Small Business (Federal Definition)

A business meeting SBA size standards based on annual revenue or number of employees for a specific NAICS code.

Full Definition

In federal contracting, a small business is defined by SBA size standards established under the Small Business Act and codified in 13 CFR Part 121. Size standards vary by NAICS code and are measured by either average annual receipts over the preceding five fiscal years (typically ranging from $9 million to $47 million depending on industry) or by average number of employees over the preceding 24 months (typically 100 to 1,500). A company must qualify as small under the specific NAICS code assigned to a particular contract to bid on that contract's small business set-aside. Size status is self-certified at the time of proposal submission but can be protested by competitors or reviewed by the SBA's Office of Hearings and Appeals. Affiliation rules under 13 CFR 121.103 count the revenues and employees of affiliated entities when determining size.

Why It Matters

Understanding size standards is critical because they determine eligibility for set-aside contracts, which represent the most accessible federal contracting opportunities for new entrants. Size standards are NAICS-specific, meaning a company might qualify as small under one NAICS code but exceed the threshold under another. Small businesses should carefully track their five-year revenue average and monitor growth to avoid inadvertently exceeding size standards on active contracts, which triggers recertification requirements. The SBA periodically adjusts size standards through rulemaking, so check the current tables on the SBA website annually. Companies approaching their size standard ceiling should explore mentor-protege programs and joint ventures under the SBA's All Small Mentor-Protege Program, which allows affiliated joint ventures to maintain small business status under certain conditions.

Example

A custom software development firm with $28 million in average annual receipts reviews two solicitations. Under NAICS 541511 (Custom Computer Programming Services, size standard $34 million) they qualify as small and can bid on the set-aside. Under NAICS 541519 (Other Computer Related Services, size standard $30 million) they also qualify, but their projected growth to $32 million next year will push them over that threshold, so they prioritize capturing NAICS 541519 opportunities this fiscal year.

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