The U.S. Small Business Administration (SBA) issued a final rule on June 6, 2022, making significant changes to its methodology for calculating the size of certain businesses. The rule becomes effective July 6, 2022.
The primary change is to shift the period of calculation for employee-based size standards to a 24-month trailing average basis from the current period of 12 months. SBA's employee-based size standards apply primarily (but not exclusively) to manufacturing. Historically, SBA has calculated size for these industries based on a 12-month lookback. Section 863 of the 2021 National Defense Authorization Act (NDAA) amended the Small Business Act to require a 24-month lookback for these industries. The change applies across all of SBA's programs.
SBA recently changed its period of calculation for receipts-based size standards from a three-year to a five-year lookback, as directed by the 2018 Small Business Runway Extension Act (SBREA). In implementing SBREA, SBA provided a phase-in period during which businesses could elect to use either the three-year or five-year lookback. That phase-in period expired in January 2022, and all firms are now required to use the five-year lookback for receipts-based size calculations. The SBA considered, but declined to provide, a phase-in period for the new employee-based rule.
The final rule also makes changes to size calculation rules for its Business and Disaster loan programs, as well as the Small Business Investment Company...
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