The U.S. Small Business Administration (SBA) just issued its long-anticipated Proposed Rule implementing the Small Business Runway Extension Act (the Act). In a previous Holland & Knight blog post, they discussed the SBA’s position that the Act would not be effective until the rulemaking process was completed. If implemented, the Proposed Rule will modify the SBA’s method for calculating annual average receipts used to prescribe size standards for small businesses. Specifically, the SBA proposes to change its regulations so that a five-year averaging period (instead of three years) is used when calculating the annual average receipts for all SBA receipts-based size standards and other agencies’ proposed size standards for service-industry firms.
Notably, however, the SBA is proposing to restrict the benefit of this change.
First, SBA takes the position in the commentary to the Proposed Rule (consistent with its previous positions and described more fully below) that the change does not go into effect until its rulemaking is completed. Second, the SBA states that the change will not be applied retroactively when it considers size appeals so that SBA will review a size challenge in accordance with the size standard in effect at the time of the challenged company’s certification. Third, the SBA is not changing non-SBA size standards and leaves such changes to the individual agencies. Further, the SBA has not abandoned its position that the Act does not mandate this change. The SBA states that it is only proposing these rules in the interests of economy and because the new rules do not conflict with the SBA’s existing statutory authority and is consistent with Congress’ intent.
The SBA also points out that while this change will benefit growing small businesses, it could detrimentally impact large businesses that are losing revenue. For those businesses, the longer look-back period may cause them to take longer to regain small business size status.
Finally, SBA’s commentary reiterates its position that receipts of a former division count when determining size status while the receipts from a concern’s former subsidiary do not. There was no additional language in the proposed rule to reflect this sentiment, but contractors and practitioners should take notice.
Continue reading at: Holland & Knight
