This is a reminder that as of January 6, 2022, the Small Business Administration is requiring all small businesses to use a five-year period of measurement in determining their size under a revenue-based size standard.

On January 6, 2020, the SBA published its final rule providing for a five-year period of measurement for determining a small business’s size under revenue-based size standards. In recognition of the potential impacts caused by change from a three-year period of measurement to a five-year period of measurement, the SBA provided a two-year transition period in which small businesses could elect to use either a three- or five-year period of measurement.  

That transition period ended January 6, 2022, and all small businesses are now required to use the five-year period of measurement for determining a small business’s size under revenue-based size standards. Accordingly, those entities who participate in the SBA’s small business programs and have not already moved to a five-year measurement may want to consider evaluating if there is any change in their size status based on this new measurement period. 

The applicable regulation is 13 CFR § 121.104(c)(1), and the period of measurement is defined as follows:

Except for the Business Loan and Disaster Loan 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.

As a reminder, “receipts” are generally considered to be “‘total income’ (or in the case of a sole proprietorship ‘gross income’) plus ‘cost of goods sold’ as these terms are defined and reported on Internal Revenue Service (IRS) tax return forms.” 13 CFR § 121.104(a).

If you have any questions about determining your applicable size under the SBA’s size standards, including using the required five-year period of measurement, please contact a Schwabe attorney.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.

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