The Small Business Administration (SBA) recently published two Federal Register notices that together represent the most sweeping rewrite of small business size standards since SBA adopted NAICS as its organizing framework in 2000. The first is a proposed rule (RIN 3245–AI67, Docket No. SBA–2026–0199) setting new size standards for 338 industry groups and industries. The second is a companion notice making available SBA’s “2026 Revised Size Standards Methodology,” which explains the analytical framework behind those numbers. Comments on both are due September 21, 2026.
This is the third five-year review required under the Small Business Jobs Act of 2010, but it does far more than update numbers for inflation. SBA is proposing to change how it defines “small” at a structural level, and the changes will touch nearly every contractor that relies on small business status for set-asides, socioeconomic certifications, or SBA financing.
From Nearly 1,000 Standards Down to 338
Under the current framework, SBA maintains size standards at the six-digit NAICS level, producing close to 1,000 distinct standards once federal contracting exceptions are counted. The proposed rule collapses this to 338 standards, set at either the four-digit NAICS industry group level (276 standards) or the five-digit industry level (62 standards), and eliminates all 18 existing size standard exceptions.
The practical effect is that industries currently split into multiple six-digit codes with different thresholds — Ship Building (1,300 employees) versus Boat Building (1,000 employees) is SBA’s own example — will now share a single standard at the broader industry group level. For contractors who have wrestled with edge-case NAICS classification calls, this removes a real source of protest risk. It also means some businesses will be grouped with larger or smaller peers than before, which can shift eligibility in either direction depending on the industry.
A Default Shift to Employment-Based Standards
SBA is proposing to make employment-based size standards the default wherever it has discretion to choose the measure, reversing the current presumption in favor of receipts-based standards outside manufacturing and services. The rationale: Receipts fluctuate with inflation, productivity, and business cycles in ways that can push a contractor above and below the small business threshold year to year, creating a “benefit cliff” that discourages growth. Employment is comparatively stable and carries an implicit productivity adjustment that receipts-based standards have historically lacked.
Under the proposal, 208 of the 338 standards would be employment-based (up from 138 today), and 64 industries currently on a receipts-based standard would convert to employment. Contractors in industries such as farming, construction, retail non-service categories, and various manufacturing and distribution sectors should specifically check whether their governing measure is changing.
A New Methodology: “Average Market Size”
Rather than the seven-factor approach used in the 2024 methodology, SBA is proposing to derive each size standard from a single concept — average market size — built from three inputs: (1) national industry size, (2) the number of geographic markets in which competition occurs, and (3) an adjustment for net imports and exports. SBA frames this as a closer fit to the statutory test that a small business not be “dominant in its field of operation,” reading “field of operation” as encompassing both product and geographic scope, similar to how the FTC and DOJ define markets under the Horizontal Merger Guidelines.
One consequence: There is no longer an explicit ceiling on size standards, only a floor (500 employees or, after adjustment, roughly $30.6 million in receipts). Industries with very large or very national markets, such as software publishing or aerospace manufacturing, could see materially higher standards than under the current methodology.
Productivity Growth Joins Inflation in the Receipts Calculation
For the first time, SBA is proposing to adjust receipts-based size standards for productivity growth in addition to inflation. SBA’s rationale is that employment-based standards already carry an implicit productivity adjustment — a business generates more revenue per employee over time without triggering ineligibility — while receipts-based standards have not. Applied retroactively to SBA’s original 1954 baseline of $1 million, this pushes the inflation-only equivalent of roughly $9.7 million up to a $30.6 million minimum receipts-based standard in 2026 dollars.
No Size Standards Are Going Down
Even where SBA’s own analysis would support a decrease, the agency is proposing to hold 45 industries at their current standards and to generally decline to lower any size standard while using the same measure. SBA cites the defense and broader industrial base as a driving concern, noting that small businesses make up 73% of the defense industrial base even as the count of small Department of War vendors fell 49% between 2010 and 2024. Only one industry — Direct Property and Casualty Insurance Carriers, due to a mandatory switch from an employee to a receipts measure — is expected to see a small number of firms lose status.
The Net Effect: More Businesses, More Competition
SBA estimates the changes would increase the number of small businesses nationally from roughly 6.34 million to 6.46 million — an increase of about 114,500 firms, including an estimated 37,000 firms that already hold federal contracts worth more than $71 billion in FY 2025. Professional and technical services industries would see some of the largest gains in newly eligible competitors: SBA projects more than 5,300 additional eligible firms in Engineering Services (NAICS 541330) alone, with over 2,000 each in computer systems design and IT-related services.
For incumbent small businesses sitting near the current thresholds, this cuts both ways. Higher standards mean more room to grow without losing set-aside eligibility, but also a larger pool of competitors — including firms that outgrew the old standards and are now “small” again — chasing the same set-aside contracts.
What Contractors Should Do Now
Start by identifying your new NAICS home: Check where your primary NAICS code falls under the proposed four-digit or five-digit grouping, and confirm whether your governing size measure is changing from receipts to employees or vice versa. If it is changing, model both scenarios by calculating your status under the current and proposed standards, since the transition could move you into or out of eligibility.
Contractors should also watch their competitive set; in industries with large projected increases in small business counts, expect more competition for set-asides, and factor that into capture strategy and past-performance positioning.
Finally, contractors should consider commenting. SBA has specifically invited comment on the level of aggregation, the choice of size measure by industry, the geographic market methodology, and the minimum/anchor points used to calculate standards. The comment window closes September 21, 2026, and SBA has a track record of adjusting final rules in response to public input on prior five-year reviews.
This is a proposed rule, not a final one, and SBA could still narrow or expand elements of it based on comments. But the direction is clear: simpler categories, a strong preference for employment-based standards, and higher thresholds across the board. Contractors who wait for a final rule to react will have less time to adjust their compliance and business development strategies than those who start modeling now.
If you have any questions about this noteworthy development or require assistance, please do not hesitate to contact Aron Beezley or Nathaniel Greeson.