It’s final!! What you need to know about the new law

The Small Business Administration has completed their process and the rule as driven by the Small Business Runway Extension Act of 2018 is now in effect.


To qualify as a small business in the eyes of the federal government, companies turn to size standards (how big your company is) based on what’s called a “running revenue average” or “lookback”. These are listed under the North American Industry Classification System codes or NAICS codes. How much business/revenue did you have last year, the year before and so on. There is NOT a one-size-fits-all definition of what a small business is. Some lines of business are defined by number of employees, other by their revenue. For example, 492110 is the NAICS code for Couriers and Express Delivery Services which is defined by number of employees (in this case 1,500 employees). However 492210 is for Local Messengers and Local Delivery which is defined by this running revenue average we’re talking about (in this case $30.0M).


Previously those NAICS defined by historical revenue were based on 3 (THREE) years back. Your annual revenue, averaged over the last 3 completed years had to be under the NAICS defined threshold. For example,


ACME Motor Vehicle Towing Inc. – NAICS 488410 ($8.0M size standard)

 
  • 2019 Revenue - $8.1M

  • 2018 Revenue - $8.075M

  • 2017 Revenue - $8.05M

 
  • 2016 Revenue - $8M

  • 2015 Revenue - $7.5M

 

Prior to the rule change, 3 year lookback would be $8.075M which is greater than the $8.0M size standard thus they are NOT a small business. Now, their 5 year look back is $7.945M and they DO qualify as a small business.


New verbiage is posted as of now on the government site linked here. See the language below:


 

13 CFR Part §121.104 How does SBA calculate annual receipts?


(c) Period of measurement. (1) Except for the Business Loan and Disaster Loan Programs, annual receipts of a concern that has been in business for 5 or more completed fiscal years means the total receipts of the concern over its most recently completed 5 fiscal years divided by 5. For certifications submitted on or before January 6, 2022, rather than using the definitions in this paragraph (c), a concern submitting a certification may elect to calculate annual receipts and the receipts of affiliates using either the total receipts of the concern or affiliate over its most recently completed 5 fiscal years divided by 5, or the total receipts of the concern or affiliate over its most recently completed 3 fiscal years divided by 3.


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