In 1984, President Reagan’s SBA had to solve the size-standard problem. The agency’s definition of a “small business” was too low, many felt. The public mostly hated a move from revenue-based standards to employee-based standards; 75% of the 1,200 commenters wrote in opposition. And government contractors thought the standards didn’t acknowledge their unique competitive pressures.
So Reagan’s SBA came up with a solution—one that garnered enough Congressional and public support that it has held for over 40 years. The size standards up through today are basically an extension of those standards that SBA published in 1984. I managed size standards from 2020 to 2025 as SBA’s director of policy, planning, and liaison. The methodology that I worked with—formulas that determine the specific dollar and headcount figures for the standards—relies on the factors and framework that SBA used under Reagan. Government contracting figures heavily into those formulas.
The Trump administration now has proposed to tear up the Reagan SBA’s solution and start completely fresh. The SBA has proposed what would be the biggest size standard changes in history. The agency’s purpose behind the standards has shifted entirely. The data SBA uses is completely different. And government contracting isn’t in the methodology at all.
As a result, Trump’s SBA proposed increases of up to 20-fold, allowing billion-dollar-revenue businesses to qualify for small-business benefits. Whether you like the Trump solution probably starts with your answer to the most basic question: What do the size standards accomplish?
“[D]ifferent proposals to revise the size standards…have created uncertainty and anxiety among the public and Federal agencies,” wrote Reagan’s SBA Administrator James C. Sanders in February 1984. “A final rule will clear the air.”
Compare that with the statement from the current SBA: “SBA’s objective … is to ensure no dominant firms are misclassified as small businesses while minimizing the number of non-dominant firms which are misclassified as large businesses.”
From quelling uncertainty back then to now worrying about “non-dominant” mid-size firms, SBA has completely thrown out the 1984 consensus solution. The consequences could be entirely unexpected: fewer subcontracts, more contract consolidation, and higher past-performance thresholds.
The 1984 SBA staff faced those same problems too. And their answers stood for over 40 years.
The “Small Is Beautiful” era
The Reagan solution followed a decade in which the most pressure was applied to SBA to lower size standards. A major influence in 1970s economic thought was E.F. Schumacher’s “Small Is Beautiful: A Study of Economics As If People Mattered.” In the 1970s, SBA actually subscribed to the policy that size standards should be as low as possible:
Smaller concerns often are forced to compete with middle-sized as compared with very large concerns. In consideration of this fact, the standard for each industry should be established as low as reasonably possible.
Businesses understood that the size standards created a mid-size problem. Companies would either hold themselves below the standard or grow past it and lose the shot at set-asides. Then that would put them in competition with much larger players. SBA spoke to that, imploring those companies to “plan” on surviving without set-aside benefits:
It is the Small Business Administration view that concerns which, with or without assistance under the Small Business Act, have grown to a size which exceeds the applicable small business size standard, should compete for Government contracts not reserved for small business concerns or should seek commercial markets in the same or related fields. Under such circumstances small business concerns should not rely on continuing assistance under the Small Business Act from the cradle to the grave but should plan for the day on which they become other than small business.
Essentially, SBA believed that mid-size firms had proven themselves capable enough to stay in business. Rather than setting size standards to assist those firms, “the definition of small business for each industry should be limited to that segment of the industry struggling to become or remain competitive,” the 1970s SBA wrote.
Even with that opinion, though, SBA was criticized for the size standards being too high. A GAO report found that, in specific industries, the standard was set so high that “firms with fewer than 200 employees [40% of the size standard] had a significantly smaller chance of winning a contract [and] these firms may be most in need of Federal assistance.” GAO encouraged SBA to investigate “whether the size standards have permitted larger firms within a size standard to dominate the competition for set-aside contracts.”
Spurred by the GAO report, SBA proposed to lower size standards and, separately, to convert the revenue standards to employee counts. Both proposals received widespread opposition. So SBA went in a different direction.
The Reagan Compromise
Given the pushback on both prior proposals, Reagan’s SBA decided not to pick a side. Rather than lowering the standards or converting them wholesale to employee counts, the agency expanded outreach, making room for objections. Establishing size standards “should not only have a technical base (industry structure) but should also consider the comments from the Federal procuring agencies and the private sector,” SBA wrote.
The agency’s driving force was the statute itself. Then and now, the Small Business Act directs that the government “aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise.”
From that “aid, counsel, assist, and protect” mandate, SBA understood that its small-business definitions drove the eligibility criteria for its own programs, especially in Federal contracting. The agency took the “needs” of those programs seriously, writing:
Size standards are established primarily to define eligibility for SBA programs and Federal procurement purposes. It is clear, both from the Act itself and from the legislative history, that the specification of what is a small business has been left to administrative, rather than legislative, determination. Size standards vary by industry with particular attention to the structure of the designated industry, Administration policy and the needs of the various Federal programs to which they apply.
To that end, SBA devised a formula that balanced multiple factors, including average firm size, the number of firms and their distribution. SBA specifically factored in Federal contracting. The agency considered these factors industry by industry but didn’t blindly follow “an exact quantitative procedure,” it wrote. Instead, the size standards were more holistic. The 1984 SBA explained:
In its most basic sense, this is the approach of establishing size standards. Factors, among others, which are examined for the purpose of setting size standards include maximum size of firms, average firm size, the extent of industry dominance by large firms, the number of firms, the distribution by firm size of sales and employees in the industry, the presence of Federal procurement, and relation to other SBA programs. The development of size standards is not an exact quantitative procedure. No single measure or simple numerical device is the basis for establishing size standards.
In developing the new standards, SBA dropped the idea of switching mostly to employee counts. It also decided to avoid lowering standards. What did not change, though, was SBA’s admonition that no business should count on set-asides “from cradle to grave.” They would need to “plan” for surviving without the SBA. The same language from earlier about the mid-size problem persisted to the 1984 version:
SBA assistance should not be regarded as permanent nor as the primary source of a firm’s sales. It should be used to assist a firm to compete in the regular business world, without becoming dependent on continuing Government aid. Small businesses should not rely on Federal assistance from the cradle to the grave, but should plan for the day when they can compete without assistance.
The result was a table with 17 footnoted exceptions. Employee-based standards ran from 500 to 1,500. Revenue-based standards ran from $3.5 million to $17 million — roughly $11 million to $55 million in today’s dollars.
The 2025 size standards are, in structure, virtually the same document. SBA used the same factors. The employee ranges are identical. The revenue ranges sit slightly lower because the last inflation adjustment was 2022. There are now 18 footnotes and many of the same exceptions are still on the books: dredging, military weapons engineering, and other industries where the agency decided the general standard didn’t fit the industry.
Over 40 years, the numbers changed and were rearranged, but the analysis and framework behind them remained intact.
Putting the Trump stamp on small business
The latest proposal washes away the current framework. In place of the 1984 list of factors, SBA has elevated a single factor: dominance. The agency’s stated objective is “to ensure no dominant firms are misclassified as small businesses while minimizing the number of non-dominant firms which are misclassified as large businesses.” The new analysis doesn’t consider average firm size, the number of firms, or their distribution. It starts with the assumption that a $500 million business isn’t dominant in a $20 billion market, and that a 2,500-person firm isn’t dominant in a 200,000-worker market. Then SBA proceeds from there to apply those assumptions to both smaller and larger markets.
Both approaches produce definitions of “small.” But the 1984-2025 SBA was defining what segments of the industry needed help competing, segments where the government needed to “aid, counsel, assist, and protect.” Today’s SBA is doing something entirely different. It is defining the outer limit of firms that can’t be called dominant. That’s why the numbers are so different. It’s also why the second analysis has no maximum; the size standards go past $1 billion in a few industries.
In past years, SBA implored mid-size businesses to understand that it was someone else’s turn. They needed to “plan” on surviving past their set-aside eligibility. Small-business status was not something to count on “from cradle to grave,” SBA said.
But now, SBA wants to eliminate the mid-size problem. In the latest proposal, SBA wrote that the current standards “leave small businesses with a decision to forego new growth opportunities in order to remain within the limited size threshold.” So SBA has put the limit so high that it even outstrips what most people would consider mid-size. Few IT services firms will ever approach revenues of $531 million. SBA doesn’t seem to believe that Federal assistance should have an end date anymore. A $34 million firm would stay small at $100 million, at $340 million, and $500 million.
Meanwhile, Federal contracting doesn’t figure into the methodology. There’s no Federal contracting factor and no analysis of SAM.gov data to develop the standards. SBA is focused on measuring the market, but the agency neglects that it also sets the market. Its market intervention would add—by SBA’s measure—over 37,000 set-aside competitors. There were only 56,725 small-business contractors last year. So that’s a 65% increase without any thought as to what happens to the companies—likely the smaller small businesses—that don’t survive the expansion.
Reagan’s SBA had an answer to what size standards accomplish: they “aid, counsel, assist, and protect” those smaller small businesses. That policy lasted for over 40 years. Now Trump’s SBA has a different answer. The agency wants to ensure the “non-dominant” mid-size businesses don’t miss out on small-business competitions. With comments due September 21, the question worth asking SBA isn’t whether $531 million or $1 billion is too high a number. It’s what the number is for.
With over 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. His website is www.samlelaw.com. This article is for informational purposes only and does not constitute legal advice.
What are the odds that they reduce these thresholds after seeing all the comments?