A Brief History
In 1985, Congress enacted the “Small Business Act” to aid small businesses in obtaining contracts with the federal government.
One of the major concerns sought to be remedied under the Act was the lack of competition created by large businesses squeezing smaller businesses out of government contracts. Congress was concerned that squeezing out small businesses has a negative overall effect on the U.S. economy.
As a result, the Act mandated that a large amount of government contacts and funds be set aside for "Small Businesses." The SBA was assigned to regulate the Act.
Definition of Small Business
As with most federal and state statutes, you might be surprised at how the Act defines certain words or phrases.
For instance, according to the Act, a small business concern is "one that is independently owned and operated and which is not dominant in its field of operation."
The definition can be broad and may include businesses you and I would not normally consider “small businesses.”
In determining what constitutes a “Small Business,” the definition varies from industry to industry. The reason for the variance is because some industries are larger than others.
For instance, suppose a business has 300 employees, grosses $10 million per year and corners the market in harvesting and selling Florida Lobster. The business may be excluded from the designation of “Small Business” given it is the largest in its industry.
However, if my business had the same number of employees and gross earnings but instead competed in the automobile industry it would probably fall under the category of “Small Business.”
The SBA has established a table of size standards, matched to the North American Industry Classification System (NAICS) industries. These tables can be used to determine whether your business qualifies as a “Small Business.”
Federal Agencies Must Comply With The SBA
All federal agencies must use SBA's size standards to determine whether a business qualifies as a “Small Business” for Federal Government contracting purposes. Agencies must also use SBA's size standards for their other programs and regulations, unless they are authorized by Federal statute to use something else.