In the U.S., almost every government entity is required by law to include small business suppliers, vendors or other types of product or service providers when making purchases that are a part of the programs they administer. But what exactly is a small business? The legislation that established the Small Business Administration states that unless specifically authorized by statute, no other federal department or agency may prescribe a size standard for categorizing a business concern as a small business concern unless such proposed size standard meets certain criteria and is approved by the Administrator of SBA.
Therefore, the first step for a business to become a government contractor is to accurately meet the legal (or statutory) definition of “small business” for your specific industry.
(Note: This entry focuses specifically on size standards, not on the process of applying for a contract.)
To qualify as a small business government contractor, you must adhere to industry size standards established by the U.S. Small Business Administration. For most industries, the SBA defines a “small business” either in terms of:
1 | Average number of employees over the past 12 months
2 | Average annual revenue over the past three years
In addition, the SBA defines a small business as a concern that:
- Is organized for profit
- Has a place of business in the US
- Operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor
- Is independently owned and operated (i.e., not a subsidiary of a larger company)
- Is not dominant in its field on a national basis
- Is a sole proprietorship, partnership, corporation, or any other legal form of ownership
In determining what constitutes a small business, the definition will vary to reflect industry differences, such as size standards.
North American Industry Classification System (NAICS)
The SBA uses the North American Industry Classification System (NAICS) as the basis for its size standards. Visit the official NAICS website to find the code(s) that apply to your industry, then use the SBA’s Size Standards Tool to determine if your business qualifies.
SBA Numerical Definitions of Small Business
The SBA has established numerical definitions of small businesses, or “size standards,” for all for-profit industries.
- Size standards represent the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business concern.
- In determining what constitutes a small business, the definition will vary to reflect industry differences.
Links to the Most Recent SBA Updates Related to Size Standards
Size standards change. But those changes are not across-the-board. For that reason it is important to seek the most recent information from the SBA regarding standards in your industry. The following links go to SBA online resources that are updated when changes are made in specific industries
- Get updates on small business size standards news.