of 
proposed rulemaking (ANPRM) seeking public input to assist in 
establishing a permanent alternative size standard for its 7(a) and 
CDC/504 Loan Programs (83 FR 12506; March 22, 2018). SBA also invited 
suggestions on sources of relevant data and information that SBA should 
evaluate in developing a permanent alternative size standard and in 
assessing its impact. SBA received a total of 34 comments on the ANPRM, 
of which 11 were found to be not pertinent to the scope of the ANPRM. 
Of the 23 comments that were pertinent, all 23 not only supported the 
statutory alternative size standard, but also recommended making it the 
permanent alternative size standard for the SBA's 7(a) and CDC/504 Loan 
Programs.
    On July 28, 2023, SBA issued a proposed rule to adopt the current 
statutory alternative size standard for its Business Loan Programs, 
subject to a 34.46 percent adjustment for inflation that has occurred 
since the establishment of the statutory alternative size standard in 
2010 (88 FR 48739). As described in the July 2023 proposed rule, the 
inflation that has occurred since 2010 has eroded the value of the 
alternative size standard in real terms. SBA has an important policy 
objective of maintaining the value of monetary-based size standards in 
real (i.e., inflation-adjusted) terms, and by adjusting the statutory 
alternative size standard for inflation, SBA is fulfilling that 
objective. SBA used the inflation adjustment methodology it describes 
in its ``Size Standards Methodology'' white

[[Page 11705]]

paper, available at www.sba.gov/size, to adjust the statutory 
alternative size standard for inflation. SBA applied the same 
methodology in its previous inflation adjustments to other monetary 
based size standards, including the latest inflation adjustment in 2022 
(87 FR 69118; November 17, 2022). The proposed inflation adjustment 
increased the tangible net worth component of the alternative size 
standard to $20 million and the net income component to $6.5 million.

III. Background for Surety Bond Contract Limits

    In SBA's July 2023 proposed rule, SBA also proposed amending the 
contract limits applicable to its Surety Bond Guarantee (SBG) Program. 
The SBG Program is designed to increase small business access to 
Federal, state, and local government contracting, as well as private-
sector contracting, by guaranteeing bid, payment, and performance bonds 
on contracts for small and emerging contractors who cannot obtain 
surety bonds through regular commercial channels.\2\ Surety bonds are 
important to small businesses interested in competing for Federal 
contracts because the Federal Government requires prime contractors, 
prior to the award of a Federal contract exceeding $150,000 for the 
construction, alteration, or repair of any building or public work of 
the United States, to furnish a performance bond issued by a surety 
satisfactory to the officer awarding the contract in an amount the 
contracting officer considers adequate to protect the government. SBA's 
guarantee gives sureties an incentive to provide bonding for small 
businesses and thereby assists small businesses in obtaining greater 
access to contracting opportunities. SBA's guarantee is an agreement 
between a surety and SBA that SBA will assume a certain percentage of 
the surety's loss should a contractor default on the underlying 
contract. The SBA's guarantee currently ranges from 80 percent to 90 
percent of the surety's loss if a default occurs. For more information 
about SBA's SBG Program, see https://www.sba.gov/funding-programs/surety-bonds.\3\
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    \2\ A surety bond is a three-party instrument between a surety, 
a contractor, and a project owner. The agreement binds the 
contractor to comply with the contract's terms and conditions. If 
the contractor is unable to successfully perform the contract, the 
surety assumes the contractor's responsibilities and ensures that 
the project is completed. The surety bonds reduce the risk of 
contracting. Surety bonds are viewed as a means to encourage project 
owners to contract with small businesses that may not have the 
credit history or prior experience of larger businesses and are 
considered to be at greater risk of failing to comply with the 
contract's terms and conditions.
    \3\ Also see a July 8, 2022, Congressional Research Service 
Report on ``SBA Surety Bond Guarantee Program,'' available at 
https://crsreports.congress.gov/product/pdf/R/R42037.
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    Section 1695 of the National Defense Authorization Act for Fiscal 
Year 2013 (NDAA 2013 or Act) (Pub. L. 112-239; January 2, 2013) 
increased the SBG guarantee limit to $6.5 million, and up to $10 
million for a Federal contract if a Federal contracting officer 
certifies that such a guarantee is necessary.\4\ The Act also included 
a provision to increase the $6.5 million limit periodically for 
inflation in accordance with 41 U.S.C. 1908. 41 U.S.C. 1908 provides 
that inflation adjustments for acquisition-related dollar thresholds 
are to be set by the Federal Acquisition Regulatory Council (FAR 
Council). It also requires that the Consumer Price Index (CPI) be used 
to measure inflation. The FAR Council is established under 41 U.S.C. 
1302 to assist in the direction and coordination of procurement policy 
and regulatory activities for the Federal Government. The FAR Council 
is required to adjust for inflation the acquisition-related dollar 
thresholds every five years. Based on CPI, inflation has increased more 
than 30 percent since 2013. This has eroded the value of the bonding 
limits in real terms since the limits were set by Congress in 2013.
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    \4\ Section 508 of the American Recovery and Reinvestment Act of 
2009 (ARRA) (Pub. L. 111-5; Feb 17, 2009) temporarily increased, 
from February 17, 2009, through September 30, 2010, the maximum bond 
amount from $2 million to $5 million. The act also authorized the 
SBA to guarantee a bond of up to $10 million for Federal contracts 
if a Federal contracting officer certified that such a guarantee was 
necessary. Using its rulemaking authority, SBA made ARRA's temporary 
size standard permanent on August 11, 2010 (76 FR 48549).
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    SBA has an important statutory requirement to adjust the bonding 
limits in accordance with CPI and the FAR Council. The current limits 
are $6.5 million and, for Federal contracts if a Federal agency 
certifies that a greater amount is necessary, $10 million. SBA has not 
adjusted its bonding limits since 2013. The FAR Council has not set a 
specific threshold in the Federal Acquisition Regulations (FAR) for SBA 
bonding limits. The FAR Council adjusts the acquisition-related dollar 
thresholds every five years with the last adjustments occurring in 2015 
and 2020. The FAR Council had a $6.5 million threshold in effect in 
2013 when the SBA bonding limits were set. In 2015, as part of 
inflationary adjustments to the acquisition-related dollar thresholds, 
the FAR Council increased the $6.5 million threshold to $7 million (80 
FR 38293; July 2, 2015). Likewise, in 2020, the FAR Council adjusted $7 
million threshold to $7.5 million (85 FR 62485; October 2, 2020). The 
FAR did not have a $10 million threshold in effect in 2013.
    As described in the July 2023 proposed rule, in absence of a 
specific FAR threshold for SBA bonding limits, SBA proposed to follow 
the FAR adjustment from $6.5 million to $7.5 million in 2020 and then 
calculate an adjustment from 2020 to 2023 using the same CPI 
methodology. SBA also proposed to adjust the existing limit of $10 
million to maintain the same percentage spread (the lower limit is 65 
percent of the upper limit). As explained in the July 2023 proposed 
rule, by adjusting both limits at the same time, SBA maintains the 
effectiveness of the necessity provision and avoids the upper limit 
becoming meaningless. If only the lower limit were adjusted, then at 
some point it will exceed the necessity limit due to inflation. Thus, 
SBA's actions fulfill the statutory objective of maintaining the value 
of monetary-based bonding limits in real (i.e., inflation-adjusted) 
terms.

IV. Summary and Discussion of Public Comments Received on the July 2023 
Proposed Rule

    SBA's July 2023 proposed rule invited public comments on SBA's 
proposed changes generally, and on a variety of specific issues, 
including the appropriateness of applying SBA's size standards 
methodology for inflation adjustments to the statutory alternative size 
standard, whether the inflation-adjusted level of the interim statutory 
alternative size standard is appropriate as a new permanent alternative 
size standard under the current credit environment, the impact of using 
the statutory alternative size standard as the permanent alternative 
size standard on small businesses seeking loans through its Business 
Loan Programs, and the appropriateness of SBA's proposed methodology 
for adjusting statutory contract limits for its SBG Program, especially 
on SBA's approach to adjust the $10 million contract limit for Federal 
contracts.
    SBA received 13 comments on the proposed rule from various trade 
associations, businesses, and individual stakeholders, of which 11 
comments supported SBA's proposed changes and two comments were not 
applicable or were outside the scope of SBA's proposed rule. Generally, 
commenters expressed strong support for SBA's proposed changes without 
reservation.
    Of the 11 comments pertinent to the proposed rule, SBA received 
three

[[Page 11706]]

comments from national trade associations, each separately representing 
surety bond producers, certified development companies (CDCs), and 
lenders participating in SBA's 7(a) business loan program. These 
commenters expressed support for SBA's proposed rule on the grounds 
that SBA's changes would ultimately expand access for small businesses 
to financial assistance and other resources. For example, the national 
association representing surety bond producers expressed that SBA's 
proposal to adjust for inflation the statutory limits for contract size 
under the SBG Program would allow more small and emerging contractors 
to grow their businesses by obtaining bonding to bid on public 
construction projects.
    The national association representing CDCs supported SBA's proposal 
to adopt the statutory alternative size standard of $15 million in 
tangible net worth and $5 million in net income as the permanent 
alternative size standard, subject to SBA's proposed inflation 
adjustment. This commenter petitioned SBA to further adjust the 
alternative size standard for inflation on the same five-year schedule 
that SBA currently uses for reviewing its monetary-based industry size 
standards. Moreover, the commenter expressed general support for 
continuing to allow small businesses to qualify for SBA financial 
assistance using either the alternative size standard or the industry 
size standard to ensure that as many small businesses as possible have 
access to SBA programs. The commenter further explained that the 
alternative size standard is particularly helpful for CDCs who may find 
it is easier to use it rather than the industry-based size standards 
due to the alternative size standard's consistency across all 
industries.
    The national association representing lenders participating in 
SBA's 7(a) business loan program also expressed support for continued 
use of alternative size standards for 7(a) and 504 loan eligibility, 
explaining that the alternative size standard simplifies the size 
determination process for lenders since it relies on financial 
information that is readily available from the loan applicant. This 
commenter also supported SBA's proposal to make the interim alternative 
size standard permanent while adjusting it for inflation. The commenter 
petitioned SBA to adjust the alternative size standard on a periodic 
five-year basis going forward to assure that inflation does not erode 
the tangible net worth and net income monetary maximums.
    The remaining eight pertinent comments were from individual 
stakeholders and businesses, including five CDCs, which supported 
various aspects of SBA's proposed rule. Three individual stakeholders 
expressed general support for SBA's changes to the bonding thresholds 
or alternative size standard. The 5 CDCs expressed support for SBA's 
proposed inflation-adjusted alternative size standard on the basis that 
the higher levels would ensure that small businesses would remain 
eligible for SBA financial assistance in an environment of increasing 
bank conservatism, high inflation and soaring interest rates. Four of 
the CDCs specifically expressed support for adopting the inflation 
adjusted statutory threshold as the permanent threshold and further 
recommended that SBA adjust the alternative size standard for inflation 
on a periodic basis not to exceed every five years.

SBA Response

    SBA agrees with commenters that its proposed changes would allow 
more small businesses to access SBA programs and financial assistance. 
As explained in the July 2023 proposed rule, this rule will apply to 
more than 8.1 million employer firms, of which 98.2 percent are small 
under industry-based size standards and 92.5 percent are small under 
the interim statutory alternative size standard. SBA estimates that 
about 6,275 firms that are above the interim statutory alternate size 
standard will qualify as small under the inflation-adjusted size 
alternative standard. While SBA cannot precisely estimate the number of 
businesses that are approved under the alternative size standard for 
7(a) or CDC/504 loans and the number of newly-defined small businesses 
that will qualify under the inflation-adjusted alternative size 
standard for loans under these programs due to data limitations, based 
on the analysis of the available data for fiscal years 2021-2022, SBA 
estimates that at least 500 7(a) or CDC/504 loans (or 0.4 percent of 
total loans) will likely be approved under the alternative size 
standard that otherwise would not have qualified under the industry-
based size standard. Likewise, with respect to the SBG Program, under 
the rule, SBA estimates that more small businesses will qualify to 
apply for surety bonds as a result of the proposed increases to 
statutory bonding limits.
    SBA also agrees with commenters that using the alternative size 
standard has benefitted lenders in terms of simplifying and 
streamlining the loan application process and has reduced burden on 
applicants by providing an alternative method to establish eligibility 
for SBA financial assistance which would otherwise require businesses 
to keep three years or potentially five years of data to establish 
eligibility using industry-based size standards. Thus, SBA continues to 
support the use of alternative size standards for use in its Business 
Loan programs.
    As explained in the July 2023 proposed rule, SBA believes its 
changes to the alternative size standard will allow more businesses to 
gain eligibility for SBA's Business Loan Programs for which they would 
not otherwise be eligible based on their industry-specific size 
standards. SBA's changes to the SBG statutory contract limits will 
provide greater access to contracting opportunities for small 
businesses. Thus, SBA's changes will allow these additional businesses 
to attain SBA assistance that may be critical to their continued growth 
or economic viability.

V. Conclusion

    With due consideration of all public comments, as discussed above, 
and in light of the overall strong support for SBA's proposed changes 
and anticipated impacts, SBA is adopting the proposed adjustments in 
the July 2023 proposed rule without change. SBA's adoption of the 
proposed changes provides assurances to the public that the Agency is 
monitoring inflation to determine whether to adjust size standards and 
other monetary thresholds within a reasonable period. SBA's adoption of 
the proposed changes also ensures that the thresholds applicable to the 
Business Loan Programs and SBG Program are up-to-date and appropriate 
for the respective intended beneficiaries of the programs. Given the 
current developments in the U.S. economy, SBA will continue to monitor 
the inflation and other economic indicators and their impacts on size 
standards and adjust size standards, as needed. SBA will adjust the 
levels for inflation on the same five-year schedule that SBA currently 
uses for reviewing its monetary-based industry size standards in 
accordance with 13 CFR 121.102(c).
    Specifically, SBA is adopting the statutory alternative size 
standard of $15 million in tangible net worth and $5 million in net 
income as the permanent alternative size standard, subject to 
adjustment for inflation that has occurred since the establishment of 
the statutory alternative size standard in 2010. The inflation 
adjustment increases the size standard's level for tangible net worth 
to $20 million and for net income to $6.5 million. SBA is also 
adopting, as proposed, the inflation-adjusted thresholds applicable to 
the statutory

[[Page 11707]]

limits for contract size under the SBG Program. The adjustment 
increases the contract limit to $9 million and to $14 million for 
Federal contracts if a Federal contracting officer certifies that such 
a guarantee is necessary. The statutory responsibility for adjusting 
the size standard for inflation lies with the Federal Acquisition 
Regulation. In the absence of FAR action, SBA will adjust the SBG 
contract limits on the same five-year schedule that SBA currently uses 
for reviewing its monetary-based industry size standards in accordance 
with 13 CFR 121.102(c).
    As required under 13 CFR 121.102(e), SBA advises readers that 
interested eligible parties may file a petition for reconsideration of 
a revised, modified, or established size standard at SBA's Office of 
Hearings and Appeals (OHA) within 30 calendar days after publication of 
this final rule in accordance with 15 U.S.C. 632(a)(9) and 13 CFR 134 
Subpart I. You may reach OHA using the following contact information: 
by mail at U.S. Small Business Administration, Office of Hearings and 
Appeals, 409 Third St. SW, Eighth Floor, Washington, DC 20416, by email 
at [email protected], by phone: 202-401-8200 TTY/TRS: 711, or by fax 
at (202) 205-7059.

VI. Compliance With Executive Order 12866, the Congressional Review Act 
(5 U.S.C. 801-808), the Regulatory Flexibility Act (5 U.S.C. 601-612), 
Executive Orders 13563, 12988, and 13132, and the Paperwork Reduction 
Act (44 U.S.C., Ch. 35)

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
final rule is a significant regulatory action for purposes of Executive 
Order 12866. This rule affects applicants for SBA's 7(a) Business and 
CDC/504 Loan Programs and businesses and sureties that use the SBG 
Program. To help explain the need for this rule and the rule's 
potential benefits and costs, SBA is providing below a Regulatory 
Impact Analysis for this rule.

Regulatory Impact Analysis

1. What is the need for this regulatory action?
    SBA is required by the Jobs Act to adopt an alternative size 
standard based on tangible net worth and net income after taxes for its 
7(a) and CDC/504 Loan Programs. SBA believes that adopting an 
alternative size standard is in the best interests of small businesses 
seeking SBA's financial assistance. SBA's mission is to aid and assist 
small businesses through a variety of financial, procurement, business 
development, and counseling programs. To assist the intended 
beneficiaries of these programs effectively, SBA establishes distinct 
definitions (usually referred to as ``size standards'') to determine 
which businesses are deemed small businesses. One of the SBA's missions 
has been to provide necessary financing to small businesses that are 
not able to obtain loans in the commercial market in reasonable terms. 
Many businesses that have exceeded their industry-based size standards 
cannot grow and support their employees without additional capital from 
SBA's financial assistance programs. The alternative size standard 
established by Congress assisted some small businesses that could not 
have otherwise qualified under their industry-based size standards.
    SBA is required to assess the impact of inflation on its monetary-
based size standards at least once every five years (67 FR 3041 
(January 23, 2002) and 13 CFR 121.102(c)). Inflation, as measured by 
the change in GDP price index, has increased more than 34 percent from 
the enactment of the interim statutory alternative size standard in 
2010. Inflation has caused the statutory alternative size standard to 
decrease in real terms, thereby forcing some businesses to lose small 
business status and eligibility for SBA's Business Loan Programs. As 
stated previously, SBA adjusted its monetary size standards three times 
since the establishment of the statutory alternative size standard in 
2010, but the Agency did not adjust the statutory alternative size 
standard for SBA's Business Loan Programs. SBA has an important policy 
objective of maintaining the value of monetary-based size standards in 
real (i.e., inflation-adjusted) terms, and by adjusting the statutory 
alternative size standard for inflation this rulemaking fulfils that 
objective.
    The Small Business Act delegates to SBA's Administrator 
responsibility for establishing definitions for small business. The Act 
requires that small business definitions vary to reflect industry 
differences. 15 U.S.C. 632(a). Some businesses in need of financial 
assistance from SBA's 7(a) and CDC/504 Loan Programs may exceed the 
applicable size standard for their industries. The alternative size 
standard, in addition to the industry-based size standards, would apply 
uniformly across all industries and expand credit opportunities to 
businesses that are in need of SBA's financial assistance. The 
inflationary adjustment of the statutory alternative size standard 
would not affect existing industry-based size standards but rather 
would supplement them and make financing available to otherwise 
eligible applicants that exceed their industry-based size standards.
    NDAA 2013 increased the SBG guarantee limit to $6.5 million, and up 
to $10 million for a Federal contract if a Federal contracting officer 
certifies that such a guarantee is necessary. The act also included a 
provision to increase the $6.5 million limit periodically for inflation 
in accordance with 41 U.S.C. 1908. Based on the CPI, inflation has 
increased more than 30 percent since 2013. SBA has not adjusted its 
bonding limits since 2013. This has eroded the value of the bonding 
limits in real terms since the limits were set by Congress in 2013. The 
adjustment of the SBG contract limits will bring them in line with 
ongoing inflation and current contracting trends and increase 
contracting opportunities to small businesses.
2. What are the potential benefits and costs of this regulatory action?
    The most significant benefit of this regulatory action for 
businesses is that certain businesses, especially in industries with 
receipts-based size standards, will gain eligibility for SBA's Business 
Loan Programs for which they would not otherwise be eligible based on 
their industry-specific size standards. This will allow them to attain 
financing that may be critical to their continued growth or economic 
viability.
    Table 1, Comparison Between Industry-Based and Inflation-Adjusted 
Statutory Alternative Size Standard (FY 2021-2022), compares the 
percentages of industries that have higher industry-based size 
standards relative to inflation-adjusted statutory size standard by 
type of size standard. For nearly 96 percent of industries with 
receipts-based size standards, the inflation-adjusted alternative size 
standard is found to be, in relative terms, higher than the industry-
based size standards, thereby allowing businesses exceeding industry-
based size standards in those industries to qualify for 7(a) and CDC/
504 Loan Programs under the inflation-adjusted alternative size 
standard. The corresponding figure for the interim statutory 
alternative size standard is nearly 93 percent. On the other hand, for 
77 percent of industries with employee-based size standards, industry-
based size standards are, in relative terms, higher than the inflation-
adjusted alternative size standard. That figure for the interim 
statutory alternative size standard is 82.5 percent. This suggests that 
the alternative size

[[Page 11708]]

standard provides more benefits to businesses in the receipts-based 
industries than those with employee-based size standards. The higher 
inflation-adjusted alternative size standard will continue to help 
businesses above the industry-based size standards to receive SBA's 
financing.

                               Table 1--Comparison Between Industry-Based and Inflation-Adjusted Alternative Size Standard
                                                                     [FY 2021-2022]
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                                                             Whether industry size standard is     Whether industry size standard is
                                                               higher or lower than interim         higher or lower than inflation-
                                                              statutory alternative standard        adjusted statutory alternative
                    Size standard type                                  (Table 11)                             standard                      Total
                                                          ----------------------------------------------------------------------------
                                                                 Higher             Lower              Higher             Lower
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Employee-based...........................................        392 (82.5%)         83 (17.5%)        366 (77.1%)        109 (22.9%)       475 (100.0%)
Receipts-based...........................................          35 (7.3%)        445 (92.7%)          20 (4.2%)        460 (95.8%)       480 (100.0%)
                                                          ----------------------------------------------------------------------------------------------
    Total................................................        427 (44.7%)        528 (55.3%)        386 (40.4%)        569 (59.6%)       955 (100.0%)
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    Table 2, Comparison Between Industry-Based and Inflation-Adjusted 
Statutory Alternative Size Standards by Sector (FY 2021-2022), shows by 
sector the impacts of inflation adjustment to the statutory alternative 
size standard on proportions of industries for which industry-based 
size standards are higher than the inflation-adjusted alternative size 
standard. Compared to the interim statutory alternative size standard, 
the proportions of industries for which alternative size standard is 
higher than the industry-based size standards are higher under the 
inflation-adjusted alternative size standard, especially for industries 
with employee-based size standards. For example, for just 7.8 percent 
of industries in manufacturing, the statutory size alternative size 
standard is higher than the industry-based size standards. That figure 
increases to 13.3 percent under the inflation-adjusted size standard. 
Another example is wholesale trade, where percentage of industries for 
which the statutory alternative size standard is higher than the 
industry-based size standard increases from about 68 percent under the 
statutory alternative size standard to about 78 percent under the 
inflation-adjusted alternative size standard.

                    Table 2--Comparison Between Industry-Based and Inflation-Adjusted Statutory Alternative Size Standards by Sector
                                                                     [FY 2021-2022]
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                                                             Whether industry size standard is     Whether industry size standard is
                                                               higher or lower than interim         higher or lower than inflation-
                                                              statutory alternative standard        adjusted statutory alternative
            Sector code                  Sector title                   (Table 12)                             standard                      Total
                                                          ----------------------------------------------------------------------------
                                                                 Higher             Lower              Higher             Lower
--------------------------------------------------------------------------------------------------------------------------------------------------------
11................................  Agriculture,                    0 (0.0%)        63 (100.0%)           0 (0.0%)        63 (100.0%)        63 (100.0%)
                                     Forestry, Fishing
                                     and Hunting.
21................................  Mining, Quarrying,            17 (81.0%)          4 (19.0%)         17 (81.0%)          4 (19.0%)         21(100.0%)
                                     and Oil and Gas
                                     Extraction.
22................................  Utilities............         12 (85.7%)           2 (14.3)         12 (85.7%)          2 (14.3%)        14 (100.0%)
23................................  Construction.........           0 (0.0%)        30 (100.0%)           0 (0.0%)        30 (100.0%)        30 (100.0%)
31-33.............................  Manufacturing........        319 (92.2%)          27 (7.8%)        300 (86.7%)         46 (13.3%)       346 (100.0%)
42................................  Wholesale Trade......         22 (31.9%)         47 (68.1%)         15 (21.7%)         54 (78.3%)        69 (100.0%)
44-45.............................  Retail Trade.........           0 (0.0%)        57 (100.0%)           0 (0.0%)        57 (100.0%)        57 (100.0%)
48-49.............................  Transportation and            15 (27.8%)         39 (72.2%)         12 (22.7%)         42 (77.8%)        54 (100.0%)
                                     Warehousing.
52................................  Finance and Insurance           0 (0.0%)          16 (100%)           0 (0.0%)        16 (100.0%)        16 (100.0%)
53................................  Real Estate and               10 (41.7%)         14 (58.3%)          6 (25.0%)         18 (75.0%)        24 (100.0%)
                                     Rental and Leasing.
54................................  Professional,                   3 (6.3%)         45 (93.8%)           3 (6.3%)         45 (93.8%)        48 (100.0%)
                                     Scientific, and
                                     Technical Services.
55................................  Management of                   0 (0.0%)         2 (100.0%)           0 (0.0%)         2 (100.0%)         2 (100.0%)
                                     Companies and
                                     Enterprises.
56................................  Administrative and              0 (0.0%)        44 (100.0%)           0 (0.0%)        44 (100.0%)        44 (100.0%)
                                     Support and Waste
                                     Management and
                                     Remediation Services.
61................................  Education Services...          3 (17.6%)         14 (82.4%)          2 (11.8%)         15 (88.2%)        17 (100.0%)
62................................  Health Care and                 3 (7.7%)         36 (92.3%)           3 (7.7%)         36 (92.3%)        39 (100.0%)
                                     Social Assistance.
71................................  Arts, Entertainment,           9 (36.0%)         16 (64.0%)          4 (16.0%)         21 (84.0%)        25 (100.0%)
                                     and Recreation.
72................................  Accommodation and               1 (6.7%)         14 (93.3%)           0 (0.0%)        15 (100.0%)        15 (100.0%)
                                     Food Services.
81................................  Other services.......          5 (11.6%)         38 (88.4%)           4 (9.3%)         39 (90.7%)        43 (100.0%)
                                   ---------------------------------------------------------------------------------------------------------------------
                                            Total                427 (44.7%)        528 (55.3%)        386 (40.4%)        569 (59.6%)       955 (100.0%)
--------------------------------------------------------------------------------------------------------------------------------------------------------

    SBA cannot make a precise determination of the number of businesses 
that were approved under the alternative size standard for 7(a) or CDC/
504 Business Loans since the enactment of the statutory alternative

[[Page 11709]]

size standard in 2010 because the Agency does not store the data on 
whether an applicant for its 7(a) or CDC/504 Loan Program was qualified 
under its industry-based size standard or under the alternative size 
standard. The available data show that alternative size standard 
established by Congress enabled some small businesses above the 
industry-based size standards to get SBA's financing.
    As stated elsewhere, SBA also does not compile the data on average 
annual receipts, net worth, and net income. The only available data on 
business size is the number of employees. SBA examined its 7(a) and 
CDC/504 loan data for fiscal years 2021-2022. Based on this data, SBA 
estimates that 500 recipients of the SBA Business Loans (or 0.4 percent 
of the total loans) that appeared to have exceeded their industry-based 
size standards were granted 7(a) and CDC/504 loans, implying that most 
likely they qualified under the statutory alternative size standard. 
Thus, this result indicates that the higher alternative size standard 
expanded credit availability to more small businesses through SBA's 
7(a) and CDC/504 Loan Programs.
    Table 3, Applicant's Eligibility Under the Inflation-Adjusted 
Statutory Alternative and Industry-Based Size Standards (FY 2021-2022), 
shows the eligibility of recipients of SBA loans through 7(a) and CDC/
504 Programs during fiscal years 2021-2022 under the industry-based and 
inflation-adjusted alternative size standard. More than 99.5 percent 
(i.e., 117,327/117,882 = 0.9953) of loan recipients were found to have 
met both the industry-based size standards and inflation-adjusted 
alternative size standard. As in the case of the statutory alternative 
size standard, about 500 or 0.4 percent of loan recipients that did not 
meet the industry-based size standard met inflation-adjusted 
alternative size standard. About 0.1 percent (i.e., 94/117,882 = 0.001) 
of loan recipients were found to have exceeded the interim statutory 
alternative size standard. That figure was 0.05 percent (i.e., 54/
117,882 = 0.0005) for the inflation-adjusted alternative size standard. 
Thus, 40 loan recipients that did not meet the statutory size standard 
met the inflation-adjusted alternative size standard.

                  Table 3--Applicant's Eligibility Under the Inflation-Adjusted Statutory Alternative and Industry-Based Size Standards
                                                                     [FY 2021-2022]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Interim statutory alternative size      Inflation-adjusted alternative size
                                                                standard (Table 5)                           standard
                                                     --------------------------------------------------------------------------------        Total
                                                             Meets           Does not meet           Meets           Does not meet
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry size standard..........  Meets.............  117,288...........  81................  117,327...........  42................  117,369
                                  Does not meet.....  500...............  13................  501...............  12................  513
                                                     ---------------------------------------------------------------------------------------------------
    Total.......................  ..................  117,788...........  94................  117,828...........  54................  *117,882
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note: This excludes invalid or incomplete observations in the form of invalid NAICS codes or missing RMA or receipts-to-employee ratios to estimate
  tangible net worth, net income, or receipts equivalent size standard.

    Based on the data for 2017 Economic Census, Agricultural Census, 
and County Business Patterns special tabulations, SBA estimates that 
about 6,275 businesses that are above the interim statutory alternative 
size standard will qualify under the inflation-adjusted alternative 
size standard. About 25 additional SBA Business Loans, totaling up to 
$50 million, will be made to these newly-qualified businesses using the 
higher inflation-adjusted alternative size standard. That constitutes 
less than 0.1 percent of the loan activity during fiscal years 2021-
2022. These results are consistent with results in Tables 7 and 8 of 
the July 2023 proposed rule, which showed that only a very small 
fraction of the SBA Business Loans and loan amount go to businesses 
that were close to the tangible net worth and net income thresholds of 
the statutory size standard. Thus, the vast majority of SBA Business 
Loans go to businesses that are significantly below the tangible net 
worth and net income thresholds of the statutory alternative size 
standard.
    The 7(a) Loan Program, SBA's largest loan program, includes 
financial help for businesses with special requirements. Small 
businesses can use SBA's 7(a) guaranteed loans for short- and long-term 
working capital, revolving funds based on inventory or receivables, 
fixed assets, and refinancing. Small businesses can use SBA's CDC/504 
loans for the purchase of land, buildings, improvements, and equipment. 
These loans provide long-term, fixed-rate financing to small businesses 
to acquire real estate or machinery or equipment for expansion or 
modernization. The CDC/504 loan proceeds are generally limited to fixed 
assets and their related soft costs.
    Businesses are often denied SBA's loans for reasons unrelated to 
the use of the loan proceeds, the concern's ability to repay the loan, 
or other credit-based reasons. Rather, they can be denied because they 
exceed the size standards for their industries. Some business concerns 
that exceed their industry-based size standards might be eligible for 
SBA's financial assistance under the alternative size standard that 
this final rule adopts.
    Raising the SBG bond guarantee limits will increase contracting 
opportunities for more small businesses and bring the limits in line 
with inflation. Due to the lack of data, SBA is unable to estimate the 
number of additional small businesses that will qualify to apply for 
bonding through the SBG Program for non-Federal (e.g., state 
government, local government, private sector, etc.) contracting because 
of increases to bond guarantee limits for inflation. Because the 
construction sector accounts for more than 95 percent of surety bonds 
and total value of bonded contracts, to estimate the number of 
additional small businesses and contracts that will qualify for surety 
bonds on Federal contracts, SBA analyzed the small business contract 
awards from FPDS-NG for the construction sector for fiscal years 2021-
2022. These results are presented in Table 4, Federal Contracts in 
Construction for Fiscal Years 2021-2022. Because of the adopted 
increase to the lower contract limit from $6.5 million to $9 million, 
without contracting officer's certification, annually up to about 150-
155 additional small businesses will be eligible to apply for surety 
bonds on about 175-180 Federal construction

[[Page 11710]]

contracts totaling between $1.4 billion and $1.5 billion in value. 
Similarly, as a result of the adopted increase to the upper contract 
limit from $10 million to $14 million, with contracting officer's 
certification, annually up to about 100-110 additional small businesses 
will be eligible to apply for surety bonds on 110-120 Federal 
construction contracts totaling between $1.3 billion and $1.4 billion 
in value.

                      Table 4--Federal Contracts in Construction for Fiscal Years 2021-2022
----------------------------------------------------------------------------------------------------------------
                                                          Number of small       Number of        Total contract
                    Contract limits                            firms            contracts      value ($ billion)
----------------------------------------------------------------------------------------------------------------
<= 6.5 million.........................................              6,100             25,312              $10.7
> $6.5 million <= $9 million...........................                155                179               $1.4
> 9 million <= $10 million.............................                 45                 45               $0.4
> $10 million to <= $14 million........................                106                115               $1.3
> $14 million..........................................                142                172               $5.3
                                                        --------------------------------------------------------
    Total..............................................              6,547             25,822              $19.1
----------------------------------------------------------------------------------------------------------------

    Raising the contract bond limits could lead to larger contracts 
being guaranteed by the SBA and, as a result, could increase the risk 
of program losses. To determine if higher contract limits will increase 
the risk of program losses, SBA analyzed all claim activity from 
October 1, 2020, to March 31, 2023. These results are presented in 
Table 5, Net Claims by Contract Size for October 1, 2020, to March 31, 
2023. The results show a positive relationship between contract size 
and net claims. For example, contracts below $1 million in value 
accounted for nearly 66 percent of total claims but accounted for only 
29 percent of net claim amount. On the other hand, contracts above $1 
million in value accounted for 34 percent of claims but accounted for 
71 percent of total net claim amount. Thus, the data suggests that 
higher contract limits may lead to larger contracts being guaranteed, 
which in turn may lead to an increase in defaults and, as a result, 
higher losses. However, SBA is unable to estimate exact losses due to 
the lack of data to estimate the number additional surety bonds on non-
Federal contracts resulting from increases to contract bond limits.

                                       Table 5--Net Claims by Contract Size for October 1, 2020, to March 31, 2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Number of claims                                    Net claim
                                                         -----------------------------------------------------------------------------------------------
                Contract size ($ million)                                                                    Amount ($
                                                               Count             %            Cum. %         million)            %            Cum. %
--------------------------------------------------------------------------------------------------------------------------------------------------------
< 0.1...................................................              12             5.8             5.8             0.5             0.9             0.9
0.1 to 0.25.............................................              32            15.4            21.2             2.3             4.3             5.2
0.25 to 0.5.............................................              50            24.0            45.2             4.2             7.9            13.1
0.5 to 1.0..............................................              43            20.7            65.9             8.5            16.1            29.3
1.0 to 2.0..............................................              44            21.2            87.0            17.7            33.5            62.8
2.0 to 3.0..............................................               8             3.8            90.9             5.1             9.6            72.4
3.0 to 4.0..............................................              10             4.8            95.7             5.5            10.5            82.9
4.0 to 5.0..............................................               7             3.4            99.0             5.0             9.4            92.3
5.0 to 6.5..............................................               2             1.0           100.0             4.1             7.7           100.0
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................             208           100.0  ..............            52.7           100.0  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------

Congressional Review Act

    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. 
OMB's Office of Information and Regulatory Affairs has determined that 
this final rule is not a ``major rule'' as defined by 5 U.S.C. 804(2).

Final Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this final rule may 
have a significant impact on a substantial number of small entities. As 
described above, this final rule could affect small entities seeking 
assistance through SBA's (7a) and CDC/504 Loan and SBG Programs.
    Immediately below, SBA sets forth a final regulatory flexibility 
analysis (FRFA) of this final rule addressing the following questions: 
(1) What is the need for, and the objective of, the rule? (2) What 
significant issues were raised by the public comments in response to 
the initial regulatory flexibility analysis, and what changes were made 
as a result of such comments? (3) What is SBA's response to comments 
filed by the Chief Counsel for Advocacy of the Small Business 
Administration in response to the proposed rule, and what changes were 
made as a result of such comments? (4) What are SBA's description and 
estimate of the number of small entities to which the rule would apply? 
(5) What are the projected reporting, record keeping, and other 
compliance requirements of the rule? (6) What steps has SBA taken to 
minimize significant economic impact on small entities and why has SBA 
rejected the other significant alternatives to the rule in favor of the 
adopted one?

[[Page 11711]]

(1) What is the need for, and the objective of, the rule?
    Under the Jobs Act, SBA is required to adopt an alternative size 
standard using maximum tangible net worth and net income for its 7(a) 
and CDC/504 Loan Programs. The Jobs Act defined an interim statutory 
alternative standard based on tangible net worth of $15 million and net 
income of $5 million until the SBA Administrator permanently designates 
an alternative size standard based on tangible net worth and net income 
for those programs. Many businesses that exceed their industry-based 
size standards cannot grow and support their employees and other 
businesses that depend on them without additional capital from SBA's 
financial assistance programs. The inflation-adjusted alternative size 
standard adopted under this final rule will enable such businesses to 
qualify for SBA's 7(a) and CDC/504 Loan Programs.
    Section 3(a) of Small Business Act (15 U.S.C. 632(a)) gives the 
SBA's Administrator responsibility to establish and change small 
business size standards. Within its administrative discretion, SBA 
implemented a policy in its regulations to review the effect of 
inflation on size standards at least once every five years (13 CFR 
121.102(c)) and make any changes as appropriate. SBA has adjusted its 
monetary-based size standards three times since the enactment of the 
interim statutory alternative size standard in 2010. However, SBA did 
not adjust the statutory alternative in each of those adjustments. 
Inflation, as measured by the change in GDP price index, has increased 
more than 34 percent since 2010. This has eroded the value of the 
statutory alternative size alternative in real terms. Consequently, 
many businesses above their industry-based size standards and in need 
of financial assistance from SBA's 7(a) or CDC/504 Loan Programs may 
have exceeded the statutory alternative size standard and lost 
eligibility for benefits of those programs. The inflationary adjustment 
of the statutory alternative size standard in this final rule will 
enable such businesses to qualify for those programs. The alternative 
size standard applies uniformly across all industries and does not 
affect existing size standards by industry. Rather it supplements them, 
by making more financing available to otherwise ineligible businesses 
that exceed their industry-based size standard.
    Regarding the SBG Program, NDAA 2013 increased the SBG guarantee 
limit to $6.5 million, and up to $10 million for a Federal contract if 
a Federal contracting officer certifies that such a guarantee is 
necessary. The Act also included a provision to increase the $6.5 
million limit periodically for inflation in accordance with 41 U.S.C. 
1908. Based on the CPI, inflation has increased more than 30 percent 
since 2013. SBA has not adjusted its bonding limits since 2013. This 
has eroded the value of the bonding limits in real terms since the 
limits were set by Congress in 2013. This has adversely impacted small 
business contractors seeking bonding assistance from the SBA SBG 
Program. The adjustment of the SBG contract limits will bring them in 
line with ongoing inflation and current contracting trends and increase 
contracting opportunities to small businesses.
(2) What significant issues were raised by the public comments in 
response to the initial regulatory flexibility analysis, and what 
changes were made as a result of such comments?
    SBA received 13 comments on the July 2023 proposed rule from 
various trade associations, businesses, and individual stakeholders, of 
which 11 comments supported SBA's proposed changes and two comments 
were not applicable or were outside the scope of SBA's proposed rule. 
Generally, commenters expressed strong support for SBA's proposed 
changes, without reservation. Thus, with due consideration of all 
public comments, as discussed in detail in Section IV of this final 
rule, and in light of the overall strong support for SBA's proposed 
changes and anticipated impacts, SBA is adopting the proposed 
adjustments in the July 2023 proposed rule without change. 
Specifically, SBA is adopting the statutory alternative size standard 
of $15 million in tangible net worth and $5 million in net income as 
the permanent alternative size standard, subject to adjustment for 
inflation that has occurred since the establishment of the statutory 
alternative size standard in 2010. The inflation adjustment increases 
the size standard's level for tangible net worth to $20 million and for 
net income to $6.5 million. SBA is also adopting, as proposed, the 
inflation-adjusted thresholds applicable to the statutory limits for 
contract size under the SBG Program. The adjustment increases the 
contract limit to $9 million and to $14 million for Federal contracts 
if a Federal contracting officer certifies that such a guarantee is 
necessary. The statutory responsibility for adjusting the size standard 
for inflation lies with the Federal Acquisition Regulation. In the 
absence of FAR action, SBA will adjust the SBG contract limits on the 
same five-year schedule that SBA currently uses for reviewing its 
monetary-based industry size standards in accordance with 13 CFR 
121.102(c).
(3) What is SBA's response to comments filed by the Chief Counsel for 
Advocacy of the Small Business Administration in response to the 
proposed rule, and what changes were made as a result of such comments?
    SBA did not receive public comments filed by the Chief Counsel for 
Advocacy of the Small Business Administration in response to the 
proposed rule. As such, no changes were made to the rule in response to 
such comments.
(4) What are SBA's description and estimate of the number of small 
entities to which this rule would apply?
    This rule will apply to more than 8.1 million employer firms, of 
which 98.2 percent are small under industry-based size standards and 
92.5 percent are small under the interim statutory alternative size 
standard. About 92.6 percent of firms will qualify as small under the 
inflation-adjusted alternative size standard. About 6,275 firms that 
are above the interim statutory alternate size standard will qualify as 
small under the inflation-adjusted size alternative standard. That is 
less than 0.1 percent of firms that are small under the interim 
statutory alternative size standard.
    For the reasons discussed under the Regulatory Impact Analysis 
section of this rule, because of lack of relevant data (e.g., receipts, 
tangible net worth, and net income of loan recipients), SBA cannot 
precisely state the number of businesses that were approved under the 
alternative size standard for 7(a) or CDC/504 loans and the number of 
newly-defined small businesses that will qualify under the inflation-
adjusted alternative size standard for loans under these programs. 
However, based on the analysis of the available data for fiscal years 
2021-2022, SBA estimates that at least 500 7(a) or CDC/504 loans (or 
0.4 percent of total loans) were likely approved under the alternative 
size standard.
    With respect to the SBG program, more than 95 percent of the 
bonding activity is concentrated in the construction sector. Based on 
the 2017 Economic Census, there are 689,260 small employer firms in 
construction to which this rule will apply. Additionally, about 2.5 
percent of the bonding activity occurs in 11 industries in Sector 56 
with more than 209,000 small firms in those industries to which this 
rule will also apply. More small businesses will qualify to apply for

[[Page 11712]]

surety bonds as a result of adopted increases to statutory bonding 
limits.
(5) What are the projected reporting, record keeping, and other 
compliance requirements of the rule?
    A new size standard does not impose any additional reporting, 
record keeping, or compliance requirements on small entities. Revising 
size standards alters the access to SBA programs that assist small 
businesses, but does not impose a regulatory burden as the size 
standards neither regulate nor control business behavior.
(6) What steps has SBA taken to minimize significant economic impact on 
small entities and why has SBA rejected the other significant 
alternatives to the rule in favor of the adopted one?
    There are no alternatives to establishing a size standard for the 
Agency's 7(a) and CDC/504 Loan Programs based on an applicant's 
tangible net worth and net income because this is a statutory 
requirement. Specifically, the Jobs Act directs the Agency to use a 
firm's tangible net worth of not more than $15 million and average net 
income after Federal income taxes (excluding any carry-over losses) for 
the two full fiscal years immediately before its application of not 
more than $5 million until the Administrator adopts a different, 
permanent alternative size standard based on net worth and net income 
measures. SBA may propose to adopt a higher or lower alternative size 
standard based on an applicant's tangible net worth and net income, 
however, SBA's proposed alternative size standards, as detailed in the 
July 2023 proposed rule, were strongly supported by commenters, 
including trade associations small businesses and individuals. Thus, in 
this final rule, SBA is adopting the interim statutory alternative size 
standard as a permanent alternative size standard, subject to 
adjustment for inflation that has occurred since the standard's 
establishment in 2010.

Executive Order 13563

    A description of the need for this regulatory action and its 
associated benefits and costs associated with this action, including 
possible impacts that relate to Executive Order 13563 are included 
above in the Regulatory Impact Analysis. This final rule will further 
expand the benefits of the Jobs Act which also increased the upper 
limits of loans available under the 7(a) and CDC/504 Loan Programs, 
without restricting access and availability to qualified entities. 
SBA's changes to the SBG statutory contract limits will increase 
contracting opportunities to small businesses.

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 rule does not 
have retroactive or preemptive effect.

Executive Order 13132

    For purposes of Executive Order 13132, SBA has determined this 
rulemaking 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.

Paperwork Reduction Act

    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA has determined that this rulemaking will not impose any new 
reporting or recordkeeping requirements.

List of Subjects

13 CFR Part 115

    Claims, Reporting and recordkeeping requirements, Small businesses, 
Surety bonds.

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, the Small Business 
Administration amends 13 CFR part 115 and 13 CFR part 121 as follows:

PART 115--SURETY BOND GUARANTEE

0
1. The authority citation for part 115 continues to read as follows:

    Authority:  5 U.S.C. app 3; 15 U.S.C. 636i, 687b, 687c, 694a, 
and 694b note.


0
2. Amend Sec.  115.10 by revising the definition of ``Applicable 
Statutory Limit'' to read as follows:


Sec.  115.10  Definitions.

* * * * *
    Applicable Statutory Limit means the maximum amount, set forth 
below, of any Contract or Order for which SBA is authorized to 
guarantee, or commit to guarantee, a Bid Bond, Payment Bond, 
Performance Bond, or Ancillary Bond:
    (1) $9 million (as adjusted for inflation in accordance with 41 
U.S.C. 1908).
    (2) $14 million if a contracting officer of a Federal agency 
certifies, in accordance with section 115.12(e)(3), that such guarantee 
is necessary.
    (3) If SBA is guaranteeing the bond in connection with a 
procurement related to a major disaster pursuant to section 12079 of 
Public Law 110-246, see section 115.12(e)(4).
* * * * *

0
3. Amend Sec.  115.12 by revising paragraph (e)(3) to read as follows:


Sec.  115.12  General program policies and provisions.

* * * * *
    (e) * * *
    (3) Federal Contracts or Orders in excess of $9,000,000 (as 
adjusted for inflation in accordance with section 1908 of title 41, 
United States Code). SBA is authorized to guarantee bonds on Federal 
Contracts or Orders greater than $9,000,000 (as adjusted for inflation 
in accordance with 41 U.S.C. 1908), but not exceeding $14 million, upon 
a signed certification of a Federal contracting officer that the SBA 
guarantee is necessary. The certification must be either express mailed 
to SBA, Office of Surety Guarantees, 409 Third Street SW, Washington, 
DC 20416 or sent by email to [email protected], and include the 
following additional information:
    (i) Name, address and telephone number of the small business;
    (ii) Offer or Contract number and brief description of the 
contract; and
    (iii) Estimated Contract value and date of anticipated award 
determination.
* * * * *

PART 121--SMALL BUSINESS SIZE REGULATIONS

0
4. 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).


0
5. Amend Sec.  121.301 by revising the introductory text of paragraphs 
(a), (b), (b)(2), and paragraph (e) to read as follows:


Sec.  121.301  What size standards and affiliation principles are 
applicable to financial assistance programs?

* * * * *
    (a) For Business Loans (other than for 7(a) Business Loans) and for 
Disaster Loans (other than physical disaster

[[Page 11713]]

loans), an applicant business concern must satisfy two criteria:
* * * * *
    (b) For 7(a) Business Loans and Development Company programs, an 
applicant business concern must meet one of the following standards:
* * * * *
    (2) Including its affiliates, tangible net worth not in excess of 
$20 million, and average net income after Federal income taxes 
(excluding any carry over losses) for the preceding two completed 
fiscal years not in excess of $6.5 million. * * *
* * * * *
    (e) The applicable size standards for purposes of SBA's financial 
assistance programs, excluding the Surety Bond Guarantee assistance 
program, are increased by 25 percent whenever the applicant agrees to 
use all of the financial assistance within a labor surplus area. The 
U.S. Department of Labor (DOL) issues the Labor Surplus Area (LSA) list 
on a fiscal year basis on its website at www.dol.gov/agencies/eta/lsa.
* * * * *

Isabella Casillas Guzman,
Administrator.
[FR Doc. 2024-02776 Filed 2-14-24; 8:45 am]
BILLING CODE 8026-09-P