Sometimes it’s the little things government does that make a big difference. An example is the changes the Small Business Administration recently made to its definitions of what qualifies as a small business, which will likely have a negative impact on many startup business owners.
In a nutshell, small businesses just got bigger, at least in the SBA’s view. Here’s why that’s not good news:
More loan competition. The SBA uses its small-business definitions to decide which companies can qualify for SBA-guaranteed small business loans. For many startup businesses, the SBA’s guarantee often makes the difference in a bank’s willingness to take a chance on an unproven borrower that doesn’t yet have revenue or assets that might serve as collateral.
More bidders for government contracts. The definitions also matter when it comes to winning a government contract. The federal government tries to make sure a certain portion of its contracts go to small businesses. Now, some 18,000 bigger businesses will count in that small-business category, denying more contracts to actual small businesses.
More confusion. In case you’re not aware, the SBA’s rules on business size are a confusing mess. Each industry has its own definition of a small business. In its rules review, SBA could have chosen to standardize its definitions — say, declare that a small business is any enterprise with annual revenue under $7 million. That used to be the cutoff for most industries.
But instead, the current system of hundreds of different definitions was continued, and now some industries can be considered a small business even though they have revenue of $35 million! In some industries, the situation is utterly ridiculous. New-car dealerships, for instance, nearly all qualify as small businesses under the new rules.
Small businesses have been heavily challenged to survive in the past few years as the economy crashed. Throwing more, bigger businesses into the small-biz pool isn’t going to help truly small businesses to grow. The argument was made that some small businesses have grown in part thanks to SBA’s help, and so shouldn’t be penalized by exclusion from SBA programs. Maybe they could have come up with some kind of grandfather clause, where if you were a small business within the last year or two you could still access the programs.
Instead, the SBA simply grew its audience. That may be good for SBA’s budget, as the agency can claim it’s serving more customers, but it doesn’t bode well for new and truly small businesses.
If you’re doing the math on this, it basically means the SBA can now lend to mid-sized businesses that are not really small businesses and call it “small business lending.”? But get this…they might even say they’re increasing small business lending, when in fact they are lending less to small business. Instead, they could give a disproportionate amount of funding to companies in the $10 million — $30 million revenue range.
Companies generating revenues like this have never been considered small businesses before, but now they are — at least to the SBA, which will spin this for its own political and PR gain.
If you’re a small business owner trying to get small business financing like a small business loan today, we can help. The business-finance experts at LenCred know how to help you find a small business loan, even with the SBA’s changes. Contact us today for a free consultation.