Executive Summary

• SBA will be proposing a top-to-bottom rewrite of its size standards. SBA will be publishing on August 20, 2026 a proposed rule (RIN 3245-AI67) that will replace nearly 1,000 industry-specific size standards with 338 standards set at the 4- and 5-digit NAICS level, eliminates all subindustry exceptions (including ITVAR), converts construction and several other sectors from receipts-based to employee-based standards, removes the ceiling on size standards, and adds a productivity adjustment on top of inflation. Comments are due September 21, 2026.
• Size standards increase dramatically — and almost nothing decreases. Thresholds rise as much as tenfold or more in professional services, IT, engineering, logistics, and hospitality, and SBA proposes not to reduce any standard even where its analysis supported a decrease. SBA estimates roughly 114,500 firms would gain small business status while fewer than 200 lose it.
• If your firm outgrew its size standard, you may be small again. About 37,000 firms currently holding roughly $71 billion in federal contracts would regain small business status — restoring eligibility for set-asides, SBA loan programs, and small business subcontracting credit, and eliminating the pressure to restrain growth to stay under a cap.
• If your firm is comfortably small today, expect tougher competition. The firms re-entering the small business base are experienced contractors. SBA acknowledges that growing small businesses closest to the current standards will face the greatest new competition for set-aside work.
• The 8(a) door is reopening on new terms. SBA’s new social disadvantage framework (effective September 10, 2026) lets any U.S. citizen establish social disadvantage through evidence of group-level discrimination plus self-certification of membership and material harm. Economic disadvantage limits become the operative eligibility gate for individually-owned applicants — and SBA may consider raising those limits as well.

On August 20, 2026, the U.S. Small Business Administration published a proposed rule (RIN 3245-AI67; Docket No. SBA-2026-0199) that would rewrite the small business size standards for the entire economy as part of its third five-year review under the Small Business Jobs Act. The changes are structural, not incremental: they alter how size standards are set, at what NAICS level, and in what measure — and they substantially expand who qualifies as a small business. Comments are due 30 days after publication — September 19, 2026 (which, falling on a Saturday, should roll to Monday, September 21, 2026). The rule is a proposal: current size standards remain in effect until a final rule takes effect, and firms should not change their SAM representations based on the proposal.

What SBA Is Proposing

• Consolidation to 4- and 5-digit NAICS. The current 978 six-digit standards (plus 18 exceptions) collapse into 338 standards. A single standard now governs entire industry groups — for example, one $531 million standard for all IT services under NAICS 5415. Firms still register and bid under 6-digit codes; only the size standard attached to each code changes.
• Elimination of all exceptions. The 18 subindustry exceptions disappear, including the Information Technology Value Added Reseller (ITVAR) exception under NAICS 541519. ITVAR procurements would be governed by the base 5415 standard — $531 million in receipts — removing the 150-employee ceiling that has constrained resellers with high pass-through revenue.
• Default to employee-based standards. Wherever SBA has statutory discretion, standards convert from receipts to headcount to reduce firms cycling in and out of small status due to inflation, revenue volatility, and productivity growth. Receipts-based standards fall from 496 to 129. The entire construction sector converts to employee-based standards — a $45 million receipts cap in commercial building construction becomes a 600-employee cap with no revenue limit.
• A new analytical framework with no ceiling. SBA replaces its prior seven-factor analysis with a single “average market size” measure modeled on the market-definition concepts in the DOJ/FTC Merger Guidelines. The new formula has no maximum size standard, which is how thresholds like $531 million (IT services) and $503 million (hotels) become possible where a $47 million cap previously applied.
• Inflation plus productivity adjustments. For the first time, receipts-based standards will be adjusted for productivity growth in addition to inflation, so monetary thresholds will ratchet upward faster over time.
• A blanket no-reduction policy. SBA proposes not to reduce any size standard, even in the 45 industries where its analytics suggested a decrease. Only one industry — Direct Property and Casualty Insurance Carriers — is expected to see any firms (fewer than five) lose small business status, due to a change in measure.

Selected Proposed Standards

Illustrative changes in industries with significant federal contracting activity:

If You Outgrew Your Size Standard: Opportunities

• Regained set-aside eligibility. Firms that graduated out of small business status — SBA identifies more than 5,300 in Engineering Services alone, and thousands more across IT and consulting — would again be eligible to compete for total small business set-asides and, if otherwise qualified, for SBA certification programs (8(a), HUBZone, WOSB/EDWOSB, SDVOSB) at much larger sizes.
• Room to grow without a benefit cliff. SBA expressly targets the “benefit cliff” that pushes firms to restrain growth, decline work, or sell rather than lose small status. Under the proposed standards, most firms could grow several times over before approaching a threshold.
• Subcontracting value. Newly small firms become more attractive subcontractors, since primes can count them toward small business subcontracting goals.
• Lending and regulatory flexibility. Small status restores eligibility for SBA 7(a), 504, and disaster loan programs and triggers Regulatory Flexibility Act consideration — reduced compliance burdens under many federal regulations.
• M&A implications. Targets that are small — or would become small under the proposed standards — carry different value in acquisitions, and buyers gain more room to acquire without tripping size recertification consequences. Deal timing relative to the final rule’s effective date may matter.

If You Are Comfortably Small Today: Competitive Risks

• 37,000 experienced competitors re-enter the small business base. The firms regaining small status are seasoned primes concentrated in professional services, IT, and consulting. SBA acknowledges that growing small businesses closest to the current size standards — the firms most likely to be competing for the same work — will face the greatest new competition, and that profit margins on set-aside work may compress.
• Recompetes change character. Incumbents on small business set-asides should expect recompetes to draw larger, more experienced offerors with deeper past performance. Capture strategies, teaming, and past performance positioning built for the current field may need rethinking.
• Goaling pressure may soften. Agencies will automatically receive small business goaling credit for existing contracts held by newly small incumbents — roughly $71 billion — which may reduce the pressure to create new set-asides at the margin.
• Employee-based conversions cut both ways. Where a standard converts from receipts to employees, high-revenue, lean-headcount firms benefit; labor-intensive firms — staffing-heavy services, field services, seasonal workforces — should model their average headcount carefully before assuming they remain small.

The 8(a) Program: A Reopening Door for Individually-Owned Firms

Two parallel developments make this a pivotal moment for firms considering 8(a) certification. First, SBA’s final rule on social disadvantage (published August 11, 2026; effective September 10, 2026) replaces both the former rebuttable presumption and the individualized narrative with a streamlined test: an applicant identifies evidence that a governmental or private entity discriminated against or favored a racial, ethnic, or cultural group, then self-certifies group membership and material harm. Because SBA has indicated that qualifying evidence can include the former rebuttable presumption itself, as well as DEI and affirmative action policies, the social disadvantage element will be readily satisfied by most applicants of any background. Applicants should treat the certification seriously — it remains subject to federal false-statement restrictions and potential False Claims Act exposure.

Second, with social disadvantage largely self-certified, economic disadvantage becomes the operative gate for individually-owned applicants: adjusted net worth below $850,000, average adjusted gross income below $400,000, and total assets below $6.5 million (including the value of the business). These caps mean the owners of larger newly small firms generally cannot qualify individually — though SBA may seek to raise the economic disadvantage limits to broaden access to the program, a development worth monitoring closely. SBA has recently resumed approving 8(a) applications for entity-owned firms, and individually-owned processing is expected to follow under the new test after September 10. Pending applicants should expect to rework their social disadvantage showings and refresh financial documentation. For eligible firms, entering 8(a) under the expanded size standards — with up to nine years of program runway and dramatically higher ceilings — is a substantially more valuable proposition than it was a year ago.

Recommended Next Steps

• Map your NAICS codes against the proposed standards — both your primary code and the codes under which you actually bid — and identify where the rule restores eligibility, extends runway, or invites new competition.
• Do not change SAM representations yet. Current standards govern until a final rule takes effect; size is determined as of self-certification on each offer. Build the final rule’s expected effective date into proposal and recertification planning.
• Reassess growth, teaming, and M&A plans premised on current ceilings — including decisions to decline work, split entities, or sell that were driven by size-standard pressure.
• Evaluate certification opportunities — 8(a), HUBZone, WOSB/EDWOSB, and SDVOSB — that may now be available at your firm’s size, and position applications for the reopened 8(a) pipeline if eligible.
• Consider submitting comments by September 21, 2026. The 30-day window is unusually short for a rule of this scope. Transition rules — which standard applies to pending offers, pending applications, and recertifications — and industry-specific standards that remain too low are areas where comments can meaningfully shape the final rule.

Comments are due by September 21, 2026, via www.regulations.gov (RIN 3245-AI67 / Docket No. SBA-2026-0199). Our team is tracking the rulemaking closely and can assist with NAICS impact assessments, comment letters, certification strategy, and capture planning under the proposed standards.

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