- Key insight: For Small Business Administration lenders, the proposed size standards could create an opportunity to book lucrative loans with established borrowers.
- Supporting data: The proposed standards would result in more than 114,500 additional companies qualifying for the small-business designation.
- Expert quote: "Expect the growth story to be driven by dollars, not borrowers." — Joel Pruis, senior director at Cornerstone Advisors
If comment letters are any guide, the U.S. Small Business Administration may have upset a hornet's nest with a proposed rule that would make larger businesses eligible for SBA lending programs.
According to the SBA, the changes it unveiled last week would result in an additional 114,500 companies qualifying as small businesses. That would likely increase the number of established borrowers that meet the criteria for government-backed loans, boosting the appeal of the SBA's lending programs among banks and credit unions. The proposal would also expand the pool of companies eligible for government contracting set-asides.
The proposed changes are getting a favorable early reception from SBA lenders, but much less so from small-business owners that do business with the federal government.
Indeed, many early-stage and smaller-sized contractors view the SBA's plans as a potential catastrophe. They're concerned about being crowded out by an influx of bigger competitors with deeper pockets.
Though the rule was introduced less than 10 days ago, hundreds of companies have written comment letters opposing it.
"The proposed increases are not adjustments; they are a redefinition," wrote Brian Lynch, CEO of The Yellowhammer Group, a Birmingham, Alabama-based pest control firm. "A program cannot expand its eligible population by that magnitude and still function as a protection for the smallest firms."
"If we want more small manufacturers participating in federal contracting, let's address the barriers keeping them out rather than dramatically expanding the pool of companies competing for the opportunities already set aside for them," wrote Allison Giddens, CEO of Win-Tech, a Kennesaw, Georgia-based aerospace manufacturer.
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The SBA currently uses more than 1,000 individual size standards, based on six-digit North American Industry Classification System designations, to determine eligibility. The new plan would shift to broader four- and five-digit designations, shrinking the number of industry size standards by about two-thirds, to 338.
At the same time, the SBA plans to measure size differently, shifting from annual sales volume to the size of a firm's employee base in most cases. The outcome would be a significant recategorization of tens of thousands of businesses previously deemed too large for the small-business designation. Case in point: A meat retailer with 500 employees would be classified as a small business under the proposed guidelines, as would a fuel dealer with 1,900 workers.
The dollars at stake are significant. The government spent $793 billion in its 2025 fiscal year on contracts, according to a May 2026 report by the Government Accountability Office. The government's goal is to set aside about 23% of those contracts for designated small businesses.
The changes would have important implications for SBA lenders, said Jim Pendergast, general manager, at altLINE, a specialty financing subsidiary of the $133.1 million-asset Southern Bank Co. in Gadsden, Alabama.
"The size of the potential expansion is significant enough that I'd expect many lenders to take it seriously," Pendergast said in an email to American Banker.
"If a meaningful share of these newly eligible businesses are financially healthy and looking for capital, I could see lenders putting more resources behind 7(a) lending and competing more aggressively for those borrowers," he said.
Nimi Natan, president of Gulf Coast Small Business Lending, a subsidiary of the $3.9 billion-asset Gulf Coast Bank & Trust Co. in New Orleans, said the credit needs of many larger firms are too complex for SBA to handle. But he said that could change if Congress approves legislation that lets the SBA guarantee larger loans, up to $10 million, under its flagship 7(a) program.
Natan said he likes the proposed rule, regardless of whether it boosts Gulf Coast's loan count.
"The need is to have bigger, more capable contractors apply for jobs," Natan said. "It's very exciting for those contractors that can now bid on jobs. Whether or not they need the 7(a) product is unclear. … If they do, we would love to participate."
Joel Pruis, a senior director at Cornerstone Advisors, a Scottsdale, Arizona-based bank consulting firm, said the number of SBA loans made to bigger companies is unlikely to be large. That said, the deals that do close will be high-dollar, pushing lending volume up.
"Expect the growth story to be driven by dollars, not borrowers," Pruis said. "The real winner may not be the lender that books the most SBA loans, but the lender that leverages SBA guarantees to win larger, higher-value commercial relationships that previously fell outside the program's reach."
SBA is required by law to review its size standards at least every five years. A spokesperson said Friday the new rule would "empower more small businesses with federal contracting opportunities and access to SBA lending programs, particularly in key critical industries."
