Rule2024-02776
Small Business Size Standards: Adjustment of Alternative Size Standard for SBA's 7(a) and CDC/504 Loan Programs for Inflation; and Surety Bond Limits: Adjustments for Inflation
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 15, 2024
Effective
March 18, 2024
Issuing agencies
Small Business Administration
Abstract
This rule finalizes, without change, the U.S. Small Business Administration's (SBA or Agency) July 28, 2023, proposed rule to adopt the current statutory alternative size standard for its 7(a) Business and Certified Development Company (CDC/504) Loan Programs (collectively "Business Loan Programs"), subject to a 34.46 percent adjustment for inflation that has occurred since the establishment of the statutory alternative size standard in 2010. The inflation adjustment would increase the size standard's level for tangible net worth to $20 million and for net income to $6.5 million. SBA also is adjusting for inflation the applicable statutory limits for contract size under the Surety Bond Guarantee (SBG) Program. The adjustment increases the contract limit to $9 million and the contract limit for Federal contracts if a Federal contracting officer certifies that such a guarantee is necessary to $14 million.
Full Text
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<title>Federal Register, Volume 89 Issue 32 (Thursday, February 15, 2024)</title>
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[Federal Register Volume 89, Number 32 (Thursday, February 15, 2024)]
[Rules and Regulations]
[Pages 11703-11713]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-02776]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 115 and 121
RIN 3245-AG16
Small Business Size Standards: Adjustment of Alternative Size
Standard for SBA's 7(a) and CDC/504 Loan Programs for Inflation; and
Surety Bond Limits: Adjustments for Inflation
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
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SUMMARY: This rule finalizes, without change, the U.S. Small Business
Administration's (SBA or Agency) July 28, 2023, proposed rule to adopt
the current statutory alternative size standard for its 7(a) Business
and Certified Development Company (CDC/504) Loan Programs (collectively
``Business Loan Programs''), subject to a 34.46 percent adjustment for
inflation that has occurred since the establishment of the statutory
alternative size standard in 2010. The inflation adjustment would
increase the size standard's level for tangible net worth to $20
million and for net income to $6.5 million. SBA also is adjusting for
[[Page 11704]]
inflation the applicable statutory limits for contract size under the
Surety Bond Guarantee (SBG) Program. The adjustment increases the
contract limit to $9 million and the contract limit for Federal
contracts if a Federal contracting officer certifies that such a
guarantee is necessary to $14 million.
DATES: This rule is effective March 18, 2024.
FOR FURTHER INFORMATION CONTACT: Khem Sharma, Ph.D., Chief, Office of
Size Standards, (202) 205-6618, <a href="/cdn-cgi/l/email-protection#2a5943504f595e4b444e4b584e596a59484b044d455c"><span class="__cf_email__" data-cfemail="73001a09160007121d1712011700330011125d141c05">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background for Small Business Size Standards
To determine eligibility for Federal small business assistance, SBA
establishes small business size definitions (usually referred to as
``size standards'') for private sector industries in the United States.
SBA uses two primary measures of business size for size standards
purposes: average annual receipts over the last several years (either
three years or five years for SBA financial assistance programs) and
average number of employees over the last 24 months. SBA uses assets
for certain financial industries and refining capacity, in addition to
employees, for the petroleum refining industry to measure business
size. In addition, SBA's Small Business Investment Company (SBIC),
Certified Development Company (CDC/504), and 7(a) Loan Programs use
either the industry-based size standards or tangible net worth and net
income-based alternative size standards to determine eligibility for
those programs.
SBA reviews small business size standards and makes necessary
adjustments to them for three reasons: (i) changes in industry
structure and Federal market conditions under the Small Business Jobs
Act of 2010 (Jobs Act), Public Law 111-240, section 1344, Sep. 27,
2010; (ii) inflation in accordance with 13 CFR 121.102(c); and (iii)
adoption of the latest North American Industry Classification System
(NAICS) revision by the Office of Management and Budget. Updating size
standards based on inflation--in addition to updating size standards
based on the latest industry and Federal contracting data under the
five-year rolling review--not only satisfies the Jobs Act's mandate
that SBA review all size standards every five years, but also is
consistent with Executive Order 13563 on improving regulation and
regulatory review.
Although SBA is required to assess the impact of inflation on its
monetary-based size standards at least once every five years (67 FR
3041; January 23, 2002) (13 CFR 121.102(c)), SBA may modify the timing
of its adjustments to size standards and consider adjustments even more
frequently than five-year intervals based on the prevailing economic
conditions and the important policy objective of maintaining the value
of size standards in inflation-adjusted terms.
II. Background on Alternative Size Standards
Section 1116 of the Jobs Act added a new Section 3(a)(5) to the
Small Business Act that directed SBA to establish an alternative size
standard using maximum tangible net worth and average net income for
applicants of the SBA's 7(a) Business and CDC/504 Loan Programs
(collectively ``Business Loan Programs''). The Jobs Act also
established for applicants for the SBA's Business Loan Programs an
interim alternative size standard of not more than $15 million in
tangible net worth and of not more than $5 million in the average net
income after Federal income taxes (excluding any carry-over losses) of
the applicant for the two full fiscal years before the date of the
application (referred to as ``Interim Rule''). Under the Jobs Act, this
interim statutory alternative size standard would remain in effect
until SBA established a new alternative size standard for the Business
Loan Programs through rulemaking. 15 U.S.C. 632(a)(5). Prior to that,
SBA had a lower regulatory alternative size standard that applied to
the CDC/504 Loan Program and applied temporarily to the 7(a) Loan
Program for the period beginning on May 5, 2009, and ending on
September 30, 2010. 13 CFR 120.301(b)(2).
On September 29, 2010, SBA issued Information Notice 5000-1175
(available at <a href="https://www.sba.gov/sites/default/files/files/bank_5000-1175_0.pdf">https://www.sba.gov/sites/default/files/files/bank_5000-1175_0.pdf</a>) providing that, effective September 27, 2010, the new
statutory alternative size standard applied to its Business Loan
Programs, thereby replacing and superseding the lower existing
alternative size standard of $8.5 million in tangible net worth and $3
million in average net income, as set forth in 13 CFR 121.301(b)(2).
The Information Notice further stated that the new statutory
alternative size standard would remain in effect until SBA established
a permanent alternative size standard for the Business Loan Programs
through rulemaking.
In accordance with its regulations, SBA is required to assess the
impact of inflation on its monetary-based size standards at least once
every five years (67 FR 3041; January 23, 2002) and 13 CFR 121.102(c)).
Accordingly, except for the statutory alternative size standard for the
SBA Business Loan Programs, SBA adjusted its monetary-based size
standards for inflation three times since the Congress enacted the
Interim Rule in 2010.\1\ In its rulemaking for each adjustment, SBA
provided that the statutorily set alternative size standard would
remain in effect until SBA established a permanent alternative size
standard for the 7(a) and CDC/504 Loan Programs.
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\1\ Small Business Size Standards: Inflation Adjustment to
Monetary Based Size Standards (Interim Final Rule) (79 FR 33647;
June 12, 2014), finalized on January 25, 2016 (81 FR 3949); Small
Business Size Standards: Adjustment of Monetary-Based Size Standards
for Inflation (Interim Final Rule) (84 FR 34261; July 18, 2019),
finalized on November 17, 2022 (87 FR 69118); Small Business Size
Standards: Adjustment of Monetary-Based Size Standards, Disadvantage
Thresholds, and 8(a) Eligibility Thresholds for Inflation (Joint
Final and Interim Rule) (87 FR 69118; November 17, 2022).
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To move toward codifying a permanent alternative size standard, in
March 2018, SBA published in the Federal Register an advanced notice of
proposed rulemaking (ANPRM) seeking public input to assist in
establishing a permanent alternative size standard for its 7(a) and
CDC/504 Loan Programs (83 FR 12506; March 22, 2018). SBA also invited
suggestions on sources of relevant data and information that SBA should
evaluate in developing a permanent alternative size standard and in
assessing its impact. SBA received a total of 34 comments on the ANPRM,
of which 11 were found to be not pertinent to the scope of the ANPRM.
Of the 23 comments that were pertinent, all 23 not only supported the
statutory alternative size standard, but also recommended making it the
permanent alternative size standard for the SBA's 7(a) and CDC/504 Loan
Programs.
On July 28, 2023, SBA issued a proposed rule to adopt the current
statutory alternative size standard for its Business Loan Programs,
subject to a 34.46 percent adjustment for inflation that has occurred
since the establishment of the statutory alternative size standard in
2010 (88 FR 48739). As described in the July 2023 proposed rule, the
inflation that has occurred since 2010 has eroded the value of the
alternative size standard in real terms. SBA has an important policy
objective of maintaining the value of monetary-based size standards in
real (i.e., inflation-adjusted) terms, and by adjusting the statutory
alternative size standard for inflation, SBA is fulfilling that
objective. SBA used the inflation adjustment methodology it describes
in its ``Size Standards Methodology'' white
[[Page 11705]]
paper, available at <a href="http://www.sba.gov/size">www.sba.gov/size</a>, to adjust the statutory
alternative size standard for inflation. SBA applied the same
methodology in its previous inflation adjustments to other monetary
based size standards, including the latest inflation adjustment in 2022
(87 FR 69118; November 17, 2022). The proposed inflation adjustment
increased the tangible net worth component of the alternative size
standard to $20 million and the net income component to $6.5 million.
III. Background for Surety Bond Contract Limits
In SBA's July 2023 proposed rule, SBA also proposed amending the
contract limits applicable to its Surety Bond Guarantee (SBG) Program.
The SBG Program is designed to increase small business access to
Federal, state, and local government contracting, as well as private-
sector contracting, by guaranteeing bid, payment, and performance bonds
on contracts for small and emerging contractors who cannot obtain
surety bonds through regular commercial channels.\2\ Surety bonds are
important to small businesses interested in competing for Federal
contracts because the Federal Government requires prime contractors,
prior to the award of a Federal contract exceeding $150,000 for the
construction, alteration, or repair of any building or public work of
the United States, to furnish a performance bond issued by a surety
satisfactory to the officer awarding the contract in an amount the
contracting officer considers adequate to protect the government. SBA's
guarantee gives sureties an incentive to provide bonding for small
businesses and thereby assists small businesses in obtaining greater
access to contracting opportunities. SBA's guarantee is an agreement
between a surety and SBA that SBA will assume a certain percentage of
the surety's loss should a contractor default on the underlying
contract. The SBA's guarantee currently ranges from 80 percent to 90
percent of the surety's loss if a default occurs. For more information
about SBA's SBG Program, see <a href="https://www.sba.gov/funding-programs/surety-bonds">https://www.sba.gov/funding-programs/surety-bonds</a>.\3\
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\2\ A surety bond is a three-party instrument between a surety,
a contractor, and a project owner. The agreement binds the
contractor to comply with the contract's terms and conditions. If
the contractor is unable to successfully perform the contract, the
surety assumes the contractor's responsibilities and ensures that
the project is completed. The surety bonds reduce the risk of
contracting. Surety bonds are viewed as a means to encourage project
owners to contract with small businesses that may not have the
credit history or prior experience of larger businesses and are
considered to be at greater risk of failing to comply with the
contract's terms and conditions.
\3\ Also see a July 8, 2022, Congressional Research Service
Report on ``SBA Surety Bond Guarantee Program,'' available at
<a href="https://crsreports.congress.gov/product/pdf/R/R42037">https://crsreports.congress.gov/product/pdf/R/R42037</a>.
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Section 1695 of the National Defense Authorization Act for Fiscal
Year 2013 (NDAA 2013 or Act) (Pub. L. 112-239; January 2, 2013)
increased the SBG guarantee limit to $6.5 million, and up to $10
million for a Federal contract if a Federal contracting officer
certifies that such a guarantee is necessary.\4\ The Act also included
a provision to increase the $6.5 million limit periodically for
inflation in accordance with 41 U.S.C. 1908. 41 U.S.C. 1908 provides
that inflation adjustments for acquisition-related dollar thresholds
are to be set by the Federal Acquisition Regulatory Council (FAR
Council). It also requires that the Consumer Price Index (CPI) be used
to measure inflation. The FAR Council is established under 41 U.S.C.
1302 to assist in the direction and coordination of procurement policy
and regulatory activities for the Federal Government. The FAR Council
is required to adjust for inflation the acquisition-related dollar
thresholds every five years. Based on CPI, inflation has increased more
than 30 percent since 2013. This has eroded the value of the bonding
limits in real terms since the limits were set by Congress in 2013.
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\4\ Section 508 of the American Recovery and Reinvestment Act of
2009 (ARRA) (Pub. L. 111-5; Feb 17, 2009) temporarily increased,
from February 17, 2009, through September 30, 2010, the maximum bond
amount from $2 million to $5 million. The act also authorized the
SBA to guarantee a bond of up to $10 million for Federal contracts
if a Federal contracting officer certified that such a guarantee was
necessary. Using its rulemaking authority, SBA made ARRA's temporary
size standard permanent on August 11, 2010 (76 FR 48549).
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SBA has an important statutory requirement to adjust the bonding
limits in accordance with CPI and the FAR Council. The current limits
are $6.5 million and, for Federal contracts if a Federal agency
certifies that a greater amount is necessary, $10 million. SBA has not
adjusted its bonding limits since 2013. The FAR Council has not set a
specific threshold in the Federal Acquisition Regulations (FAR) for SBA
bonding limits. The FAR Council adjusts the acquisition-related dollar
thresholds every five years with the last adjustments occurring in 2015
and 2020. The FAR Council had a $6.5 million threshold in effect in
2013 when the SBA bonding limits were set. In 2015, as part of
inflationary adjustments to the acquisition-related dollar thresholds,
the FAR Council increased the $6.5 million threshold to $7 million (80
FR 38293; July 2, 2015). Likewise, in 2020, the FAR Council adjusted $7
million threshold to $7.5 million (85 FR 62485; October 2, 2020). The
FAR did not have a $10 million threshold in effect in 2013.
As described in the July 2023 proposed rule, in absence of a
specific FAR threshold for SBA bonding limits, SBA proposed to follow
the FAR adjustment from $6.5 million to $7.5 million in 2020 and then
calculate an adjustment from 2020 to 2023 using the same CPI
methodology. SBA also proposed to adjust the existing limit of $10
million to maintain the same percentage spread (the lower limit is 65
percent of the upper limit). As explained in the July 2023 proposed
rule, by adjusting both limits at the same time, SBA maintains the
effectiveness of the necessity provision and avoids the upper limit
becoming meaningless. If only the lower limit were adjusted, then at
some point it will exceed the necessity limit due to inflation. Thus,
SBA's actions fulfill the statutory objective of maintaining the value
of monetary-based bonding limits in real (i.e., inflation-adjusted)
terms.
IV. Summary and Discussion of Public Comments Received on the July 2023
Proposed Rule
SBA's July 2023 proposed rule invited public comments on SBA's
proposed changes generally, and on a variety of specific issues,
including the appropriateness of applying SBA's size standards
methodology for inflation adjustments to the statutory alternative size
standard, whether the inflation-adjusted level of the interim statutory
alternative size standard is appropriate as a new permanent alternative
size standard under the current credit environment, the impact of using
the statutory alternative size standard as the permanent alternative
size standard on small businesses seeking loans through its Business
Loan Programs, and the appropriateness of SBA's proposed methodology
for adjusting statutory contract limits for its SBG Program, especially
on SBA's approach to adjust the $10 million contract limit for Federal
contracts.
SBA received 13 comments on the proposed rule from various trade
associations, businesses, and individual stakeholders, of which 11
comments supported SBA's proposed changes and two comments were not
applicable or were outside the scope of SBA's proposed rule. Generally,
commenters expressed strong support for SBA's proposed changes without
reservation.
Of the 11 comments pertinent to the proposed rule, SBA received
three
[[Page 11706]]
comments from national trade associations, each separately representing
surety bond producers, certified development companies (CDCs), and
lenders participating in SBA's 7(a) business loan program. These
commenters expressed support for SBA's proposed rule on the grounds
that SBA's changes would ultimately expand access for small businesses
to financial assistance and other resources. For example, the national
association representing surety bond producers expressed that SBA's
proposal to adjust for inflation the statutory limits for contract size
under the SBG Program would allow more small and emerging contractors
to grow their businesses by obtaining bonding to bid on public
construction projects.
The national association representing CDCs supported SBA's proposal
to adopt the statutory alternative size standard of $15 million in
tangible net worth and $5 million in net income as the permanent
alternative size standard, subject to SBA's proposed inflation
adjustment. This commenter petitioned SBA to further adjust the
alternative size standard for inflation on the same five-year schedule
that SBA currently uses for reviewing its monetary-based industry size
standards. Moreover, the commenter expressed general support for
continuing to allow small businesses to qualify for SBA financial
assistance using either the alternative size standard or the industry
size standard to ensure that as many small businesses as possible have
access to SBA programs. The commenter further explained that the
alternative size standard is particularly helpful for CDCs who may find
it is easier to use it rather than the industry-based size standards
due to the alternative size standard's consistency across all
industries.
The national association representing lenders participating in
SBA's 7(a) business loan program also expressed support for continued
use of alternative size standards for 7(a) and 504 loan eligibility,
explaining that the alternative size standard simplifies the size
determination process for lenders since it relies on financial
information that is readily available from the loan applicant. This
commenter also supported SBA's proposal to make the interim alternative
size standard permanent while adjusting it for inflation. The commenter
petitioned SBA to adjust the alternative size standard on a periodic
five-year basis going forward to assure that inflation does not erode
the tangible net worth and net income monetary maximums.
The remaining eight pertinent comments were from individual
stakeholders and businesses, including five CDCs, which supported
various aspects of SBA's proposed rule. Three individual stakeholders
expressed general support for SBA's changes to the bonding thresholds
or alternative size standard. The 5 CDCs expressed support for SBA's
proposed inflation-adjusted alternative size standard on the basis that
the higher levels would ensure that small businesses would remain
eligible for SBA financial assistance in an environment of increasing
bank conservatism, high inflation and soaring interest rates. Four of
the CDCs specifically expressed support for adopting the inflation
adjusted statutory threshold as the permanent threshold and further
recommended that SBA adjust the alternative size standard for inflation
on a periodic basis not to exceed every five years.
SBA Response
SBA agrees with commenters that its proposed changes would allow
more small businesses to access SBA programs and financial assistance.
As explained in the July 2023 proposed rule, this rule will apply to
more than 8.1 million employer firms, of which 98.2 percent are small
under industry-based size standards and 92.5 percent are small under
the interim statutory alternative size standard. SBA estimates that
about 6,275 firms that are above the interim statutory alternate size
standard will qualify as small under the inflation-adjusted size
alternative standard. While SBA cannot precisely estimate the number of
businesses that are approved under the alternative size standard for
7(a) or CDC/504 loans and the number of newly-defined small businesses
that will qualify under the inflation-adjusted alternative size
standard for loans under these programs due to data limitations, based
on the analysis of the available data for fiscal years 2021-2022, SBA
estimates that at least 500 7(a) or CDC/504 loans (or 0.4 percent of
total loans) will likely be approved under the alternative size
standard that otherwise would not have qualified under the industry-
based size standard. Likewise, with respect to the SBG Program, under
the rule, SBA estimates that more small businesses will qualify to
apply for surety bonds as a result of the proposed increases to
statutory bonding limits.
SBA also agrees with commenters that using the alternative size
standard has benefitted lenders in terms of simplifying and
streamlining the loan application process and has reduced burden on
applicants by providing an alternative method to establish eligibility
for SBA financial assistance which would otherwise require businesses
to keep three years or potentially five years of data to establish
eligibility using industry-based size standards. Thus, SBA continues to
support the use of alternative size standards for use in its Business
Loan programs.
As explained in the July 2023 proposed rule, SBA believes its
changes to the alternative size standard will allow more businesses to
gain eligibility for SBA's Business Loan Programs for which they would
not otherwise be eligible based on their industry-specific size
standards. SBA's changes to the SBG statutory contract limits will
provide greater access to contracting opportunities for small
businesses. Thus, SBA's changes will allow these additional businesses
to attain SBA assistance that may be critical to their continued growth
or economic viability.
V. Conclusion
With due consideration of all public comments, as discussed above,
and in light of the overall strong support for SBA's proposed changes
and anticipated impacts, SBA is adopting the proposed adjustments in
the July 2023 proposed rule without change. SBA's adoption of the
proposed changes provides assurances to the public that the Agency is
monitoring inflation to determine whether to adjust size standards and
other monetary thresholds within a reasonable period. SBA's adoption of
the proposed changes also ensures that the thresholds applicable to the
Business Loan Programs and SBG Program are up-to-date and appropriate
for the respective intended beneficiaries of the programs. Given the
current developments in the U.S. economy, SBA will continue to monitor
the inflation and other economic indicators and their impacts on size
standards and adjust size standards, as needed. SBA will adjust the
levels for inflation on the same five-year schedule that SBA currently
uses for reviewing its monetary-based industry size standards in
accordance with 13 CFR 121.102(c).
Specifically, SBA is adopting the statutory alternative size
standard of $15 million in tangible net worth and $5 million in net
income as the permanent alternative size standard, subject to
adjustment for inflation that has occurred since the establishment of
the statutory alternative size standard in 2010. The inflation
adjustment increases the size standard's level for tangible net worth
to $20 million and for net income to $6.5 million. SBA is also
adopting, as proposed, the inflation-adjusted thresholds applicable to
the statutory
[[Page 11707]]
limits for contract size under the SBG Program. The adjustment
increases the contract limit to $9 million and to $14 million for
Federal contracts if a Federal contracting officer certifies that such
a guarantee is necessary. The statutory responsibility for adjusting
the size standard for inflation lies with the Federal Acquisition
Regulation. In the absence of FAR action, SBA will adjust the SBG
contract limits on the same five-year schedule that SBA currently uses
for reviewing its monetary-based industry size standards in accordance
with 13 CFR 121.102(c).
As required under 13 CFR 121.102(e), SBA advises readers that
interested eligible parties may file a petition for reconsideration of
a revised, modified, or established size standard at SBA's Office of
Hearings and Appeals (OHA) within 30 calendar days after publication of
this final rule in accordance with 15 U.S.C. 632(a)(9) and 13 CFR 134
Subpart I. You may reach OHA using the following contact information:
by mail at U.S. Small Business Administration, Office of Hearings and
Appeals, 409 Third St. SW, Eighth Floor, Washington, DC 20416, by email
at <a href="/cdn-cgi/l/email-protection#197671787f707570777e6a596a7b78377e766f"><span class="__cf_email__" data-cfemail="650a0d04030c090c0b0216251607044b020a13">[email protected]</span></a>, by phone: 202-401-8200 TTY/TRS: 711, or by fax
at (202) 205-7059.
VI. Compliance With Executive Order 12866, the Congressional Review Act
(5 U.S.C. 801-808), the Regulatory Flexibility Act (5 U.S.C. 601-612),
Executive Orders 13563, 12988, and 13132, and the Paperwork Reduction
Act (44 U.S.C., Ch. 35)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
final rule is a significant regulatory action for purposes of Executive
Order 12866. This rule affects applicants for SBA's 7(a) Business and
CDC/504 Loan Programs and businesses and sureties that use the SBG
Program. To help explain the need for this rule and the rule's
potential benefits and costs, SBA is providing below a Regulatory
Impact Analysis for this rule.
Regulatory Impact Analysis
1. What is the need for this regulatory action?
SBA is required by the Jobs Act to adopt an alternative size
standard based on tangible net worth and net income after taxes for its
7(a) and CDC/504 Loan Programs. SBA believes that adopting an
alternative size standard is in the best interests of small businesses
seeking SBA's financial assistance. SBA's mission is to aid and assist
small businesses through a variety of financial, procurement, business
development, and counseling programs. To assist the intended
beneficiaries of these programs effectively, SBA establishes distinct
definitions (usually referred to as ``size standards'') to determine
which businesses are deemed small businesses. One of the SBA's missions
has been to provide necessary financing to small businesses that are
not able to obtain loans in the commercial market in reasonable terms.
Many businesses that have exceeded their industry-based size standards
cannot grow and support their employees without additional capital from
SBA's financial assistance programs. The alternative size standard
established by Congress assisted some small businesses that could not
have otherwise qualified under their industry-based size standards.
SBA is required to assess the impact of inflation on its monetary-
based size standards at least once every five years (67 FR 3041
(January 23, 2002) and 13 CFR 121.102(c)). Inflation, as measured by
the change in GDP price index, has increased more than 34 percent from
the enactment of the interim statutory alternative size standard in
2010. Inflation has caused the statutory alternative size standard to
decrease in real terms, thereby forcing some businesses to lose small
business status and eligibility for SBA's Business Loan Programs. As
stated previously, SBA adjusted its monetary size standards three times
since the establishment of the statutory alternative size standard in
2010, but the Agency did not adjust the statutory alternative size
standard for SBA's Business Loan Programs. SBA has an important policy
objective of maintaining the value of monetary-based size standards in
real (i.e., inflation-adjusted) terms, and by adjusting the statutory
alternative size standard for inflation this rulemaking fulfils that
objective.
The Small Business Act delegates to SBA's Administrator
responsibility for establishing definitions for small business. The Act
requires that small business definitions vary to reflect industry
differences. 15 U.S.C. 632(a). Some businesses in need of financial
assistance from SBA's 7(a) and CDC/504 Loan Programs may exceed the
applicable size standard for their industries. The alternative size
standard, in addition to the industry-based size standards, would apply
uniformly across all industries and expand credit opportunities to
businesses that are in need of SBA's financial assistance. The
inflationary adjustment of the statutory alternative size standard
would not affect existing industry-based size standards but rather
would supplement them and make financing available to otherwise
eligible applicants that exceed their industry-based size standards.
NDAA 2013 increased the SBG guarantee limit to $6.5 million, and up
to $10 million for a Federal contract if a Federal contracting officer
certifies that such a guarantee is necessary. The act also included a
provision to increase the $6.5 million limit periodically for inflation
in accordance with 41 U.S.C. 1908. Based on the CPI, inflation has
increased more than 30 percent since 2013. SBA has not adjusted its
bonding limits since 2013. This has eroded the value of the bonding
limits in real terms since the limits were set by Congress in 2013. The
adjustment of the SBG contract limits will bring them in line with
ongoing inflation and current contracting trends and increase
contracting opportunities to small businesses.
2. What are the potential benefits and costs of this regulatory action?
The most significant benefit of this regulatory action for
businesses is that certain businesses, especially in industries with
receipts-based size standards, will gain eligibility for SBA's Business
Loan Programs for which they would not otherwise be eligible based on
their industry-specific size standards. This will allow them to attain
financing that may be critical to their continued growth or economic
viability.
Table 1, Comparison Between Industry-Based and Inflation-Adjusted
Statutory Alternative Size Standard (FY 2021-2022), compares the
percentages of industries that have higher industry-based size
standards relative to inflation-adjusted statutory size standard by
type of size standard. For nearly 96 percent of industries with
receipts-based size standards, the inflation-adjusted alternative size
standard is found to be, in relative terms, higher than the industry-
based size standards, thereby allowing businesses exceeding industry-
based size standards in those industries to qualify for 7(a) and CDC/
504 Loan Programs under the inflation-adjusted alternative size
standard. The corresponding figure for the interim statutory
alternative size standard is nearly 93 percent. On the other hand, for
77 percent of industries with employee-based size standards, industry-
based size standards are, in relative terms, higher than the inflation-
adjusted alternative size standard. That figure for the interim
statutory alternative size standard is 82.5 percent. This suggests that
the alternative size
[[Page 11708]]
standard provides more benefits to businesses in the receipts-based
industries than those with employee-based size standards. The higher
inflation-adjusted alternative size standard will continue to help
businesses above the industry-based size standards to receive SBA's
financing.
Table 1--Comparison Between Industry-Based and Inflation-Adjusted Alternative Size Standard
[FY 2021-2022]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Whether industry size standard is Whether industry size standard is
higher or lower than interim higher or lower than inflation-
statutory alternative standard adjusted statutory alternative
Size standard type (Table 11) standard Total
----------------------------------------------------------------------------
Higher Lower Higher Lower
--------------------------------------------------------------------------------------------------------------------------------------------------------
Employee-based........................................... 392 (82.5%) 83 (17.5%) 366 (77.1%) 109 (22.9%) 475 (100.0%)
Receipts-based........................................... 35 (7.3%) 445 (92.7%) 20 (4.2%) 460 (95.8%) 480 (100.0%)
----------------------------------------------------------------------------------------------
Total................................................ 427 (44.7%) 528 (55.3%) 386 (40.4%) 569 (59.6%) 955 (100.0%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 2, Comparison Between Industry-Based and Inflation-Adjusted
Statutory Alternative Size Standards by Sector (FY 2021-2022), shows by
sector the impacts of inflation adjustment to the statutory alternative
size standard on proportions of industries for which industry-based
size standards are higher than the inflation-adjusted alternative size
standard. Compared to the interim statutory alternative size standard,
the proportions of industries for which alternative size standard is
higher than the industry-based size standards are higher under the
inflation-adjusted alternative size standard, especially for industries
with employee-based size standards. For example, for just 7.8 percent
of industries in manufacturing, the statutory size alternative size
standard is higher than the industry-based size standards. That figure
increases to 13.3 percent under the inflation-adjusted size standard.
Another example is wholesale trade, where percentage of industries for
which the statutory alternative size standard is higher than the
industry-based size standard increases from about 68 percent under the
statutory alternative size standard to about 78 percent under the
inflation-adjusted alternative size standard.
Table 2--Comparison Between Industry-Based and Inflation-Adjusted Statutory Alternative Size Standards by Sector
[FY 2021-2022]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Whether industry size standard is Whether industry size standard is
higher or lower than interim higher or lower than inflation-
statutory alternative standard adjusted statutory alternative
Sector code Sector title (Table 12) standard Total
----------------------------------------------------------------------------
Higher Lower Higher Lower
--------------------------------------------------------------------------------------------------------------------------------------------------------
11................................ Agriculture, 0 (0.0%) 63 (100.0%) 0 (0.0%) 63 (100.0%) 63 (100.0%)
Forestry, Fishing
and Hunting.
21................................ Mining, Quarrying, 17 (81.0%) 4 (19.0%) 17 (81.0%) 4 (19.0%) 21(100.0%)
and Oil and Gas
Extraction.
22................................ Utilities............ 12 (85.7%) 2 (14.3) 12 (85.7%) 2 (14.3%) 14 (100.0%)
23................................ Construction......... 0 (0.0%) 30 (100.0%) 0 (0.0%) 30 (100.0%) 30 (100.0%)
31-33............................. Manufacturing........ 319 (92.2%) 27 (7.8%) 300 (86.7%) 46 (13.3%) 346 (100.0%)
42................................ Wholesale Trade...... 22 (31.9%) 47 (68.1%) 15 (21.7%) 54 (78.3%) 69 (100.0%)
44-45............................. Retail Trade......... 0 (0.0%) 57 (100.0%) 0 (0.0%) 57 (100.0%) 57 (100.0%)
48-49............................. Transportation and 15 (27.8%) 39 (72.2%) 12 (22.7%) 42 (77.8%) 54 (100.0%)
Warehousing.
52................................ Finance and Insurance 0 (0.0%) 16 (100%) 0 (0.0%) 16 (100.0%) 16 (100.0%)
53................................ Real Estate and 10 (41.7%) 14 (58.3%) 6 (25.0%) 18 (75.0%) 24 (100.0%)
Rental and Leasing.
54................................ Professional, 3 (6.3%) 45 (93.8%) 3 (6.3%) 45 (93.8%) 48 (100.0%)
Scientific, and
Technical Services.
55................................ Management of 0 (0.0%) 2 (100.0%) 0 (0.0%) 2 (100.0%) 2 (100.0%)
Companies and
Enterprises.
56................................ Administrative and 0 (0.0%) 44 (100.0%) 0 (0.0%) 44 (100.0%) 44 (100.0%)
Support and Waste
Management and
Remediation Services.
61................................ Education Services... 3 (17.6%) 14 (82.4%) 2 (11.8%) 15 (88.2%) 17 (100.0%)
62................................ Health Care and 3 (7.7%) 36 (92.3%) 3 (7.7%) 36 (92.3%) 39 (100.0%)
Social Assistance.
71................................ Arts, Entertainment, 9 (36.0%) 16 (64.0%) 4 (16.0%) 21 (84.0%) 25 (100.0%)
and Recreation.
72................................ Accommodation and 1 (6.7%) 14 (93.3%) 0 (0.0%) 15 (100.0%) 15 (100.0%)
Food Services.
81................................ Other services....... 5 (11.6%) 38 (88.4%) 4 (9.3%) 39 (90.7%) 43 (100.0%)
---------------------------------------------------------------------------------------------------------------------
Total 427 (44.7%) 528 (55.3%) 386 (40.4%) 569 (59.6%) 955 (100.0%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
SBA cannot make a precise determination of the number of businesses
that were approved under the alternative size standard for 7(a) or CDC/
504 Business Loans since the enactment of the statutory alternative
[[Page 11709]]
size standard in 2010 because the Agency does not store the data on
whether an applicant for its 7(a) or CDC/504 Loan Program was qualified
under its industry-based size standard or under the alternative size
standard. The available data show that alternative size standard
established by Congress enabled some small businesses above the
industry-based size standards to get SBA's financing.
As stated elsewhere, SBA also does not compile the data on average
annual receipts, net worth, and net income. The only available data on
business size is the number of employees. SBA examined its 7(a) and
CDC/504 loan data for fiscal years 2021-2022. Based on this data, SBA
estimates that 500 recipients of the SBA Business Loans (or 0.4 percent
of the total loans) that appeared to have exceeded their industry-based
size standards were granted 7(a) and CDC/504 loans, implying that most
likely they qualified under the statutory alternative size standard.
Thus, this result indicates that the higher alternative size standard
expanded credit availability to more small businesses through SBA's
7(a) and CDC/504 Loan Programs.
Table 3, Applicant's Eligibility Under the Inflation-Adjusted
Statutory Alternative and Industry-Based Size Standards (FY 2021-2022),
shows the eligibility of recipients of SBA loans through 7(a) and CDC/
504 Programs during fiscal years 2021-2022 under the industry-based and
inflation-adjusted alternative size standard. More than 99.5 percent
(i.e., 117,327/117,882 = 0.9953) of loan recipients were found to have
met both the industry-based size standards and inflation-adjusted
alternative size standard. As in the case of the statutory alternative
size standard, about 500 or 0.4 percent of loan recipients that did not
meet the industry-based size standard met inflation-adjusted
alternative size standard. About 0.1 percent (i.e., 94/117,882 = 0.001)
of loan recipients were found to have exceeded the interim statutory
alternative size standard. That figure was 0.05 percent (i.e., 54/
117,882 = 0.0005) for the inflation-adjusted alternative size standard.
Thus, 40 loan recipients that did not meet the statutory size standard
met the inflation-adjusted alternative size standard.
Table 3--Applicant's Eligibility Under the Inflation-Adjusted Statutory Alternative and Industry-Based Size Standards
[FY 2021-2022]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interim statutory alternative size Inflation-adjusted alternative size
standard (Table 5) standard
-------------------------------------------------------------------------------- Total
Meets Does not meet Meets Does not meet
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry size standard.......... Meets............. 117,288........... 81................ 117,327........... 42................ 117,369
Does not meet..... 500............... 13................ 501............... 12................ 513
---------------------------------------------------------------------------------------------------
Total....................... .................. 117,788........... 94................ 117,828........... 54................ *117,882
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note: This excludes invalid or incomplete observations in the form of invalid NAICS codes or missing RMA or receipts-to-employee ratios to estimate
tangible net worth, net income, or receipts equivalent size standard.
Based on the data for 2017 Economic Census, Agricultural Census,
and County Business Patterns special tabulations, SBA estimates that
about 6,275 businesses that are above the interim statutory alternative
size standard will qualify under the inflation-adjusted alternative
size standard. About 25 additional SBA Business Loans, totaling up to
$50 million, will be made to these newly-qualified businesses using the
higher inflation-adjusted alternative size standard. That constitutes
less than 0.1 percent of the loan activity during fiscal years 2021-
2022. These results are consistent with results in Tables 7 and 8 of
the July 2023 proposed rule, which showed that only a very small
fraction of the SBA Business Loans and loan amount go to businesses
that were close to the tangible net worth and net income thresholds of
the statutory size standard. Thus, the vast majority of SBA Business
Loans go to businesses that are significantly below the tangible net
worth and net income thresholds of the statutory alternative size
standard.
The 7(a) Loan Program, SBA's largest loan program, includes
financial help for businesses with special requirements. Small
businesses can use SBA's 7(a) guaranteed loans for short- and long-term
working capital, revolving funds based on inventory or receivables,
fixed assets, and refinancing. Small businesses can use SBA's CDC/504
loans for the purchase of land, buildings, improvements, and equipment.
These loans provide long-term, fixed-rate financing to small businesses
to acquire real estate or machinery or equipment for expansion or
modernization. The CDC/504 loan proceeds are generally limited to fixed
assets and their related soft costs.
Businesses are often denied SBA's loans for reasons unrelated to
the use of the loan proceeds, the concern's ability to repay the loan,
or other credit-based reasons. Rather, they can be denied because they
exceed the size standards for their industries. Some business concerns
that exceed their industry-based size standards might be eligible for
SBA's financial assistance under the alternative size standard that
this final rule adopts.
Raising the SBG bond guarantee limits will increase contracting
opportunities for more small businesses and bring the limits in line
with inflation. Due to the lack of data, SBA is unable to estimate the
number of additional small businesses that will qualify to apply for
bonding through the SBG Program for non-Federal (e.g., state
government, local government, private sector, etc.) contracting because
of increases to bond guarantee limits for inflation. Because the
construction sector accounts for more than 95 percent of surety bonds
and total value of bonded contracts, to estimate the number of
additional small businesses and contracts that will qualify for surety
bonds on Federal contracts, SBA analyzed the small business contract
awards from FPDS-NG for the construction sector for fiscal years 2021-
2022. These results are presented in Table 4, Federal Contracts in
Construction for Fiscal Years 2021-2022. Because of the adopted
increase to the lower contract limit from $6.5 million to $9 million,
without contracting officer's certification, annually up to about 150-
155 additional small businesses will be eligible to apply for surety
bonds on about 175-180 Federal construction
[[Page 11710]]
contracts totaling between $1.4 billion and $1.5 billion in value.
Similarly, as a result of the adopted increase to the upper contract
limit from $10 million to $14 million, with contracting officer's
certification, annually up to about 100-110 additional small businesses
will be eligible to apply for surety bonds on 110-120 Federal
construction contracts totaling between $1.3 billion and $1.4 billion
in value.
Table 4--Federal Contracts in Construction for Fiscal Years 2021-2022
----------------------------------------------------------------------------------------------------------------
Number of small Number of Total contract
Contract limits firms contracts value ($ billion)
----------------------------------------------------------------------------------------------------------------
<= 6.5 million......................................... 6,100 25,312 $10.7
> $6.5 million <= $9 million........................... 155 179 $1.4
> 9 million <= $10 million............................. 45 45 $0.4
> $10 million to <= $14 million........................ 106 115 $1.3
> $14 million.......................................... 142 172 $5.3
--------------------------------------------------------
Total.............................................. 6,547 25,822 $19.1
----------------------------------------------------------------------------------------------------------------
Raising the contract bond limits could lead to larger contracts
being guaranteed by the SBA and, as a result, could increase the risk
of program losses. To determine if higher contract limits will increase
the risk of program losses, SBA analyzed all claim activity from
October 1, 2020, to March 31, 2023. These results are presented in
Table 5, Net Claims by Contract Size for October 1, 2020, to March 31,
2023. The results show a positive relationship between contract size
and net claims. For example, contracts below $1 million in value
accounted for nearly 66 percent of total claims but accounted for only
29 percent of net claim amount. On the other hand, contracts above $1
million in value accounted for 34 percent of claims but accounted for
71 percent of total net claim amount. Thus, the data suggests that
higher contract limits may lead to larger contracts being guaranteed,
which in turn may lead to an increase in defaults and, as a result,
higher losses. However, SBA is unable to estimate exact losses due to
the lack of data to estimate the number additional surety bonds on non-
Federal contracts resulting from increases to contract bond limits.
Table 5--Net Claims by Contract Size for October 1, 2020, to March 31, 2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of claims Net claim
-----------------------------------------------------------------------------------------------
Contract size ($ million) Amount ($
Count % Cum. % million) % Cum. %
--------------------------------------------------------------------------------------------------------------------------------------------------------
< 0.1................................................... 12 5.8 5.8 0.5 0.9 0.9
0.1 to 0.25............................................. 32 15.4 21.2 2.3 4.3 5.2
0.25 to 0.5............................................. 50 24.0 45.2 4.2 7.9 13.1
0.5 to 1.0.............................................. 43 20.7 65.9 8.5 16.1 29.3
1.0 to 2.0.............................................. 44 21.2 87.0 17.7 33.5 62.8
2.0 to 3.0.............................................. 8 3.8 90.9 5.1 9.6 72.4
3.0 to 4.0.............................................. 10 4.8 95.7 5.5 10.5 82.9
4.0 to 5.0.............................................. 7 3.4 99.0 5.0 9.4 92.3
5.0 to 6.5.............................................. 2 1.0 100.0 4.1 7.7 100.0
-----------------------------------------------------------------------------------------------
Total............................................... 208 100.0 .............. 52.7 100.0 ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
Congressional Review Act
Subtitle E of the Small Business Regulatory Enforcement Fairness
Act of 1996 (codified at 5 U.S.C. 801-808), also known as the
Congressional Review Act or CRA, generally provides that before a rule
may take effect, the agency promulgating the rule must submit a rule
report, which includes a copy of the rule, to each House of the
Congress and to the Comptroller General of the United States. SBA will
submit a report containing this rule and other required information to
the U.S. Senate, the U.S. House of Representatives, and the Comptroller
General of the United States. A major rule under the CRA cannot take
effect until 60 days after it is published in the Federal Register.
OMB's Office of Information and Regulatory Affairs has determined that
this final rule is not a ``major rule'' as defined by 5 U.S.C. 804(2).
Final Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), this final rule may
have a significant impact on a substantial number of small entities. As
described above, this final rule could affect small entities seeking
assistance through SBA's (7a) and CDC/504 Loan and SBG Programs.
Immediately below, SBA sets forth a final regulatory flexibility
analysis (FRFA) of this final rule addressing the following questions:
(1) What is the need for, and the objective of, the rule? (2) What
significant issues were raised by the public comments in response to
the initial regulatory flexibility analysis, and what changes were made
as a result of such comments? (3) What is SBA's response to comments
filed by the Chief Counsel for Advocacy of the Small Business
Administration in response to the proposed rule, and what changes were
made as a result of such comments? (4) What are SBA's description and
estimate of the number of small entities to which the rule would apply?
(5) What are the projected reporting, record keeping, and other
compliance requirements of the rule? (6) What steps has SBA taken to
minimize significant economic impact on small entities and why has SBA
rejected the other significant alternatives to the rule in favor of the
adopted one?
[[Page 11711]]
(1) What is the need for, and the objective of, the rule?
Under the Jobs Act, SBA is required to adopt an alternative size
standard using maximum tangible net worth and net income for its 7(a)
and CDC/504 Loan Programs. The Jobs Act defined an interim statutory
alternative standard based on tangible net worth of $15 million and net
income of $5 million until the SBA Administrator permanently designates
an alternative size standard based on tangible net worth and net income
for those programs. Many businesses that exceed their industry-based
size standards cannot grow and support their employees and other
businesses that depend on them without additional capital from SBA's
financial assistance programs. The inflation-adjusted alternative size
standard adopted under this final rule will enable such businesses to
qualify for SBA's 7(a) and CDC/504 Loan Programs.
Section 3(a) of Small Business Act (15 U.S.C. 632(a)) gives the
SBA's Administrator responsibility to establish and change small
business size standards. Within its administrative discretion, SBA
implemented a policy in its regulations to review the effect of
inflation on size standards at least once every five years (13 CFR
121.102(c)) and make any changes as appropriate. SBA has adjusted its
monetary-based size standards three times since the enactment of the
interim statutory alternative size standard in 2010. However, SBA did
not adjust the statutory alternative in each of those adjustments.
Inflation, as measured by the change in GDP price index, has increased
more than 34 percent since 2010. This has eroded the value of the
statutory alternative size alternative in real terms. Consequently,
many businesses above their industry-based size standards and in need
of financial assistance from SBA's 7(a) or CDC/504 Loan Programs may
have exceeded the statutory alternative size standard and lost
eligibility for benefits of those programs. The inflationary adjustment
of the statutory alternative size standard in this final rule will
enable such businesses to qualify for those programs. The alternative
size standard applies uniformly across all industries and does not
affect existing size standards by industry. Rather it supplements them,
by making more financing available to otherwise ineligible businesses
that exceed their industry-based size standard.
Regarding the SBG Program, NDAA 2013 increased the SBG guarantee
limit to $6.5 million, and up to $10 million for a Federal contract if
a Federal contracting officer certifies that such a guarantee is
necessary. The Act also included a provision to increase the $6.5
million limit periodically for inflation in accordance with 41 U.S.C.
1908. Based on the CPI, inflation has increased more than 30 percent
since 2013. SBA has not adjusted its bonding limits since 2013. This
has eroded the value of the bonding limits in real terms since the
limits were set by Congress in 2013. This has adversely impacted small
business contractors seeking bonding assistance from the SBA SBG
Program. The adjustment of the SBG contract limits will bring them in
line with ongoing inflation and current contracting trends and increase
contracting opportunities to small businesses.
(2) What significant issues were raised by the public comments in
response to the initial regulatory flexibility analysis, and what
changes were made as a result of such comments?
SBA received 13 comments on the July 2023 proposed rule from
various trade associations, businesses, and individual stakeholders, of
which 11 comments supported SBA's proposed changes and two comments
were not applicable or were outside the scope of SBA's proposed rule.
Generally, commenters expressed strong support for SBA's proposed
changes, without reservation. Thus, with due consideration of all
public comments, as discussed in detail in Section IV of this final
rule, and in light of the overall strong support for SBA's proposed
changes and anticipated impacts, SBA is adopting the proposed
adjustments in the July 2023 proposed rule without change.
Specifically, SBA is adopting the statutory alternative size standard
of $15 million in tangible net worth and $5 million in net income as
the permanent alternative size standard, subject to adjustment for
inflation that has occurred since the establishment of the statutory
alternative size standard in 2010. The inflation adjustment increases
the size standard's level for tangible net worth to $20 million and for
net income to $6.5 million. SBA is also adopting, as proposed, the
inflation-adjusted thresholds applicable to the statutory limits for
contract size under the SBG Program. The adjustment increases the
contract limit to $9 million and to $14 million for Federal contracts
if a Federal contracting officer certifies that such a guarantee is
necessary. The statutory responsibility for adjusting the size standard
for inflation lies with the Federal Acquisition Regulation. In the
absence of FAR action, SBA will adjust the SBG contract limits on the
same five-year schedule that SBA currently uses for reviewing its
monetary-based industry size standards in accordance with 13 CFR
121.102(c).
(3) What is SBA's response to comments filed by the Chief Counsel for
Advocacy of the Small Business Administration in response to the
proposed rule, and what changes were made as a result of such comments?
SBA did not receive public comments filed by the Chief Counsel for
Advocacy of the Small Business Administration in response to the
proposed rule. As such, no changes were made to the rule in response to
such comments.
(4) What are SBA's description and estimate of the number of small
entities to which this rule would apply?
This rule will apply to more than 8.1 million employer firms, of
which 98.2 percent are small under industry-based size standards and
92.5 percent are small under the interim statutory alternative size
standard. About 92.6 percent of firms will qualify as small under the
inflation-adjusted alternative size standard. About 6,275 firms that
are above the interim statutory alternate size standard will qualify as
small under the inflation-adjusted size alternative standard. That is
less than 0.1 percent of firms that are small under the interim
statutory alternative size standard.
For the reasons discussed under the Regulatory Impact Analysis
section of this rule, because of lack of relevant data (e.g., receipts,
tangible net worth, and net income of loan recipients), SBA cannot
precisely state the number of businesses that were approved under the
alternative size standard for 7(a) or CDC/504 loans and the number of
newly-defined small businesses that will qualify under the inflation-
adjusted alternative size standard for loans under these programs.
However, based on the analysis of the available data for fiscal years
2021-2022, SBA estimates that at least 500 7(a) or CDC/504 loans (or
0.4 percent of total loans) were likely approved under the alternative
size standard.
With respect to the SBG program, more than 95 percent of the
bonding activity is concentrated in the construction sector. Based on
the 2017 Economic Census, there are 689,260 small employer firms in
construction to which this rule will apply. Additionally, about 2.5
percent of the bonding activity occurs in 11 industries in Sector 56
with more than 209,000 small firms in those industries to which this
rule will also apply. More small businesses will qualify to apply for
[[Page 11712]]
surety bonds as a result of adopted increases to statutory bonding
limits.
(5) What are the projected reporting, record keeping, and other
compliance requirements of the rule?
A new size standard does not impose any additional reporting,
record keeping, or compliance requirements on small entities. Revising
size standards alters the access to SBA programs that assist small
businesses, but does not impose a regulatory burden as the size
standards neither regulate nor control business behavior.
(6) What steps has SBA taken to minimize significant economic impact on
small entities and why has SBA rejected the other significant
alternatives to the rule in favor of the adopted one?
There are no alternatives to establishing a size standard for the
Agency's 7(a) and CDC/504 Loan Programs based on an applicant's
tangible net worth and net income because this is a statutory
requirement. Specifically, the Jobs Act directs the Agency to use a
firm's tangible net worth of not more than $15 million and average net
income after Federal income taxes (excluding any carry-over losses) for
the two full fiscal years immediately before its application of not
more than $5 million until the Administrator adopts a different,
permanent alternative size standard based on net worth and net income
measures. SBA may propose to adopt a higher or lower alternative size
standard based on an applicant's tangible net worth and net income,
however, SBA's proposed alternative size standards, as detailed in the
July 2023 proposed rule, were strongly supported by commenters,
including trade associations small businesses and individuals. Thus, in
this final rule, SBA is adopting the interim statutory alternative size
standard as a permanent alternative size standard, subject to
adjustment for inflation that has occurred since the standard's
establishment in 2010.
Executive Order 13563
A description of the need for this regulatory action and its
associated benefits and costs associated with this action, including
possible impacts that relate to Executive Order 13563 are included
above in the Regulatory Impact Analysis. This final rule will further
expand the benefits of the Jobs Act which also increased the upper
limits of loans available under the 7(a) and CDC/504 Loan Programs,
without restricting access and availability to qualified entities.
SBA's changes to the SBG statutory contract limits will increase
contracting opportunities to small businesses.
Executive Order 12988
This action meets applicable standards set forth in sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. This rule does not
have retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined this
rulemaking will not have substantial, direct effects on the States, on
the relationship between the National Government and the States, or on
the distribution of power and responsibilities among the various levels
of government. Therefore, SBA has determined that this final rule has
no federalism implications warranting preparation of a federalism
assessment.
Paperwork Reduction Act
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this rulemaking will not impose any new
reporting or recordkeeping requirements.
List of Subjects
13 CFR Part 115
Claims, Reporting and recordkeeping requirements, Small businesses,
Surety bonds.
13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Reporting and recordkeeping
requirements, Small businesses.
For the reasons set forth in the preamble, the Small Business
Administration amends 13 CFR part 115 and 13 CFR part 121 as follows:
PART 115--SURETY BOND GUARANTEE
0
1. The authority citation for part 115 continues to read as follows:
Authority: 5 U.S.C. app 3; 15 U.S.C. 636i, 687b, 687c, 694a,
and 694b note.
0
2. Amend Sec. 115.10 by revising the definition of ``Applicable
Statutory Limit'' to read as follows:
Sec. 115.10 Definitions.
* * * * *
Applicable Statutory Limit means the maximum amount, set forth
below, of any Contract or Order for which SBA is authorized to
guarantee, or commit to guarantee, a Bid Bond, Payment Bond,
Performance Bond, or Ancillary Bond:
(1) $9 million (as adjusted for inflation in accordance with 41
U.S.C. 1908).
(2) $14 million if a contracting officer of a Federal agency
certifies, in accordance with section 115.12(e)(3), that such guarantee
is necessary.
(3) If SBA is guaranteeing the bond in connection with a
procurement related to a major disaster pursuant to section 12079 of
Public Law 110-246, see section 115.12(e)(4).
* * * * *
0
3. Amend Sec. 115.12 by revising paragraph (e)(3) to read as follows:
Sec. 115.12 General program policies and provisions.
* * * * *
(e) * * *
(3) Federal Contracts or Orders in excess of $9,000,000 (as
adjusted for inflation in accordance with section 1908 of title 41,
United States Code). SBA is authorized to guarantee bonds on Federal
Contracts or Orders greater than $9,000,000 (as adjusted for inflation
in accordance with 41 U.S.C. 1908), but not exceeding $14 million, upon
a signed certification of a Federal contracting officer that the SBA
guarantee is necessary. The certification must be either express mailed
to SBA, Office of Surety Guarantees, 409 Third Street SW, Washington,
DC 20416 or sent by email to <a href="/cdn-cgi/l/email-protection#8ffcfafdeafbf6ede0e1ebfccffcedeea1e8e0f9"><span class="__cf_email__" data-cfemail="5724222532232e35383933241724353679303821">[email protected]</span></a>, and include the
following additional information:
(i) Name, address and telephone number of the small business;
(ii) Offer or Contract number and brief description of the
contract; and
(iii) Estimated Contract value and date of anticipated award
determination.
* * * * *
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
4. The authority citation for part 121 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, and
694a(9).
0
5. Amend Sec. 121.301 by revising the introductory text of paragraphs
(a), (b), (b)(2), and paragraph (e) to read as follows:
Sec. 121.301 What size standards and affiliation principles are
applicable to financial assistance programs?
* * * * *
(a) For Business Loans (other than for 7(a) Business Loans) and for
Disaster Loans (other than physical disaster
[[Page 11713]]
loans), an applicant business concern must satisfy two criteria:
* * * * *
(b) For 7(a) Business Loans and Development Company programs, an
applicant business concern must meet one of the following standards:
* * * * *
(2) Including its affiliates, tangible net worth not in excess of
$20 million, and average net income after Federal income taxes
(excluding any carry over losses) for the preceding two completed
fiscal years not in excess of $6.5 million. * * *
* * * * *
(e) The applicable size standards for purposes of SBA's financial
assistance programs, excluding the Surety Bond Guarantee assistance
program, are increased by 25 percent whenever the applicant agrees to
use all of the financial assistance within a labor surplus area. The
U.S. Department of Labor (DOL) issues the Labor Surplus Area (LSA) list
on a fiscal year basis on its website at <a href="http://www.dol.gov/agencies/eta/lsa">www.dol.gov/agencies/eta/lsa</a>.
* * * * *
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2024-02776 Filed 2-14-24; 8:45 am]
BILLING CODE 8026-09-P
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</html>Indexed from Federal Register on February 15, 2024.
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