## **[Testimony of Hector V. Barreto]{.smallcaps}**

**[Administrator]{.smallcaps}**

**[U.S. Small Business Administration]{.smallcaps}**

**[February 27, 2002]{.smallcaps}**

Mr. Chairman, Ranking Member Velazquez, and members of the Committee,
thank you for inviting me here today to discuss the size standard policy
of the U.S. Small Business Administration (SBA) and the procedures the
SBA uses to establish those standards.

The statutory mandate set forth in Section 3(a) of the Small Business
Act guides the SBA's policy. The SBA has used this basic statutory
guidance with great success for nearly fifty years. The SBA size
classifications currently encompass over 98 percent of all businesses in
the United States. Size standards have always played an integral role in
the Agency's services and programs. The SBA understands that its
determinations affect the operations of programs in every agency of the
federal government, from procurement and financial assistance programs
to regulatory regimes and enforcement matters. These determinations, in
turn, have a significant impact on the life of a small business. The
events of September 11 have raised their importance even greater still.

It is in this spirit that the Administration, our legislative partners,
the Agency and OMB took the following actions to assist small business:

-   expanded EIDL recovery nationally (effective October 22, 2001);

-   increased size standards to reflect inflation (effective January
    23, 2002) and monetary size standards were increased by 15.8%;

-   allocated (through February 25) \$306 million to New York and
    Virginia and retroactively applied inflation-based sized standards;

-   allocated \$217 million nationally;

-   extended EIDL recovery application deadline to April 22, 2002; and

-   expanded disaster recovery through the 7(a) loan program, effective
    January 31, 2002.

The SBA continues to work to assist small businesses injured by the
September 11^th^ disaster. Like you, Mr. Chairman, the SBA wants to make
sure that it is assisting those small businesses that are on the bubble
with respect to size standards but still possess the attributes of small
business. The SBA also wants to review industry standards that may be
out-of-date or too narrowly defined to accurately reflect the small
business market.

In fact, Mr. Chairman, you asked that the SBA look at the travel agency
industry --- and we have. The SBA is in the process of completing its
internal legal review of the regulation to address the size standard in
this industry. The SBA hopes to send the regulation to OMB for its
review shortly.

Serving *small* business is the Agency's mission. Therefore, during this
process of reviewing size standards, the SBA has taken care to assist
small business while ensuring that neither the expansion of the size
regulation nor the method of expansion renders the size standards
themselves meaningless. The loss of a *meaningful* size standard would
be to the detriment of all small business. In order to avoid such a
problem historically, the SBA has reviewed and imposed size standards on
an industry-by-industry basis. The SBA size standards vary by industry
and can be based either on revenue or the number of employees. Under
EIDL, a business must be small relative to the size standard established
for its primary industry. Common size standards include:

-   \$6 million for service and retail trade firms;

-   \$12 million for special trade contractors;

-   \$28.5 million for general and heavy construction contractors;

-   100 employee for wholesale trade firms; and

-   500 employees for manufacturers.

Furthermore, different size standards exist for certain industries
within more general industry categories. Varying size standards are
designed to reflect differing characteristics of small business within
different industries.

The SBA recognizes that some of its industry size standards might not
capture all businesses that possess small business characteristics. In
order to address this concern, the SBA considered an expedited review of
a large number of industries, but realized that the need to prepare and
adopt revised size standards quickly made this course of action
impractical.

The SBA also sought to establish a single employee-based size standard
for applicants applying for EIDL assistance in the aftermath of
September 11. The SBA chose this standard for several reasons. First,
firms with 500 employees or less account for about half of all economic
activity. Additionally, 500 employees is the size standard the SBA
already uses for most manufacturing industries, and many research
studies on small businesses also use 500 employees as a general
definition of small business. Finally, the alternative net worth and net
income size standards used for the SBA's Small Business Investment
Company and Certified Development Corporation Programs can include firms
up to 500 employees.

OMB promptly reviewed the proposed uniform EIDL size standard and
indicated that it had several concerns with the single size standard
approach. Dr. John Graham, Administrator of OMB's Office of Information
and Regulatory Affairs, will discuss these concerns in more detail with
the Committee. The SBA greatly appreciates Dr. Graham's and OMB's
cooperation in considering alternatives to the 500-employee size
standard and will continue to work with them to find an approach that
will ensure that small businesses harmed by the events of September 11
have access to SBA's programs.