[Federal Register Volume 87, Number 108 (Monday, June 6, 2022)]
[Rules and Regulations]
[Pages 34094-34120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-12131]



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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: Final rule.

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

DATES: This rule is effective July 6, 2022.

FOR FURTHER INFORMATION CONTACT: Khem R. Sharma, Ph.D., Chief, Office 
of Size Standards, (202) 205-6618 or <a href="/cdn-cgi/l/email-protection#80f3e9fae5f3f4e1eee4e1f2e4f3c0f3e2e1aee7eff6"><span class="__cf_email__" data-cfemail="d6a5bfacb3a5a2b7b8b2b7a4b2a596a5b4b7f8b1b9a0">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background Information

    This final rule implements 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 other 
assistance programs. First, section 863 of the National Defense 
Authorization Act for Fiscal Year 2021, Public Law 116-283 (``NDAA''), 
amended section 3(a)(2)(C)(ii)(I) of the Small Business Act, 15. U.S.C. 
632(a)(2)(C)(ii)(I), to change 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 (PPP) because the authority for that program expired on June 
30, 2021. Similarly, due to their temporary nature, the changes also 
do not apply to the COVID-19 related Economic Injury Disaster Loan 
(EIDL) Program. Moreover, effective January 1, 2022, SBA stopped 
accepting applications for new COVID EIDL loans or advances.
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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 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.
    To implement these provisions, on November 2, 2021, SBA issued for 
comments a proposed rule to amend 13 CFR 121.106 by changing the 12-
month averaging period for determining the size of a business concern 
under an employee-based size standard to 24 months for eligibility 
purposes in all of SBA's programs (86 FR 60396). In this final rule, 
SBA is adopting the change from the November 2021 proposed rule without 
change. As a result, for certifications following the effective date, 
the size of a business concern under an employee-based size standard 
will be calculated by averaging the concern's number of employees for 
each pay period in the preceding completed 24 calendar months. In 
determining a concern's number of employees, SBA counts all individuals 
employed on a full-time, part-time, or other basis. Part-time and 
temporary employees count as full-time employees, and the concern 
aggregates the employees of its domestic and foreign affiliates. If the 
concern has not been in business for 24 months, it would average its 
number of employees for each pay period during which it has been in 
business.
    This change to Sec.  121.106 applies to all industries subject to 
employee-based size standards. Those size standards predominantly apply 
to manufacturers but not exclusively. Firms in certain mining, 
utilities, transportation, publishing, telecommunications, insurance, 
research and development, and environmental remediation industries are 
also subjected to SBA's employee-based size standards. Significant to 
government contracting, nonmanufacturers also qualify for small 
business status for government procurement of supplies 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.

B. Changes to Calculation of Average Annual Receipts

    In a final rule published December 5, 2019 (84 FR 66561), SBA 
implemented SBREA by making changes to its receipts-based size 
standards for all SBA's 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 Certified Development Company (CDC/504) 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'' 
\2\).
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    \2\ Some disaster loans, such as physical disaster and 
mitigation disaster loans, are available to firms regardless of 
size. Thus, the changes in this final rule are applicable only to 
the types of disaster loans that require applicants to meet size 
eligibility requirements, including Economic Injury Disaster Loans 
(EIDLs), Military Reservist Economic Injury Disaster Loans, and 
Immediate Disaster Assistance Program loans.
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    In the November 2, 2021, proposed rule, SBA proposed to 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 three-year 
average; however, under the SBA's proposal, applicants may choose to 
use either a three-year or a five-year receipts average. Thus, an 
applicant would be eligible for assistance if its five-year receipts 
average is equal to or less than the size standard, even if it would 
otherwise be ineligible because its three-year average exceeds that 
size standard. SBA also proposed to adopt this change for its

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Small Business Investment Company (SBIC) program, allowing small 
business applicants for financing from an SBIC to choose to use either 
a three-year average or a five-year average for purposes of determining 
eligibility based on a receipt-based size standard. In this final rule, 
SBA is adopting the changes to the averaging period for calculating 
average annual receipts for the Business Loan, Disaster Loan, and SBIC 
Programs as proposed in the November 2021 proposed rule.\3\
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    \3\ Businesses seeking SBA 7(a) and 504 loans and those seeking 
financing from an SBIC could seek to qualify as small under a 
tangible net worth and net income-based alternative size standard, 
in addition to an industry-based employee or receipts-based size 
standard.
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    The December 2019 final rule did not exempt the applicants in the 
SBA's Surety Bond Guarantee (SBG) Program from the change in the 
calculation of average annual receipts in accordance with Public Law 
115-324. Consequently, to establish eligibility under a receipts-based 
size standard, the applicants to the SBG Program were using either a 
three-year or a five-year receipts average until January 6, 2022, and a 
five-year receipts average thereafter. In the November 2021 proposed 
rule, SBA did not propose to allow the applicants to the SBG Program to 
choose to use either a three-year or a five-year receipts average to 
establish eligibility under a receipts-based size standard. However, in 
response to a comment received from the public, this final rule 
provides that the change in the receipts calculation in the November 
2021 proposed rule is also applicable to the SBG program.
    Like the changes in the December 2019 final rule, these changes 
will expand the eligibility of larger small businesses and some mid-
sized businesses for SBA's financial assistance. 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. Similarly, a 
mid-sized business may be able to regain its small business status if 
it would otherwise have exceeded the size standard.
    These changes differ in some respects from what SBA implemented in 
the December 2019 final rule. In particular, SBA will not issue a 
``transition period'' that SBA provided in the December 2019 final 
rule. That rule applied size standards changes to all SBA's programs, 
outside of the SBA Business Loan and Disaster Loan Programs. Starting 
on January 6, 2020, those programs began permitting participants to 
elect whether to use a three-year average or a five-year average to 
calculate average annual receipts. That election ended on January 6, 
2022, however, marking the end of the transition period for those 
changes. As of January 6, 2022, all SBA programs, except SBA's Business 
Loan and Disaster Loan Programs, use a five-year average for purposes 
of calculating average annual receipts.
    Conversely, the changes in this final rule allow for an election 
for the applicants to the SBA's Business Loan, Disaster Loan, SBG, and 
SBIC Programs to choose either the three-year or five-year receipts 
average, but do not have a transition period. SBA intends to make this 
election available indefinitely. This recognizes the differences 
between the SBA's financial assistance 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 
five-year averaging period. By contrast, in the financial assistance 
programs, applicants are evaluated on an applicant-by-applicant basis. 
It is, thus, not prejudicial 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 financial assistance programs to a two-year 
period.
    In its June 24, 2019, proposed rule to implement the provision 
under SBREA (84 FR 29399), SBA received some comments from participants 
in the business loan programs. SBA also considered those comments in 
preparing this final rule. Prior commenters asked that SBA use the 
five-year receipts average only for calculating average annual 
receipts, not for other aspects of loan application purposes. 
Accordingly, in this final rule, SBA authorizes the three-year or five-
year election only for the calculation of receipts for SBA's Business 
Loan, Disaster Loan, SBG, and SBIC programs, but not for any other 
purposes. Other calculations remain unchanged. Prior commenters also 
asked that SBA authorize the applicants to the Business Loan Programs 
to continue to use a three-year average. Accordingly, this final rule 
uses an election, not a mandate. For the most part, lenders and 
applicants will continue to be able to use a three-year average. Where 
an applicant qualifies as small under the 3-year analysis, the analysis 
is complete, and the firm would not need to submit (and SBA would not 
need to review) any information pertaining to fiscal years beyond the 
last three fiscal years. The only exception will be where the applicant 
would not qualify as a small business using a three-year average. In 
that case, the applicant may use a five-year average to qualify as 
small. As noted previously, the applicants will also be allowed to 
qualify for a business loan using the alternative size standard in 
section 3(a)(5)(B) of the Small Business Act.

II. Discussion of Comments

    In the November 2021 proposed rule, SBA sought comments on its 
proposal to change the 12-month averaging period for employee-based 
size standards to a 24-month averaging period and permit businesses in 
the Business Loan, Disaster Loan, and SBIC Programs to use either a 
three-year average or a five-year average for calculating average 
annual receipts for the purposes of qualifying as a small business. SBA 
received 17 timely comments to the proposed rule, of which 14 pertained 
to the SBA's proposed change in the averaging period for calculating 
employees. Of the 14 comments pertinent to the calculation of 
employees, eight supported the SBA's proposed change and five opposed 
it. One commenter raised concerns about how SBA defines employees 
generally.
    SBA received nine comments pertaining to its proposal to allow 
applicants to the SBA's Business Loan, EIDL and SBIC Programs to choose 
either a three-year or five-year averaging period to calculate average 
annual receipts. Of the nine comments pertinent to this issue, six 
supported the SBA's proposed change and three opposed it. SBA also 
received one comment from OMB relating to a review of the information 
collection change related to from this rule.
    SBA also received a late comment regarding the treatment of SBA's 
SBG program under the averaging rules. The comment raised valid 
concerns about how the SBG program was being treated inconsistently for 
receipts averaging, and, as such, SBA considers that comment below.
    All public comments to the proposed rule are available at 
www.regulations.gov (RIN 3245-AH16) and are summarized and discussed 
below by topic, along with SBA's responses.

Comments Supporting the 24-Month Averaging Period for the Calculation 
of Employees

    Eight commenters expressed support for SBA's proposal to change the 
averaging period for calculating employees for SBA's employee-based 
size standards from 12 months to 24 months. Commenters supporting SBA's

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proposed change believed that the proposed 24-month averaging period 
would allow firms to better adjust to short-to-medium term spikes in 
hiring, provide certain growing small businesses the opportunity to 
retain their small business status and access to SBA programs for a 
longer period, and allow some firms that recently exceeded the size 
standard to regain their small business size status and become eligible 
for federal small business assistance again. One commenter expressed 
that SBA's proposal would give small businesses much needed flexibility 
during these challenging times due to the COVID-19 pandemic and will 
help U.S. small businesses obtain necessary support to sustain 
operations and recover from the pandemic.

SBA Response

    SBA agrees with commenters that SBA's proposal to increase the 
averaging period for the calculation of employees from 12 months to 24 
months will allow firms to better adjust to surges in employment in 
both the short and medium term. SBA also agrees with commenters that 
advanced small businesses will retain access to SBA's procurement and 
financial assistance programs for a longer period because of this 
change and some businesses that recently exceeded their size standard 
will regain their eligibility for SBA's programs. SBA believes that 
expanding the reach of its programs to include a greater number of 
small businesses supports all small businesses and the overall economy 
as the Nation continues to recover from the economic challenges caused 
by the COVID-19 pandemic and small businesses remain in need of SBA 
assistance.
    As discussed in the regulatory impact analysis section of this 
rule, the 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 firms that 
currently do not qualify as small to gain small business status and 
some advanced small firms to remain small business status for a longer 
period represents the expansive impact of the final rule. Causing some 
currently small firms to lose or shorten their small business is the 
contractive impact.
    While some small firms may experience contractive impacts from 
SBA's proposed change to the averaging period for employees, SBA 
estimates that the number of firms with expansive impacts will be 
greater. For example, as shown in Table 16 of this final rule, based on 
the 2012 Economic Census data, the number of firms with expansive 
impacts (1,484) exceeds the number of firms with contractive impacts 
(1,050), with a net impact of about 435 firms either extending or 
regaining their small business status. SBA estimates that changing the 
period for calculating the average number of employees for size 
standards from 12 months to 24 months would result in a net gain of 
about $158 million (or 0.3% increase from the baseline) in federal 
small business contract dollars.

Comment on Allowing a Transition Period for Calculation of Employees

    Citing SBA's transition period for calculating average annual 
receipts, one commenter urged SBA to adopt a two-year transition period 
where firms could choose to use either a 12-month or 24-month averaging 
period to reduce any adverse impacts on small businesses caused by an 
abrupt change in the calculation of employees. The commenter also 
concurred with applying the change to both manufacturing industries and 
nonmanufacturers subject to employee-based size standards. The 
commenter maintained that in apparel manufacturing where IDIQ contracts 
are common, one or two large task orders may require a significant 
increase in the number of employees and could easily push a small 
business contractor over the size threshold, and it would take longer 
for the impacted small business to fall below the size threshold under 
the 24-month averaging method. Offering a transition period, the 
commenter added, would minimize the change's negative impact on small 
businesses.

SBA's Response

    SBA believes that a two-year transition period for the calculation 
of employees at the current moment of the COVID-19 pandemic recovery 
will not provide enough benefit to deviate from the principles of fair 
competition. The data demonstrates a consistently increasing trend in 
employment in manufacturing and other industries subject to employee-
based size standards since a drastic drop in employment in April 2020. 
For example, according to the Bureau of Labor Statistics (BLS) data, 
manufacturing employment has steadily increased from a low of about 
11.4 million in April 2020 (compared to 12.7 million in March 2020) to 
about 12.6 million in December 2021. As discussed in the proposed rule, 
when the employment figures are in an increasing trend, the 24-month 
employee-average will typically be lower than the 12-month average. 
With the economy continuing to recover from the COVID-19 pandemic with 
employment almost returning to the pre-pandemic level, SBA expects 
employment to continue its increasing trend in the coming months. 
Accordingly, going forward SBA expects the 24-month employee average to 
be lower than the 12-month average for most businesses, thereby 
rendering a transition period no longer necessary.
    For this reason, SBA will not use a multi-year transition period 
for the calculation of employees. That means that after this final rule 
takes on effect, SBA will calculate the number of employees using the 
24-month averaging period only, as proposed.

Comment on Ensuring Small Business Benefits Are Targeted to Intended 
Beneficiaries

    SBA received a comment from a trade association representing Black-
owned businesses applauding SBA's efforts to adjust small business size 
standards and to provide more flexibility in maintaining eligibility 
for growing small businesses to participate in the 8(a) Business 
Development (BD) Program and other SBA programs. The association 
supported the proposed change in the averaging period for employee-
based size standards from 12 months to 24 months with caution. On the 
one hand, the commenter maintained that this change will enable certain 
growing small businesses to retain their small business status longer 
and to remain eligible for SBA's benefits without facing a benefits 
cliff. On the other hand, it raised concerns that the proposed 24-month 
average would place undue burden on small businesses facing 
contractions in employees due to economic downturns and ongoing 
financial hardship due to the COVID-19 pandemic by causing them to lose 
their small business status sooner. The association urged SBA to ensure 
that the proposed changes do not allow large businesses to crowd out 
federal opportunities for small firms, including Black-owned small 
firms, and recommended that SBA track the size of businesses utilizing 
its programs to ensure that benefits from such programs are targeted to 
the small and disadvantaged businesses they are intended to serve.

SBA's Response

    SBA agrees with the comment urging SBA to track the size of 
businesses utilizing its programs to ensure that benefits are targeted 
to the small and disadvantaged businesses that they are

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intended to serve. SBA has the necessary regulations, policies, 
procedures, and other oversight mechanisms in place to ensure that 
federal small business assistance is directed to its intended 
beneficiaries. The Federal Government is committed to ensure equity in 
procurement in accordance with the President's Executive Order No. 
13985 on Advancing Racial Equity and Support for Underserved 
Communities through the Federal Government and Office of Management and 
Budget (OMB) Memorandum No. M-22-03, Advancing Equity in Federal 
Procurement. Additionally, each year SBA releases a Small Business 
Procurement Scorecard on how the 24 Chief Financial Officer (CFO) Act 
agencies performed on their small business and socio-economic business 
contracting goals. The Scorecard is an assessment tool to measure how 
well the Federal Government performs in reaching its small business and 
socio-economic prime contracting and subcontracting goals, provide 
accurate and transparent contracting data, and report agency-specific 
progress. The prime and subcontracting component goals include goals 
for small businesses, woman-owned small businesses (WOSBs), small-
disadvantaged businesses (SDBs), service-disabled veteran-owned small 
businesses (SDVOSBs), and small businesses located in Historically 
Underutilized Business Zones (HUBZone SBCs). Each year, SBA works with 
each CFO Act agency to set their prime contracting goals and ensures 
that the sum total of all agencies' goals meets the 23% small business 
prime contracting goal for the Federal Government, as well as the 
socio-economic goals established by statute and Executive Branch 
policy.
    Moreover, in December 2021, SBA released for the first time small 
business contracting data disaggregated by race and ethnicity. This 
release serves as a baseline for evaluating government-wide performance 
within each of the socio-economic categories going forward. SBA 
continues to believe that the metrics provided by these releases are 
important tools in evaluating the effectiveness of SBA's programs and 
ensuring that small business benefits are flowing to the intended 
beneficiaries.

Comments Opposing a 24-Month Averaging Period for the Calculation of 
Employees

    Five commenters opposed SBA's proposal to change the averaging 
period for SBA's employee-based size standards from 12 months to 24 
months. Two commenters opposed SBA's proposed change based on the 
belief that increasing the averaging period would cause some firms with 
temporary surges in employment to remain other than small for a longer 
period than would be the case under the current averaging period. Three 
commenters opposed SBA's proposed change to increase the averaging 
period for the calculation of employees on the grounds that it would 
allow larger small businesses to retain their small business status 
longer and some mid-size firms that have just exceeded the size 
standard to regain their small status, and thus would reduce the number 
of federal contracting opportunities and financial assistance available 
to existing small firms, especially the smaller small firms. One 
commenter maintained that businesses facing a decline in employment due 
to an economic downturn or other financial hardship may lose their 
small business status sooner under a longer 24-month averaging period 
and may have to wait longer to regain the small business status.

SBA's Response

    The change in the averaging period for employees from 12 months to 
24 months was statutorily required. In this final rule, SBA is 
implementing a statutory change requiring the use of a 24-month 
averaging period. While businesses may have to wait a little longer 
under the 24-month averaging period to regain small business status 
after exceeding the size standard due to a temporary surge in 
employees, SBA believes that, in the long-run, the 24-month average 
provides a better and more stable measure of business size, and it 
gives all small businesses an expanded runway to grow and become 
competitive for federal opportunities. Small businesses with increasing 
number of employee counts can maintain their small business status for 
a longer period under the longer 24-month averaging period. With the 
availability of an expanded pool of small businesses under the change, 
the Federal Government is likely to set aside more contracts for small 
businesses, thereby benefiting all small businesses in the federal 
market. Based on the analysis of SBA's business loan and economic 
injury disaster loan (EIDL) data for fiscal years 2018-2020, the change 
in the calculation of employees will have a very minimal impact on 
small businesses seeking SBA's loans, with a vast majority of such 
loans going to businesses that are substantially smaller than their 
industry size standards. Overall, the benefits from the change to the 
24-month averaging period outweigh any negative impacts of this change.
    While some small firms may experience contractive impacts due to 
SBA's change to the averaging period, causing them to either lose or 
shorten their small business size status, SBA believes that the number 
of firms experiencing expansive impacts will be greater. As stated 
previously, SBA estimates that changing the averaging period for 
calculating the average number of employees for size standards from 12 
months to 24 months will result in a net gain of about $158 million (or 
0.3% increase from the baseline) in federal small business contract 
dollars. As such, SBA determines that the net impacts of the rule 
support adopting the change.
    Moreover, SBA believes that the Federal Government and existing 
small businesses will benefit from the increased number of firms 
eligible to participate in SBA's programs because of the change to the 
averaging period for the calculation of employees. With an expanded 
pool of small businesses, the Federal Government will have access to a 
greater number of qualified small businesses to source from, and as a 
result, will likely set aside more contracts for small businesses. 
Moreover, SBA analyzed its internal data on 7(a) and 504 loans for 
fiscal years 2018-2020 and determined that 97% of loans to firms in 
industries with employee-based size standards were to firms with fewer 
than 50 employees, indicating that the majority of firms receiving 
SBA's financial assistance are much smaller than the size standards. 
Thus, SBA does not anticipate that changes to the averaging period for 
the calculation of employees will significantly impact the distribution 
of loans by size of firm.

Comment on Including Nonmanufacturing Industries in the Proposed Change 
in the Calculation of Employees

    One commenter opposed to SBA's proposal believed that SBA's 
proposed changes in the calculation of employees applied only to 
industries in the manufacturing sector, and not to other industries 
with employee-based size standards in other sectors. Thus, the 
commenter argued that SBA's changes were arbitrary and capricious. The 
same commenter also argued that it would be arbitrary and capricious if 
SBA were to expand the requirements of this rule to industries apart 
from manufacturing since Congress did not explicitly provide for 
nonmanufacturing industries to be covered by this change.

[[Page 34098]]

SBA's Response

    SBA disagrees that applying the 24-month averaging period to all 
industries with an employee-based size standard is arbitrary. SBA 
believes that determining the size of a business concern consistently 
for all employee-based size standards avoids confusion and 
misapplication of the rules and is a reasonable application of the 
statutory provision. SBA proposed to change the averaging period for 
all employee-based size standards. Thus, in addition to the 
manufacturing industries, all nonmanufacturing industries and 
nonmanufacturers subject to employee-based size standards would be 
affected by the change. In the proposed rule, SBA stated that it would 
be confusing and unworkable to apply the 24-month averaging period to 
the manufacturing industries and 12-month averaging period to the 
nonmanufacturing industries and nonmanufacturers subject to employee-
based size standards, as some businesses operate in both manufacturing 
and nonmanufacturing industries and some manufacturers also supply to 
Government as nonmanufacturers. Additionally, a nonmanufacturer may 
compete against manufacturers on the same procurement, and the 
principle of fair competition would have all competitors use the common 
averaging period. Thus, SBA is applying the change to all employee-
based industries. Similarly, under the SBREA, Congress only changed the 
averaging period to calculate average annual receipts for services 
firms, but for consistency and to avoid confusion, SBA adopted the 
change for all industries subject to receipts-based size standards, 
including nonservices industries like construction and agriculture. 
Likewise, in this rule, for consistency and to avoid confusion, SBA is 
adopting the change in the averaging period for all industries subject 
to employee-based size standards.

Comment on Closing the Loophole in Calculating Employees

    SBA also received one comment that neither expressed support nor 
opposition to the proposed change, but rather raised concerns about how 
SBA defines employees for size standards purposes. Specifically, the 
commenter urged SBA to close the loophole that allows advanced small 
businesses to remain perpetually small, or even large businesses in 
some cases to qualify as small, by outsourcing work to others or using 
independent contractors (1099 contractors).

SBA's Response

    SBA disagrees with the premise underlying this comment. SBA counts 
all individuals employed on a full-time, part-time, or other basis. 
This includes employees obtained from a temporary employee agency, 
professional employee organization or leasing concern (see 13 CFR 
121.106). In SBA Size Policy Statement No. 1, 51 FR 6099, SBA further 
clarified that the ``other basis'' ground reaches situations where the 
firm artificially reduces its number of employees to meet the size 
standards and qualify for SBA's assistance. SBA will consider the 
totality of the circumstances to prevent circumvention of the SBA's 
size regulations, and that may include situations where the firm would 
change employees' statuses in order to reduce the firm's size for SBA 
purposes. See Size Appeal of Maryland Assemblies, Inc., SBA No. SIZ-
3134 (1989).

Comments That Proposed Changes Help Large Businesses

    While a soon-to-be graduate from SBA's 8(a) BD program expressed 
general appreciation for the benefit of a smooth transition from an 
SBA's set-aside program to full and open competition under the 24-month 
averaging period, it expressed concerns with respect to the size 
standard for the Environmental Remediation Services (ERS) exception to 
NAICS 562910 (Remediation Services). Specifically, the commenter argued 
that the ERS exception already has an exceedingly high small business 
threshold of 750 employees and a firm at that size would have necessary 
resources to adequately plan for its growth to an other than small 
business. Allowing a firm to remain qualified as a small business 
longer under the change would be detrimental to other small businesses 
when competing for federal opportunities intended for them.
    One commenter opposed expanding eligibility in the current 
environment to benefit large businesses and urged SBA to direct more 
resources to underserved small businesses, especially woman-owned and 
disadvantaged small businesses, before expanding eligibility to include 
current large businesses. Another commenter opposed both proposed 
changes, arguing that these and past changes are contrary to the SBA's 
mission to help small businesses. The commenter believed that both the 
size standards and averaging periods for calculating the business size 
keep increasing, thereby causing Government support intended for small 
businesses to go to large businesses. The commenter maintained that the 
definition of what is small has become incredibly high, thereby forcing 
actual small businesses to compete with large businesses with up to 
1,000 employees or more than $30 million in revenue that do not need 
financial assistance nor contracting preferences.

SBA's Response

    Size standards for specific industries or subindustries (or 
``exceptions''), such as the 750-employee size standard for the ERS 
exception to NAICS 562910, are outside the scope of this rulemaking. 
Interested parties will have an opportunity to comment on the ERS size 
standard when SBA issues a separate proposed rulemaking on the review 
of employee-based size standards as part of the second five-year review 
of size standards.
    SBA disagrees with the comment suggesting that SBA should not 
implement this statutory change from the NDAA. As stated previously, 
SBA believes that the 24-month employee average provides a better and 
more stable measure of business size and it gives all small businesses, 
including disadvantaged small businesses, an expanded runway to grow 
and become competitive for federal opportunities. More importantly 
these changes are mandated by Congress.
    Moreover, SBA believes that expanding access to SBA's financial 
assistance programs will help all small businesses to adapt to changes 
in business environment, recover from disasters more quickly, and grow 
successfully, while having no impact on the ability of smaller small 
firms to access financial services from SBA. Applicants to SBA's 
financial assistance programs are typically much smaller than the 
industry size standard, and thus, would remain eligible for assistance 
after this rule is adopted. Also, SBA does not believe that the changes 
adopted in this final rule will create increased competition for loans 
between smaller and larger small businesses as the impacts to the loan 
program in terms of additional loans to small firms are minimal 
relative to the baseline.

Comments Supporting the Option To Use Either a Three-Year or Five-Year 
Average for the Calculation of Average Annual Receipts for SBA's 
Business Loan, Disaster Loan, and SBIC Programs

    Six commenters expressed support for the SBA's proposal to give 
applicants to the SBA's Business Loan, Disaster Loan, and SBIC Programs 
an option to use either a three-year or five-year averaging period for 
the calculation of average

[[Page 34099]]

annual receipts. The commenters maintained that the proposed change 
would allow more businesses to become eligible for SBA's assistance, 
provide flexibility in measuring size which will help small businesses 
obtain Government support to recover from the COVID-19 pandemic and 
help small businesses to get more SBIC funding. One commenter urged SBA 
to continue to allow applicants for SBA's business loan assistance to 
also qualify using the tangible net worth and net income based 
alternative size standard.

SBA's Response

    SBA agrees with the commenters that its proposal to allow the 
applicants in the SBA's financial assistance programs to choose either 
the three-year or five-year receipts average will increase the number 
of small businesses that are eligible for such assistance. Like the SBA 
proposal to increase the averaging period for calculation of employees 
from 12 months to 24 months, the proposal to allow a firm to choose 
either a three-year or five-year averaging period for the calculation 
of average annual receipts will also enable more established business 
concerns to extend their small business status and some businesses that 
have just exceeded the size standard to regain small business status. 
This change will be particularly beneficial to those small businesses 
which cannot qualify under the alternative size standard.

Comments on Impacts of the Proposed Change on the SBIC Program 
Participants

    SBA received two comments regarding the impacts of the SBA's 
proposal to allow applicants for the SBIC financing to choose the five-
year averaging period to calculate average annual receipts, in addition 
to the existing three-year averaging period. One comment expressed 
support for the SBA's proposal, and the other opposed it. The commenter 
supporting the proposal argued that the proposed change will offer 
additional tools to help small businesses compete for capital they 
need. The commenter who opposed the proposed change argued that this 
will cause more SBIC funding to go to mid-size and larger small 
businesses at the expense of smaller small firms. The same commenter 
suggested improving data collection on the SBIC participants to be able 
to better assess the impact of the proposed change on the program.

SBA's Response

    SBA agrees with the comment that some applicants that do not 
qualify as small under the three-year receipts average could qualify 
under the five-year receipts average, thereby increasing the number of 
firms eligible to receive SBIC funding. For clarity, because the SBIC 
program was not specifically exempted from SBA's prior change to the 
receipts-based averaging period, the program was covered by the change. 
Thus, from January 2020 to January 2022, the regulation included a 
three-year or five-year option for the SBIC program. The final rule 
continues that option indefinitely, rather than suspending it after 
January 2022. In other words, as of its effective date, this final rule 
will reinstate the option of choosing the 3-year or 5-year receipts-
average for the SBIC program indefinitely.
    SBA disagrees that adopting the proposed changes to the calculation 
of employees and average annual receipts will cause SBIC funding to go 
to mid-size and larger small businesses at the expense of smaller small 
firms. SBA estimates that there will be minimal impact to existing 
small businesses receiving SBIC funding since the number of firms newly 
qualifying under the five-year average would also likely qualify under 
the alternative size standard which is already used for assessing 
eligibility to receive SBIC funding. Moreover, of the businesses above 
the three-year receipts average, a larger number would qualify under 
the alternative size standard than under the five-year receipts 
average. The commenter did not provide any data demonstrating that the 
proposed changes in averaging periods for calculating employees and 
average annual receipts would cause more SBIC funding to go to larger 
small and mid-size firms to the detriment of smaller small businesses.

Comment on Allowing the Option of Choosing Three-Year or Five-Year 
Receipts Average for Federal Contractors Indefinitely

    One commenter commended SBA for providing flexibility for firms 
competing for federal contracts by allowing them to report either the 
three-year or five-year average receipts. The commenter added that this 
expands a pool of small contractors and expands opportunities to small 
businesses, including Black-owned small firms. The commenter also 
maintained that SBA's proposal would allow fast growing small 
businesses that cannot qualify as small under the three-year receipts 
average to elect to use the five-year receipts-average. Conversely, 
businesses experiencing declining revenues can use the three-year 
receipts average, rather than the five-year average, to qualify as 
small and become eligible for much needed federal opportunities. The 
commenter urged SBA to maintain the flexibility of choosing between the 
three-year or five-year receipts average indefinitely to the benefit of 
growing small businesses that continue to struggle to win federal 
opportunities.
    Another commenter recommended that SBA should allow three-year or 
five-year average receipts for small businesses without referencing to 
any specific program, such as the SBA's financial or contracting 
programs.

SBA's Response

    In the December 5, 2019, final rule implementing the Small Business 
Runway Extension Act of 2018 (``SBREA''), which changed the averaging 
period for calculating average annual receipts from three years to five 
years (84 FR 66561), SBA provided a two-year transition period until 
January 6, 2022, in which businesses were able to use either the three-
year or five-year averaging period to calculate average annual receipts 
for all SBA's programs other than the SBA's Business and Disaster Loan 
Programs. After January 6, 2022, SBA's calculation of average annual 
receipts is based only on the five-year averaging period for SBA's 
contracting and other programs, except for SBA's Business and Disaster 
Loan Programs. In the November 2, 2021, proposed rule, SBA proposed to 
permanently allow only the applicants in its Business Loan, Disaster 
Loan, and SBIC Programs to use either the three-year or five-year 
averaging period for calculating average annual receipts. The 
calculation of average annual receipts for SBA's contracting programs 
is not part of this rulemaking. The November 2, 2021, proposed rule did 
not discuss the possibility of further extending the option to choose a 
three-year or five-year averaging period for Federal small business 
procurement opportunities. Thus, in this final rule, SBA is not 
granting an option of choosing either the three-year or five-year 
averaging period indefinitely for federal procurement purposes.

Comments Opposing the Option To Use Either a Three-Year or Five-Year 
Average for the Calculation of Average Annual Receipts for SBA's 
Business Loan, EIDL, and SBIC Programs

    Three commenters opposed SBA's proposal to give applicants to SBA's 
Business Loan, EIDL, and SBIC Programs the option to use either a 
three-year or five-year average for the calculation of average annual 
receipts. The commenters argued that the number

[[Page 34100]]

of small businesses eligible for SBA's assistance would be increased by 
allowing larger small businesses to extend their small business status 
and some mid-size businesses to regain their small business status. 
They maintained that this would not only make it more difficult for 
smaller small businesses to compete for capital that they need, but 
also would cause assistance intended for small businesses to go to 
large businesses. The commenters added that this is contrary to SBA's 
mission to assist truly small businesses.

SBA's Response

    SBA estimates that, as a result of its decision to give applicants 
to SBA's Business Loan, EIDL, and SBIC Programs the option to use 
either a three-year or five-year averaging period for the calculation 
of average annual receipts, more firms will be eligible to participate 
in these programs. SBA believes that expanding the reach of its 
programs to include a greater number of small businesses supports all 
small businesses and the overall economy as the Nation continues to 
recover from the economic challenges caused by the COVID-19 pandemic. 
The three commenters opposing SBA's proposal did not submit any data or 
additional analysis to support their position that SBA's changes would 
make it difficult for smaller small businesses to compete for capital 
and cause assistance intended for small businesses to go to large 
businesses.
    Although more firms will be eligible to participate in SBA's 
financial assistance programs as a result of the proposed changes to 
the averaging periods, SBA does not anticipate that these changes will 
significantly impact the distribution of loans by size of firm or 
impact the ability of any firm to obtain assistance from SBA. Based on 
its internal data on its financial assistance programs, SBA determined 
that applicants to these programs are generally much smaller than their 
industry size standards, or may qualify under SBA's alternative size 
standard, which is not affected by this rule. Thus, SBA believes that 
although a greater number of larger small businesses will become 
eligible to participate in SBA's financial assistance programs, the 
number of larger small firms that actually participate in such programs 
will be much lower. Under SBA's 7(a) and 504 loan programs, based on 
the data for fiscal years 2018-2020, SBA estimates that about five SBA 
7(a) and 504 loans totaling $2.1 million could be made to larger small 
businesses experiencing expansive impacts under this rule. 
Additionally, small businesses could receive up to two additional EIDL 
loans totaling $0.2 million due to the expansion of their size status. 
Together, these amounts represent a 0.01% increase to the loan amount 
relative to the baseline. Moreover, the increase in the number of firms 
eligible for financial assistance in no way reduces or eliminates the 
ability of smaller firms to remain eligible for such assistance. In 
other words, there is no competition for financial assistance. That is, 
when one firm gets financial assistance, that does not reduce or 
eliminate the possibility for another firm to get such assistance. All 
firms eligible under the current rules would continue to be eligible 
under the change and all eligible firms would get financial assistance.
    Therefore, SBA disagrees with commenters that its proposal to give 
applicants to SBA's Business Loan, EIDL, and SBIC Programs the option 
to use either a three-year or five-year average for the calculation of 
average annual receipts will harm existing small businesses by making 
it harder for them to obtain financial assistance from SBA. Thus, SBA 
is adopting the change to the averaging period for calculating average 
annual receipts in SBA's Business Loan, Disaster Loan, and SBIC 
Programs, as proposed.

Comment Advocating for Treating the SBG Program Similarly to the 
Business Loan and Disaster Loan Programs

    One comment observed that, under the prevailing structure in the 
proposed rule, the SBG program would be required to use five years of 
documentation to verify a small business's eligibility under SBA's size 
standards. The commenter believed that this requirement was burdensome 
on SBG program applicants in terms of both cost and time. The commenter 
asked that SBA treat the SBG program similarly to the Business Loan and 
Disaster Loan programs by exempting the SBG program from the five-year 
requirement. In support, the commenter pointed out that SBA's Office of 
Surety Bond Guarantees is part of SBA's Office of Capital Access.

SBA's Response

    SBA recognizes that requiring all SBG applicants to use a five-year 
average would create additional time and cost burdens on many SBG 
applicants. Additionally, as the commenter observed, the SBG Program is 
housed in SBA's Office of Capital Access, which operates SBA's Business 
Loan program. SBA believes that treating the SBG program similarly to 
the Business Loan programs promotes consistency among SBA's programs 
and creates less confusion about what rules apply to which programs. 
Therefore, in this final rule, SBA adds the SBG program to the list of 
programs in which applicants may elect to use a three-year receipts 
average or a five-year receipts average.
    On the same reasoning, however, SBA disagrees with the commenter 
that the SBG program should be entirely exempt from using a five-year 
receipts average. All of SBA's programs are required by the Small 
Business Act to adopt a five-year receipts average in some respect. SBA 
therefore is allowing SBA surety bond applicants to use either a three-
year or five-year average. As discussed in the impact analysis below, 
this change will have a small expansive effect on the program.

Conclusion

    Based on the reasons discussed above, SBA is adopting the proposed 
changes without change. Specifically, pursuant to Public Law 116-283, 
SBA is adopting its proposal to increase the averaging period for 
computing the number of employees for size standards from 12 months to 
24 months for all programs. Similarly, pursuant to Public Law 115-324, 
SBA is also adopting its proposal to permit the applicants to its 
Business Loan, Disaster Loan, and SBIC programs to elect to choose 
either the three-year or five-five year averaging period for 
calculation of average annual receipts. While the proposed rule did not 
include the SBG program in the option of electing 3-year or 5-year 
averaging period in calculating average annual receipts, pursuant to a 
public comment and to maintain consistency across SBA's financial 
programs, SBA is also allowing the applicants to the SBG program to 
choose either the three-year or 5-year averaging period.

III. Section-by-Section Analysis

A. Section 121.104

    In paragraph (c)(1), this final rule removes the sentence about 
certifications submitted prior to January 2022 because that date has 
now passed.
    In paragraphs (c)(1), (c)(2), and (c)(3), SBA adds the SBG and SBIC 
Programs to the list of programs that are excepted from SBA's current 
rule on calculating average annual receipts.
    In paragraph (c)(4), SBA amends the calculation of average annual 
receipts for the Business Loan, Disaster Loan, SBG, and SBIC Programs. 
A business in those programs may calculate its receipts using either a 
three-year average or a five-year average for the purposes of 
determining its size under a receipts-based size standard. This change 
does not affect the calculation of

[[Page 34101]]

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 amends 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 amends the averaging period for size 
standards proposed by other agencies from a 12-month period to a 24-
month period.
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 
final rule is a significant regulatory action for purposes of Executive 
Order 12866. Accordingly, below, SBA provides a benefit-cost analysis 
of this final rule, including: (1) a statement of the need for this 
action, and (2) an evaluation of the benefits and costs--both 
quantitative and qualitative--of this regulatory action.
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 (NDAA 2021) changed the averaging period for SBA's 
employee-based size standards from 12 months to 24 months. Second, in 
2018, Public Law 115-324 (SBREA) 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 three years to five years.
    The need of this final 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 two requirements, and this 
final 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 period 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-month 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 this 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 five 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 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 
as of January 2020 as follows:

[[Page 34102]]

[GRAPHIC] [TIFF OMITTED] TR06JN22.196

    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 entities 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%) were ``small'' in all North American 
Industry Classification System (NAICS) industries, 2,663 (or 1.7%) were 
``small'' in some industries and ``not small'' in other industries, and 
18,492 (or 12.1%) 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%) 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%) were ``small'' in all NAICS industries, 2,526 (or 2%) were 
``small'' in some industries and other than small (``not small'') in 
other industries, and 17,532 (or about 13.6%) were ``not small'' in any 
industry. In other words, 133,958 (or 87.9%) of 152,450 total concerns 
in SAM 2019 and 111,067 (or 86.4%) 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.''

                                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
--------------------------------------------------------------------------------------------------------------------------------------------------------
* To be used to translate the results from the matched data to overall 2019 SAM data.

    According to Table 2, ``Distribution of Business Concerns Subject 
to Employee-Based Size Standards by Number of NAICS Codes,'' 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% of 
firms were in only one NAICS code that has an employee-based size 
standard, about 40% in 2-5 NAICS codes, about 9% in 6-10 NAICS codes, 
and about 5% in more than 10 NAICS codes. In other words, 55% of firms 
were in multiple NAICS codes with employee-based size standards. Thus, 
it is quite possible that the 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.

  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
                                                   at least one  employee-based            and 2018  SAM
              Number of NAICS codes                         NAICS code           -------------------------------
                                                 --------------------------------
                                                       Count             %             Count             %
----------------------------------------------------------------------------------------------------------------
1 NAICS code....................................          70,200            46.0          57,498            44.7

[[Page 34103]]

 
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 
three years to five 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 five-year 
receipts average that happens to be higher than the three-year receipts 
average, thus ejecting them out of their small business status sooner. 
To mitigate this negative impact, SBA is permitting to allow applicants 
to its Business Loan, Disaster Loan, SBG, and SBIC Programs to choose 
either a three-year average or a five-year average. Thus, an applicant 
might be eligible for assistance if its five-year average is equal to 
or less than the size standard, even if it would otherwise be 
ineligible under the three-year average. Detailed impacts of this 
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 five years. Similarly, the 
System for Award Management (SAM) only records the data on three-year 
average annual receipts of businesses over their three 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 five-
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 five-year average annual revenue for 2019 as follows:

[[Page 34104]]

[GRAPHIC] [TIFF OMITTED] TR06JN22.197

    This result may slightly underestimate the five-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 five-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 five-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 entities 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%) were 
``small'' in all NAICS industries, 9,783 (or 2.9%) were ``small'' in 
some industries and ``not small'' in other industries, and 42,536 (or 
12.7%) were ``not small'' in any industry.
    Excluding entities with ``null'' or ``zero'' receipts values, 
192,295 firms (or about 57.4%) appeared both in 2019 SAM and in 2016 
SAM and were included in the five-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%) were ``small'' in all NAICS industries, 8,081 
(or 4.2%) were ``small'' in some industries and other than small (``not 
small'') in other industries, and 32,174 (or about 16.7%) were ``not 
small'' in any industry. In other words, 292,454 (or 87.3%) of 334,990 
total concerns in SAM 2019 and 160,121 (or 83.3%) 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.''

                                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,'' 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% of 
firms were in only one NAICS code that has a receipts-based size 
standard, about 35% in 2-5 NAICS codes, about 12% in 6-10 NAICS codes, 
and about 8-10% in more than 10 NAICS codes. In other words, 57-59% of 
firms were in multiple NAICS codes with receipts-based size standards. 
Thus, it is quite possible that the 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

[[Page 34105]]

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 five-year annual 
receipts average (as opposed to a three-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 five-year annual receipts average could be higher than the 
three-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 June 2019 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 three-
year average or a five-year average for calculating average annual 
receipts for the purposes of qualifying as a small business.

B. Impacts on Businesses From the 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, in this final rule, SBA identifies the following four 
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% 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.
    iv. The number of advanced small businesses within 10% 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 final 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,'' 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 five NAICS codes. For 
example, about 45% of all firms in the overall data were associated 
with only one NAICS code, as compared only about 20% among impacted 
firms. Similarly, firms with more than five NAICS codes accounted for 
about 13-14% of all firms in the original data, as compared to 30-40% 
among impacted firms. It is also notable

[[Page 34106]]

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

                   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 percentages 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 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 when this rule was developed), 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).''

          Table 6--Impacts From Changing the Averaging Period for Employees From 12 Months to 24 Months
----------------------------------------------------------------------------------------------------------------
                                  Firms impacted                    Total firms
           Impact \1\               in matched       Total to       impacted in   Total firms in    % Impacted
                                      dataset      matched ratio     2019 SAM        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

[[Page 34107]]

 
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 millions)  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 
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 Three Years to Five Years
    By comparing the approximated five-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 final rule, SBA identifies the following 
four possible impacts from changing the averaging period for annual 
receipts from three years to five 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

[[Page 34108]]

average > size standard >= 5-year average)--expansive impact.
    ii. The number of advanced small businesses within 10% 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.
    iv. The number of advanced small businesses within 10% 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 final rule, SBA is changing the period for calculation of 
average annual receipts for SBA receipts-based size standards for 
Business Loan, Disaster Loan, SBG, and SBIC Programs from three years 
to five 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 five-year averaging period may not always and necessarily 
provide relief to every small business concern. As discussed in the 
June 2019 proposed rule, when annual revenues are declining or when 
annual revenues for the latest three years are lower than those for the 
earliest two years of the five-year period, the five-year average would 
be higher than the three-year average, thereby ejecting some advanced 
small businesses out of their small business status sooner or rendering 
some small businesses under the three-year average not small 
immediately.
    There are four different types of impacts on small businesses from 
changes to the averaging period for annual receipts from three years to 
five 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 decision to permit businesses in the 
Business Loan, Disaster Loan, SBG, and SBIC programs to use either a 
three-year average or a five-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 final rule. Accordingly, this final rule provides the 
analysis of the two expansive impacts of changing the averaging periods 
for annual receipts from three years to five 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,'' 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 five NAICS codes. For 
example, as shown in Table 4, above, more than 40% of all firms in the 
overall data were associated with only one NAICS code, as compared to 
less than 15% among impacted firms in Table 8. Similarly, firms with 
more than five NAICS codes accounted for about 20% of all firms in the 
original data, as compared to more than 50% 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% of impacted firms, with Sector 54 (Professional, Scientific 
and Technical Services) accounting for about 30-35%, followed by Sector 
23 (Construction) about 25-30%, and

[[Page 34109]]

Sector 56 (Administrative and Support, Waste Management and Remediation 
Services) about 10-13%.
    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 percentage 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 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     Total to       Total firms
           Impact \1\               in matched     matched ratio    impacted in   Total firms in    % Impacted
                                      dataset        (Table 1)       2019 SAM        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\ Impact (i) = Current large businesses gaining small business status; and Impact (ii) = Current small
  businesses extending small business status.
\2\ 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).''

            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 three-year average receipts to 
five-year average may also harm some small businesses by causing them 
to lose or shorten their small business status in at least one 
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 three-year average 
annual receipts or the five-year average annual receipts for the 
Business Loan, Disaster Loan, and SBIC programs. SBA sought comment on

[[Page 34110]]

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) and 2012 County Business Patterns Reports (for industries 
not covered by the Economic Census), of a total of about 680,266 firms 
in all industries with employee-based size standards, about 96.7% were 
considered small and 3.3% other than small under the 12-month employee 
average. Similarly, of 152,450 businesses that were subject to at least 
one employee-based size standard and eligible for federal contracting, 
87.9% were small in at least one NAICS code and 12.1% 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% 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% went to small businesses. Of 
total dollars awarded to small businesses subject to employee-based 
size standards, $23.8 billion or 50.6% was awarded through various 
small business set-aside programs and 49.4% 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 during fiscal years 2018-2020, 
totaling $4.9 billion, of which 75% was issued through the 7(a) program 
and 25% was issued through the CDC/504 program. During fiscal years 
2018-2020, small businesses in those industries also received about 370 
loans through the SBA's EIDL loan program, totaling about $0.02 billion 
on an annual basis. Table 11, ``Baseline Analysis of Employee-Based 
Size Standards,'' provides these baseline results.
    Based on SBA's internal data on its SBGProgram for fiscal years 
2018-2020, small businesses subject to employee-based size standards 
received, on an annual basis, a total of 52 surety bonds guaranteed by 
SBA, which supported about $41 million in contracts. Surety Bonds to 
firms with employee-based size standards account for only about 1% of 
overall program activity.
    Based on SBA's internal data on its SBIC program for fiscal years 
2018-2020, on an annual basis, 375 small businesses subject to 
employee-based size standards received SBIC financing, resulting in 
$1.8 billion in capital to those small firms. SBIC financing to firms 
with employee-based size standards account for about 34% of overall 
program activity.
    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 an employee-based             152,450
 size 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 (2019
 SAM)...................................................
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                $233.6
 concerns, subject to employee-based standards ($
 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 (FPDS-NG
 (2019).................................................
Annual average number of 7(a) and 504 loans to                     7,672
 businesses subject to employee-based standards (FY 2018-
 2020)..................................................
Annual average amount of 7(a) and 504 loans ($ billion)             $4.9
 (FY 2018-2020).........................................
Number of EIDL loans to businesses subject to employee-              369
 based size standards (FY 2018-2020) \3\................
Amount of EIDL loans ($ billion) (FY 2018-2020) \3\.....           $0.02
Number of surety bonds to firms subject to employee-                  52
 based size standards (FY 2018-2020)....................
Total value of contracts supported ($ billion) (FY 2018-           $0.04
 2020)..................................................
Number of firms subject to employee-based size standards             375
 receiving SBIC financing (FY 2018-2020)................
Total value of SBIC financing ($ billion) (FY 2018-2020)            $1.8
------------------------------------------------------------------------
\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.
\3\ Excludes COVID-19 related EIDL loans due to their temporary nature.
  Effective January 1, 2022, SBA stopped accepting applications for new
  COVID EIDL loans or advances.


[[Page 34111]]

    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 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% 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 Three 
Years to Five Years
    For this new regulatory action modifying an existing regulation 
(such as changing the average annual receipts calculation from three 
years to five 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% are considered small and 4% other-than-small under the three-
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% were small in at 
least one NAICS code and 12.7% 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% was issued through the 7(a) 
program and 15% was issued through the CDC/504 program. During fiscal 
years 2018-2020, small businesses in those industries also received 
about 3,534 loans through the SBA's EIDL program, totaling about $0.1 
billion on an annual basis.
    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 final rule are subject to their own size standards based on 
average annual receipts.
    Based on SBA's internal data on its SBG Program for fiscal years 
2018-2020, small businesses subject to receipt-based size standards 
received, on an annual basis, a total of 10,433 surety bonds guaranteed 
by SBA which supported $6.7 billion in contracts. Over 95% of surety 
bond activity, in terms of the value of contracts supported, occurs 
under Sector 23 (Construction).
    Based on SBA's internal data on SBIC program for fiscal years 2018-
2020, on an annual basis, 724 small businesses subject to receipts-
based size standards received SBIC financing, resulting in $3.4 billion 
in capital to those small firms. Table 12, ``Baseline Analysis of 
Receipts-Based Size Standards,'' below, provides these baseline 
results.

      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 (2019
 SAM)...................................................
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 (FY 2018-
 2020)..................................................
Annual average amount of 7(a) and 504 loans ($ billion)            $23.9
 (FY 2018-2020).........................................
Number of EIDL loans to businesses subject to receipts-            3,534
 based size standards (FY 2018-2020) \3\................
Amount of EIDL loans ($ billion) (FY 2018-2020) \3\.....            $0.1
Number of surety bonds to firms subject to receipts-              10,433
 based size standards (FY 2018-2020)....................
Total value of contracts supported ($ billion) (FY 2018-            $6.7
 2020)..................................................
Number of firms subject to receipts-based size standards             724
 receiving SBIC financing (FY 2018-2020)................
Total value of SBIC financing ($ billion) (FY 2018-2020)            $3.4
------------------------------------------------------------------------
\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.
\3\ Excludes COVID-19 related EIDL loans due to their temporary nature.
  Effective January 1, 2022, SBA stopped accepting applications for new
  COVID EIDL loans or advances.

    Businesses that would regain or expand their small business status 
can be identified by comparing the estimate of their five-year receipts 
average with the size standard. That is, if the five-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

[[Page 34112]]

businesses whose three-year average annual receipts was within ten 
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 three-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 
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, SBG and SBIC 
Programs, and Federal Procurement Programs intended for small 
businesses. 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%) would benefit 
from the 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% of small 
businesses within 10% 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% of currently large businesses would gain or regain small status 
and about 1,200 or 0.2% 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 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        Total
                      Impact of the change                         gaining small     extending       expansive
                                                                      status       small 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 extended                  1.8             0.3             0.5
 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 small                1.3             0.2             0.2
 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 qualified             332.7            90.5           423.2
 firms or/and current small firms with extended small status ($
 million)--FPDS-NG (2019).......................................
Additional small business dollars as % total small business                  0.7             0.2             0.9
 contract dollars in the baseline FPDS-NG (2019)................
Number of additional 7(a) and 504 loans to newly qualified firms               1               1               2
 or/and current small firms extending small status (FY 2018-
 2020)..........................................................
Additional 7(a) and 504 loan amount to newly qualified firms or/            0.01            0.02            0.03
 and current small firms extending small status ($ million) (FY
 2018-2020).....................................................
Additional 7(a) and 504 loan amount as % of total 7(a) and 504               0.0             0.0            0.01
 loan amount in the baseline (FY 2018-2020).....................
Number of additional EIDL loans to newly qualified firms or/and                0               0               0
 small firms extending small status \3\ (FY 2018-2020)..........
Additional EIDL loan amount to newly qualified firms or/and                    0               0               0
 small firms with extended small status ($ million) \3\ (FY 2018-
 2020)..........................................................
Additional EIDL loan amount as % of total loan amount in the                   0               0               0
 baseline \3\ (FY 2018-2020)....................................
----------------------------------------------------------------------------------------------------------------
\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.

[[Page 34113]]

 
\3\ Excludes COVID-19 related EIDL loans due to their temporary nature. Effective January 1, 2022, SBA stopped
  accepting applications for new COVID EIDL loans or advances.

    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 final rule 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% 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% 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% 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 one SBA 7(a) or 504 
loans totaling nearly $0.01 million could be made to these newly-
qualified small businesses under the change in this final rule. 
Additionally, small businesses could receive one SBA 7(a) or 504 loans 
totaling nearly $0.02 million due to the extension of their size 
status. These amounts represent a 0.001% increase 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 EIDL 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 EIDL 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 EIDL loans under the change adopted in this final rule.
    SBA also assessed the impacts of the changes in the SBG Program. 
SBA estimates that the changes to the averaging period for employees 
will have no impacts on the program as most surety bonds guaranteed by 
SBA go to firms much smaller than their respective employee-based size 
standards or to firms operating under a receipts-based size standard. 
These firms would continue to be eligible for SBA surety bonds after 
adoption of the change to the averaging period for employee-based size 
standards in this final rule., Thus, SBA believes that changing the 
averaging period for employee-based size standards from 12 months to 24 
months will have no impact on the SBG Program.
    Additionally, SBA assessed the impacts of the changes in the SBIC 
Program. Similar to the distribution of firms under SBA's financial 
assistance programs discussed above, the majority of firms subject to 
employee-based size standards that receive capital through an SBIC are 
generally much smaller than their respective industry size standard. 
Based on internal data from fiscal years 2018-2020, SBA estimates that 
only about 10% of firms receiving SBIC financing are greater than 90% 
of their respective employee-based size standard. Moreover, only a 
small proportion (about 0.06%) of total small businesses subject to 
employee-based size standards that are eligible to participate in the 
SBIC program receive financing through an SBIC. Thus, based on these 
historical trends of the SBIC program, SBA believes that changing the 
averaging period for employee-based size standards from 12 months to 24 
months will have no impact on the program as there are likely few firms 
with expansive impacts at the higher margin of their respective 
employee-based size standard that would participate in and receive 
funding through the SBIC program.
    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 
change adopted in this final rule, HUBZone firms might end up getting 
more set-aside contracts and fewer full and open contracts, thereby 
resulting in some cost savings to federal agencies. 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. However, 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 change in the averaging period for employees from 12 months to 
24 months 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 final rule can expand the pool of 
qualified small firms for agencies to draw upon to meet their small 
business requirements.

[[Page 34114]]

2. Expansive Effects of Changing the Averaging Period for Receipts From 
Three Years to Five Years
    The most significant benefits to businesses from the change in the 
period for calculation of average annual receipts from three years to 
five 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, SBG, 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%) would 
benefit from the change by gaining or regaining small business status 
under the five-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% of small businesses within 10% below size standards would 
see their annual receipts decrease under the five-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% of currently large businesses would gain or regain small 
business status and more than 61,250 or 0.9% of total small businesses 
would see their small business status extended for a longer period as 
the result of this final rule. These results are shown in Table 14.

        Table 14--Expansive Impacts of Changing the Averaging Period for Receipts From 3 Years to 5 Years
----------------------------------------------------------------------------------------------------------------
                                                              Firms gaining    Firms extending
                     Impact of 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                       6.4               1.2               2.0
 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..............
Number of additional 7(a) and 504 loans to newly qualified                 1                 4                 5
 firms or/and current small firms extending small status
 (FY 2018-2020)...........................................
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) (FY 2018-2020)...............................
Additional 7(a) and 504 loan amount as % of total disaster               0.0               0.0              0.01
 loan amount in the baseline (FY 2018-2020)...............
Number of additional EIDL loans to newly qualified firms                   1                 1                 2
 or/and small firms extending small status \3\ (FY 2018-
 2020)....................................................
Additional EIDL loan amount to newly qualified firms or/              $0.001            $0.003            $0.004
 and small firms with extended small status ($ million)
 \3\ (FY 2018-2020).......................................
Additional EIDL loan amount as % of total loan amount in                 0.0               0.0              0.03
 the baseline \3\ (FY 2018-2020)..........................
----------------------------------------------------------------------------------------------------------------
\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.
\3\ Excludes COVID-19 related EIDL loans due to their temporary nature. Effective January 1, 2022, SBA stopped
  accepting applications for new COVID EIDL loans or advances.

    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 five-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 one SBA 7(a) or 504 loans 
totaling $0.2 million could be made to these newly qualified small 
businesses under the change adopted in this final rule. Additionally, 
small businesses could receive up to four SBA 7(a) or 504 loans 
totaling $1.9 million due to the expansion of their size status. 
Together, these amounts represent a 0.01% 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 EIDL program. Since 
the benefit provided through this program is contingent on the 
occurrence and severity of a disaster in the future, SBA cannot make a 
meaningful estimate of this impact. However, based on the historical 
trends of the SBA EIDL loan data, SBA estimates that, on an annual 
basis, the newly-defined small businesses under the change could 
receive about one EIDL loan, totaling about $0.001 million. Similarly, 
extending small business status for a longer period could result in 
small businesses receiving one disaster loan, totaling about $0.003 
million. These results are presented in Table 14, above.
    SBA also assessed the impacts of the changes in the SBG Program. 
Based on internal data for fiscal years 2018-2020, SBA estimates that, 
on an annual basis, about two additional bonds supporting $0.6 million 
in contracts could be made to newly qualified small businesses subject 
to receipts-based size standards under the change. SBA believes that 
this

[[Page 34115]]

impact is de minimis as these figures represent an increase of less 
than 0.02% of the total number of bonds guaranteed by SBA and the total 
value of contracts supported on an annual basis as compared to the 
amounts in the baseline.
    Additionally, SBA assessed the impacts of the changes in the SBIC 
Program. While the majority of firms subject to receipts-based size 
standards that receive capital through an SBIC are much smaller than 
their respective industry size standard, based on internal data from 
fiscal years 2018-2020, SBA estimates that about 42% of firms receiving 
SBIC financing are greater than 90% of their respective employee 
equivalent receipts-based size standard.\4\ However, similar to the 
proportion of firms receiving capital from SBICs under employee-based 
size standards, only a small proportion (about 0.01%) of total small 
businesses subject to receipts-based size standards that are eligible 
to participate in the SBIC program receive financing through an SBIC. 
Based on these historical trends, SBA estimates that, under the change 
to the averaging period for receipts, on an annual basis, about three 
additional firms subject to receipts-based size standards could receive 
about $14 million in SBIC financing. SBA believes that this impact is 
de minimis as these figures represent an increase of less than 0.4% of 
total financings as compared to the amounts in the baseline. 
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.
---------------------------------------------------------------------------

    \4\ Due to data limitations, SBA was not able to obtain revenue 
information for recipients of SBIC financing, however, data on total 
employees were available. Thus, SBA analyzed the distribution of 
firms by size using employee equivalent size standards.
---------------------------------------------------------------------------

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.

   Table 15--Contractive Impacts From Changing the Averaging Period for Employees From 12 Months to 24 Months
----------------------------------------------------------------------------------------------------------------
                                                               Small firms       Small firms          Total
                   Impact of the 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.....................................
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 (FY 2018-2020).........
7(a) and 504 loan amount unavailable to small firms losing             $0.01             $0.01             $0.02
 or shortening ($ million) (FY 2018-2020).................
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) (FY
 2018-2020)...............................................
Number of EIDL loans unavailable to small firms losing or                0.0               0.0               0.0
 shortening small status \3\ (FY 2018-2020)...............
Unavailable EIDL loan amount to small firms losing or                   $0.0              $0.0              $0.0
 extending small status ($ million) \3\ (FY 2018-2020)....
Unavailable EIDL loan amount as % of total EIDL loan                     0.0               0.0              0.0
 amount in the baseline (baseline = $1.0 billion) \3\ (FY
 2018-2020)...............................................
----------------------------------------------------------------------------------------------------------------
\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.
\3\ Excludes COVID-19 related EIDL loans due to their temporary nature. Effective January 1, 2022, SBA stopped
  accepting applications for new COVID EIDL loans or advances.


[[Page 34116]]

    As shown in Table 15, 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%) would lose 
their small status and another 100 firms (or 0.08%) would see their 
size status shortened as a result of the change adopted in this final 
rule. Similarly, based on the 2012 Economic Census data and 2012 Census 
of Agriculture, 763 firms would lose their small business status and 
287 firms would see their size status shortened, which represent, 
respectively, 0.1% and 0.04% of total small firms subject to an 
employee-based size standard.
    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% decrease from the corresponding value in the baseline. 
Similarly, based on 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 EIDL 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 EIDL loans under the change adopted in this final rule. 
Similarly, based on the historical trends of the SBA's SBG and SBIC 
Programs, which shows that the majority of firms participating in these 
programs are much smaller than their respective employee-based size 
standards, or operate under a receipts-based size standard, SBA 
estimates that businesses losing or shortening small business status 
under the employee-based size standards would not lose access to any 
additional surety bond guarantees or SBIC financing under the change 
adopted in this final rule.
    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 final 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 final 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 change adopted in this final rule 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 change adopted in this final 
rule. 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 five-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 
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 this 
final rule, 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 change adopted in this final rule. 
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 change to the averaging period for employees from 
12 months to 24 months, HUBZone firms might 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 Three Years to Five 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

[[Page 34117]]

declining or when annual revenues for the latest three years are lower 
than those for the earliest two years of the five-year period, the 
five-year average would be higher than the three-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, Surety Bond, and SBIC Programs to elect 
to use either the three-year receipts average or the five-year receipts 
average will mitigate such impacts. Moreover, the change in the 
averaging period for receipts in this final rule only applies to 
businesses in the SBA Business Loan, Disaster Loan, SBG, and SBIC 
Programs. In other words, the change in the calculation of average 
annual receipts in this final rule will have no impacts on businesses 
participating in federal procurement and all other non-procurement 
programs except SBA Loan, SBG, and SBIC 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 final 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 final 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 change in averaging period for 
employees would result in four primary impacts, which can be 
categorized as either having an `expansive impact' or a `contractive 
impact' on size status of both currently large and small businesses. 
Allowing some currently large firms to gain or regain small business 
status and some advanced small firms to remain small for a longer 
period represents the expansive impact of the final rule. Causing some 
currently small firms to lose or shorten their small business is the 
rule's contractive impact.
    Although businesses in a majority of industries with employee-based 
size standards would be both positively and negatively impacted by this 
final rule, in totality the number of firms with expansive impacts was 
generally greater than the number of firms with contractive impacts. 
The final rule would result in a net gain of about $158 million (or 
0.3% increase from the baseline) in federal small business contract 
dollars. The net impact of the final rule on SBA's 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 EIDL loans as a 
result of changing the period for calculating the average number of 
employees for size standards from 12 months to 24 months. Similarly, 
SBA estimates that changes to the averaging period for employee-based 
size standards will have no impact on the Surety Bond and SBIC 
programs. Net impacts of the final rule are summarized in Table 16, 
``Net Impact from Changing the Averaging Period for Employees from 12 
Months to 24 Months.''

        Table 16--Net Impact From Changing the Averaging Period for Employees From 12 Months to 24 Months
----------------------------------------------------------------------------------------------------------------
                                                                                    Total
                   Impact of the 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             $0.01
7(a)and 504 loan amount impacted as % of total 7(a)and 504               0.0               0.0               0.0
 loan amount in the baseline..............................
Number of EIDL loans impacted \1\.........................                 0                 0                 0
EIDL loan amount impacted ($ million) \1\.................              $0.0              $0.0              $0.0
EIDL loan amount impacted as % of total EIDL loan amount                 0.0               0.0               0.0
 in the baseline \1\......................................
----------------------------------------------------------------------------------------------------------------
\1\ Excludes COVID-19 related EIDL loans due to their temporary nature. Effective January 1, 2022, SBA stopped
  accepting applications for new COVID EIDL loans or advances.

2. Net Impact of Changing the Averaging Period for Receipts From Three 
Years to Five Years
    Under SBA's decision allowing businesses to elect to choose either 
a three-year receipts average or a five-year receipts average to 
establish small business eligibility for its Business Loan, Disaster 
Loan, SBG, and SBIC Programs, none of the currently eligible small 
businesses will experience a contractive impact from the change. In 
other words, the change will not cause any currently small businesses 
to lose or shorten their small business status. The 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 change.

[[Page 34118]]

G. Transfer Impacts

1. Transfer Impacts of Changing the Averaging Period for Employees From 
12 Months to 24 Months
    The 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 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 
final 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 
Three Years to Five Years
    The change from a three-year averaging period to a five-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 final rule does not apply to federal 
contracting, these distributional impacts are not relevant for changing 
the averaging period for receipts from three years to five 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 
final 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 three-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 SBA's process to implement the new law.
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. 
OIRA has determined that this rule is not a ``major rule'' as defined 
by 5 U.S.C. 804(2).
Regulatory Flexibility Act (Final Regulatory Flexibility Analysis)
    Under the Regulatory Flexibility Act (RFA), this final 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 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 change in the averaging period for receipts 
from three years to five years will also impact a substantial number of 
businesses in the SBA Business Loan, Disaster Loan, SBC, and SBIC 
programs.
    Accordingly, immediately below, SBA sets forth a final regulatory 
flexibility analysis (FRFA) of this final 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? (5) What alternatives will allow SBA 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 final rule is to implement 
Public Law 116-283 by amending 13 CFR 121.106 such that a concern would 
average its employees

[[Page 34119]]

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 three years to five 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 
final rule would extend the changes to SBA's receipts-based size 
standards for the Business Loan, Disaster Loan, SBG, and SBIC Programs.
2. What are SBA's description and estimate of the number of small 
businesses to which the rule will apply?
    This final 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 final rule will apply, 657,942 or about 96.7% 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% 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%, or 33,867 were small.
    Based on the same data sources listed above, of a total of nearly 
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% were 
considered small under the three-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% 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 final 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 (FAR 
52.204-13). For existing contracts, small business contractors are 
required to update their SAM registration as necessary, to ensure that 
they reflect the Contractor's current status (FAR 52.219-28). 
Businesses are also required to verify that their SAM registration is 
current, accurate, and complete with the submission of an offer for 
every new contract (FAR 52.204-7 and 52.204-8). 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 final rule only applies to SBA financial 
assistance 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 SBA 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 of average annual receipts to implement Public Law 115-324 
for the SBA's Business Loan, Disaster Loan, SBG, 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 five-year averaging 
period on small businesses and to allow small businesses to continue to 
use the three-year receipts average, in this final rule SBA is allowing 
applicants in Business Loan, Disaster Loan, SBG, and SBIC programs to 
elect to calculate average annual receipts using either a three-year 
averaging period or a five-year averaging period.
Paperwork Reduction Act
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Chapter 35, 
SBA determined that this rule will require technical amendments to 
existing information collections as described below. SBA did not 
receive any comments related to the information collection revisions 
discussed in the proposed rule. Thus, SBA will proceed to amend the 
information collections to reflect the changes made by this final rule.
    With respect to 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.
    SBA has determined that the changes to the Form 355 will not impact 
the paperwork burden, and it will remain at 4 hours.

[[Page 34120]]

    SBA will revise the SBA Form 480, Size Status Declaration, for SBIC 
applicants to reflect the change to the 24-month average for applicants 
using an employee-based size standard, and the change to an election 
between a three-year average and a five-year average for applicants 
using a receipts-based size standard. The tangible net worth and net 
income measures for the alternative size standard for SBIC applicants 
will not change. SBA has determined that the changes to the Form 480 
will not impact the paperwork burden.
    Finally, 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 will reflect the change to an election between a three-year 
average or a five-year average for applicants using a receipts-based 
size standard. The tangible net worth and net income values for the 
alternative size standard for 7(a) and 504 applicants will 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 amends 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); Public Law 116-136, Section 1114.


0
2. In Sec.  121.104, revise paragraph (c) 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, Surety Bond Guarantee, 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, Surety 
Bond Guarantee, 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, Surety Bond 
Guarantee, 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, Surety Bond Guarantee, 
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 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. 2022-12131 Filed 6-3-22; 8:45 am]
BILLING CODE 8026-03-P


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