Small Business Owners: A Proposed SBA Rule Change on Size Standards Could Change Who You're Competing Against
What The Change to Size Standards Means for Your Small Business
SBA published a proposed rule on August 20 that rewrites how it defines size standards for a small business (Docket SBA-2026-0199, RIN 3245-AI67). Comments are open through September 21.
What's actually changing
The rule collapses nearly 1,000 size standards, mostly set at the 6-digit NAICS level, into 338 broader standards at the 4- and 5-digit level. It drops the current exceptions, shifts a lot of industries from revenue-based standards to employee-based ones, tacks on a productivity adjustment alongside the usual inflation bump, and removes the existing maximum size thresholds entirely.
SBA's own numbers say this adds 114,541 companies to the small business pool. About 37,002 of those already hold federal contracts, and in FY2025 they pulled in more than 105,000 contracts worth roughly $71 billion combined. That's the detail worth sitting with. These aren't new players learning the ropes. Many already have proposal teams, compliance systems, and federal relationships built out.
In other words: the government is about to call a lot more companies "small," and a good chunk of them are already winning big contracts. So if you're a truly small business, you could soon be competing against companies that are much bigger and more experienced than you, just because the label changed.
Who actually takes the hit
Coley GCS broke this down well. Reclassifying larger, established companies as "small" puts them in the same set-asides, the same subcontracting dollars, the same mentor-protégé slots and joint ventures as businesses that are actually small. Coley's analysis points to the $1 million to $25 million revenue range as the group facing the most pressure, since they're chasing the same contracts as the newly reclassified firms without the staffing or past performance to match.
The government's small business scorecard might still look fine on paper. What Coley's analysis flags is that the dollars behind that scorecard could end up concentrated in the largest companies that now qualify as small, while the smallest businesses lose the contracts they need to build toward something bigger.
[Sources: SBA Proposed Rule, Docket SBA-2026-0199, 91 FR 53741 | Coley GCS, "Proposed SBA Size Standards Could Push Smaller Contractors out of the Federal Market"]
Where we stand
Total Optim Bid submitted comments opposing this proposed rule. Reclassifying larger companies as "small businesses" does not create more opportunities for true small
businesses. Instead, it allows larger, better-funded, and more experienced firms to compete for opportunities that were intended to help small businesses grow and succeed.
You can make your voice heard as well by submitting your own public comments here: Submit Public Comments
SLED hasn't gone anywhere
Although this is discouraging news for federal contracting, none of this touches SLED (state, local, and education) contracting. SLED contracting runs on its own set of rules and is still a major part of what we do. SLED spending runs around $1.5 trillion a year, close to double the federal market, spread across more than 90,000 purchasing agencies issuing hundreds of thousands of solicitations annually.
It's also easier to break into. Shorter procurement cycles, smaller contract sizes, less past-performance documentation to clear before you can even bid. We're sourcing and evaluating thousands of these opportunities across industries for our subscribers every year.
What to do about it
If you're already a Total Optim Bid subscriber, get a coaching call on the calendar. We'll go through your specific NAICS codes and figure out what needs to change in your 2027 strategy. Feel free to also discuss in our next Subscriber Office Hours.
If you're still figuring out whether government contracting is worth pursuing, reach out. We'll talk through whether federal, SLED, or both make sense for where your business is right now.
Get in Touch
Ready to get started in government contracting? Want to see if your business is ready, or what you need to prepare? Book a Discovery Call with us to find out more.
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