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SBA Guidelines For Small Businesses Are Changing – For Better, Or For Worse?

By Ben Gran


For the first time since 2008, the federal Small Business Administration (SBA) is expanding its guidelines for what exactly constitutes a “small business”. This is not just a semantic debate; being defined as a “small business” makes certain companies eligible for various types of federal small business loans and other assistance that larger companies cannot get.

The SBA’s process for defining “small businesses” is rather technical and depends on the industry. For example, they look at criteria such as number of employees, total revenues, and other indicators of a company’s size. As part of this recent update to its guidelines, the SBA is adding approximately 8,500 companies to its officially designated ranks of “small businesses”, however, some of these companies have over 1,000 employees.

According to an article in the Wall Street Journal by Jeff Stibel, small business owners should be concerned and wary about this move. If the SBA is expanding its focus to medium sized businesses (and not just truly “small” businesses), that might mean that the SBA won’t be able to do as good of a job tending to the needs of small businesses. As for small business loans, currently, small businesses with revenues less than $5 million per year are having the hardest time getting bank loans. In fact, only 39% of businesses with revenues under $5 million were able to get bank loans during the first quarter of 2014, compared with 81.1% of businesses with revenue between $5 million and $100 million. So, is the SBA’s newly expanded definition of “small business” going to (ironically) inadvertently hurt small businesses by making it harder to get loans or qualify for federal assistance?

It’s important to support small businesses. According to stats cited in the Wall Street Journal article, America has 28 million small businesses, but 23 million of these are sole proprietorships. Even though they’re small, all of these tiny companies combine to employ half of the U.S. private sector workforce. If the SBA’s focus is getting spread too wide (to include rather “large” businesses as well as tiny one or two-person businesses), then that’s inevitably going to make life more difficult for the small businesses that the SBA was meant to help.

Jeff Stibel argues in the Wall Street Journal that it’s not a bad idea to help larger “medium size businesses.” After all, these medium size companies are also important to the American economy, and can benefit from government assistance. Helping our medium size businesses to compete in global markets will make America’s workforce and economy more globally competitive and more efficient. But instead of crowding these companies into the purview of the SBA, Stibel proposes that the government should create a new “Medium-size Business Administration” (MBA) that can assist these companies with their unique needs.

Stibel writes, “Smaller businesses, on the other hand, benefit from utilizing local networks, and are most often focused on surviving and growing despite a lack of capital from big banks. A distinct MBA would leave the SBA to fulfill its longtime mission of supporting businesses that are actually small.”

America’s small businesses have enough challenges on their plate already without having to compete for scarce resources within their own Small Business Administration that is supposed to work for them. The federal government should re-evaluate its definitions of “small businesses” in order to keep the SBA focused on the truly small companies. Even though they’re small, all of these tiny companies add up to a powerful piece of the overall American economy.


Kabbage Team

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