COFC Confirms SBA Interpretation of Runway Extension Act

The Court of Federal Claims recently reviewed the Small Business Runway Extension Act, particularly SBA’s contention that it was not bound by the 5-year lookback period that Congress enacted for size receipt calculations. Now, SBA has issued its own rule that it will use the 5-year lookback period, at least after a two-year transition period, as discussed in our earlier posts. But there were still some cases working their way through the courts that examined how Congress implemented the Runway Extension Act and whether it applied to SBA or not. To make a long story short, the court agreed with SBA.

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SBA Proposes Increasing Size Standards in Professional, Management, and Administrative Industries

SBA’s recent proposed rule will increase size standards for a number of industries. The rule also said that SBA was thinking about lowering size standards. While most often, size standards increase over time, SBA can also lower them. However, SBA decided against lowering them. Read on for what standards will change.

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SBA’s Receipts Calculation Transition Period: Is It Legal?

When the SBA issued its final rule implementing the Runway Extension Act’s 5-year receipts calculation period earlier this month, it allowed for a two-year transition: until January 6, 2022, the SBA will allow businesses to choose either a 3-year or a 5-year receipts calculation period.

This transition phase is helpful, the SBA noted, to small businesses that might be adversely affected by an abrupt change to the receipts calculation period—namely, businesses with declining revenues over the preceding five years that are nonetheless close to the applicable size standard cap.

SBA’s accommodation of these companies is, by any measure, a commonsense solution to prevent inadvertent harm caused by the Runway Extension Act. But notwithstanding this laudable policy objective, is the new transition period legal?

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5-Year Receipts Calculation Period Effective January 6, 2020

At SmallGovCon, we’ve closely followed the SBA’s implementation of the Small Business Runway Extension Act. After much confusion caused by the delayed implementation of the Act, there’s finally a light at the end of the tunnel: the 5-year receipts calculation period will become effective January 6, 2020.

Importantly, the SBA’s final rule implements relief for businesses that will be adversely affected by the change to a 5-year receipts calculation period.

Let’s take a look.

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SBA Announces Increases to Receipts-Based Size Standards

Make sure to check your NAICS code size standards based on receipts, because SBA is increasing them across the board on August 19 to give small businesses more time to grow. On July 18, the SBA announced it will increase monetary-based industry size standards (meaning receipts-based and assets-based size standards).

This change is a result of adjustments for inflation that the SBA makes every five years. These rules will go into effect August 19, 2019.

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Runway Extension Act Update: SBA Says Three-Year Reporting Period Still Applies

In late 2018, Congress passed the Small Business Runway Extension Act, which had a single purpose: change the three-year average annual receipts calculation period (for determining small business eligibility) to a five-year calculation period.

Small businesses, for the most part, have been watching with bated breath for the SBA to comply with the Runway Extension Act. But as we’ve previously written, the SBA has thus far refused to do so (albeit under shifting rationale).

Now, the SBA has cemented its position against applying the Runway Extension Act—according to the SBA, “[b]usinesses must continue to report their annual receipts based on a 3-year average until the SBA amends its regulations.”

I’m not convinced the SBA has it right.

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Say What? SBA Says the Runway Extension Act Doesn’t Apply to SBA

The Small Business Runway Extension Act continues to be a hot topic of conversation among small businesses. For good reason: it revised the receipts calculation period for revenue-based size standards from three years to five.  

In late 2018, the SBA opined that the Runway Extension Act wasn’t applicable because the SBA had not yet updated its regulations. Following industry pushback, the SBA’s position seems to have evolved. During a panel discussion at this year’s National 8(a) Conference, the SBA said that the Runway Extension Act applies to every agency that might adopt its own size standards . . . just not the SBA itself.

This new justification is a bit of a head-scratcher. And I still don’t think the SBA has it right.

Let’s work through the SBA’s position together.

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