SBA Size Standards Proposal Draws Mixed Reactions: Lenders See Opportunity, Small Contractors Worry

The U.S. Small Business Administration’s proposed rule to expand size standards for small-business eligibility has sparked a sharp divide: lenders are eyeing new opportunities, while many small contractors fear being squeezed out.

What the SBA Proposal Would Change

The SBA’s plan, unveiled last week, would shift from more than 1,000 industry-specific size standards based on six-digit NAICS codes to broader four- and five-digit designations, cutting the number of standards to 338. In most cases, the agency would also measure business size by employee count rather than annual revenue.

According to the SBA, the changes would make an additional 114,500 companies eligible for the small-business designation. That includes firms previously considered too large—for example, a meat retailer with 500 employees or a fuel dealer with 1,900 workers would now qualify.

Lenders See Potential in Larger Borrowers

For banks and credit unions that participate in SBA lending, the proposal could open the door to more lucrative loans with established borrowers. Jim Pendergast, general manager at altLINE, a subsidiary of Southern Bank Co. in Gadsden, Alabama, said the expansion is significant enough that many lenders would take it seriously.

“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,” Pendergast said.

Nimi Natan, president of Gulf Coast Small Business Lending, a subsidiary of Gulf Coast Bank & Trust Co. in New Orleans, welcomed the rule even if it doesn’t boost his 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.”

However, Natan noted that the credit needs of many larger firms are often too complex for SBA programs. That could change if Congress approves legislation allowing the SBA to guarantee larger loans—up to $10 million—under the flagship 7(a) program.

Small Contractors Fear Being Crowded Out

Small-business owners who rely on federal contracting set-asides are far less enthusiastic. Hundreds of companies have already submitted comment letters opposing the rule, which was introduced less than 10 days ago.

Brian Lynch, CEO of The Yellowhammer Group, a pest control firm in Birmingham, Alabama, wrote: “The proposed increases are not adjustments; they are a redefinition. A program cannot expand its eligible population by that magnitude and still function as a protection for the smallest firms.”

Allison Giddens, CEO of Win-Tech, an aerospace manufacturer in Kennesaw, Georgia, echoed that concern: “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.”

What's at Stake

The financial implications are substantial. The government spent $793 billion on contracts in fiscal year 2025, according to a May 2026 Government Accountability Office report, with a goal of setting aside about 23% for small businesses.

Joel Pruis, senior director at Cornerstone Advisors, a bank consulting firm in Scottsdale, Arizona, predicted that the number of SBA loans to larger companies would be limited, but the deals that close would be high-dollar. “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.”

The SBA is required by law to review its size standards at least every five years. A spokesperson said Friday that the new rule would “empower more small businesses with federal contracting opportunities and access to SBA lending programs, particularly in key critical industries.”