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Federal Register / Vol. 86, No. 209 / Tuesday, November 2, 2021 / Proposed Rules
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of a business concern under an employee-based size standard is calculated by averaging the concerns number of employees for each pay period in the preceding completed 12
calendar months. Part-time and temporary employees count as full-time employees, and the concern aggregates the employees of its domestic and foreign affiliates. SBA proposes to change the 12-month period in 121.106 to a 24-month period. As a result, a concern would average its employees over all pay periods in the preceding completed 24 months. If it has not been in business for 24 months, the concern would average its number of employees for each pay period during which it has been in business.
This change to 121.106 would apply to all employee-based size standards.
Those size standards predominantly apply to manufacturers but not exclusively. Firms also use SBAs employee-based size standards in certain mining, utilities, transportation, publishing, telecommunications, insurance, research and development, and environmental remediation industries. Significant to government contracting, nonmanufacturers also qualify for small business status for government procurement using an employee-based size standard. Though nonmanufacturers and the nonmanufacturing industries are not covered by the NDAAs change to proposed size standards, SBA believes that it would be unworkable to use a 24month average for manufacturing industries but retain a 12-month average for other industries with employeebased size standards. Firms may participate in multiple industries, and it is burdensome to use different averaging periods for different industries with employee-based size standards. SBA
seeks comment on whether to include nonmanufacturers and nonmanufacturing industries in the change to a 24-month average for employee-based standards.
B. Changes to Calculation of Average Annual Receipts In a final rule published December 5, 2019 84 FR 66561, SBA implemented the SBREA by making changes to its receipts-based size standards for all SBA
programs except the Business Loan and Disaster Loan Programs. The excepted programs include: i The 7a Loan Program, the Microloan Program, the Intermediary Lending Pilot Program, and the Development Company Loan Program collectively, the Business Loan Programs; and ii the Physical Disaster Business Loans, Economic Injury Disaster Loans, Military Reservist
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Economic Injury Disaster Loans, and Immediate Disaster Assistance Program loans collectively, the Disaster Loan Programs.
This proposed rule would extend the changes to SBAs receipts-based size standards to the Business Loan and Disaster Loan Programs. Currently, applicants in those loan programs must calculate their average annual receipts using a 3-year average. Under this proposal, applicants may choose to use either a 3-year average or a 5-year average. Thus, an applicant might be eligible for assistance if its 5-year average is equal to or less than the size standard, even if it would otherwise be ineligible because its 3-year average exceeds that size standard.
SBA also proposes to use the same treatment in SBAs SBIC program by SBIC applicants to choose to use either a 3-year average or a 5-year average.
Recipients of SBIC assistance were not specifically identified in the December 2019 rulemaking that applied to all programs. Therefore, interested parties likely were not attuned to the effect that the December 2019 final rule might have on SBIC participants. This proposed rule invites SBICs and their portfolio companies to comment on SBAs proposed changes to the size rules for that program.
Like the changes in the December 2019 final rule, these proposed changes will expand the eligibility for SBA
assistance to larger small businesses and some mid-sized businesses. An advanced small business may be able to retain its small business status for a longer period, if it is close to exceeding the size standard. A mid-sized business may be able to regain its small business status, if it would otherwise have exceeded the size standard.
These proposed changes differ in some respects from what SBA
implemented in the earlier final rule. In particular, this proposal does not use the transition period that SBA
included with the December 2019 final rule. That rule applied size-standard changes to the SBA government contracting programs and other nonloan programs. Starting on January 6, 2020, those programs began permitting participants to elect whether to use a 3year average or a 5-year average to calculate average annual receipts. That election will end on January 6, 2022, however, marking the end of the transition period for those changes.
After January 6, 2022, all government contractors will use a 5-year average for average annual receipts.
Conversely, the changes here allow for an election but do not have a transition period. SBA intends to make
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the election available indefinitely. This recognizes the differences between the loan programs and the government contracting programs, where firms are competing against one another. Where there is competition, businesses should be competing on an equal basis;
therefore, the December 2019 final rule provided that, after the end of the transition period, government contractors all would use a 5-year averaging period. By contrast, in the loan programs, loan applicants are evaluated on an applicant-by-applicant basis. It is thus unnecessary to ensure that applicants use the same size criteria. As a result, SBA does not believe it is necessary to limit the election in the loan programs to a twoyear period.
In soliciting comment for the December 2019 final rule, SBA received some comments from participants in the Business Loan programs. SBA has considered those comments in preparing this proposed rule.
Prior commenters asked that SBA use the 5-year average only for calculating average annual receipts, not for other loan application purposes. Accordingly, this proposal only authorizes the 3-or-5year election for the calculation of receipts, not for any other purpose.
Other calculations remain unchanged.
Prior commenters also asked that SBA
authorize the Business Loan Programs to continue to use a 3-year average.
Accordingly, this proposal uses an election, not a mandate. For the most part, lenders and applicants will continue to be able to use a 3-year average. The only exception will be where the applicant would not qualify as a small business using a 3-year average. In that case, the applicant may use a 5-year average if that would qualify the applicant as small. The applicant also might be able to qualify for loan assistance using the alternative size standard in section 3a5B of the Small Business Act.
II. Section-by-Section Analysis A. Section 121.104
In paragraphs c1, c2, and c3, SBA proposes to add the SBIC program to the list of programs that are excepted from SBAs current rule on calculating average annual receipts.
In paragraph c4, SBA proposes to amend the calculation of average annual receipts for the Business Loan, Disaster Loan, and SBIC Programs. A business in those programs may calculate its receipts using either a 3-year average or a 5-year average for the purposes of determining its size under a receiptsbased size standard. This change does
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