Size standards do not set a sale price.
Size standards do not set a sale price. They help decide who may use small-business loan and contracting programs. The August 20, 2026 Federal Register proposed rule at 91 FR 53741 would replace about 1,000 industry standards with about 338 and, by SBA’s estimate, add about 114,500 net small firms. That is a proposal. Current standards remain until a final rule. A planning review can map buyer-universe effects. It is not a certified appraisal.
What to know before using the headline number
- The August 20, 2026 Federal Register notice at 91 FR 53741 is a proposed rule. Current size standards remain until a final rule.
- SBA estimated about 114,541 additional small firms on a net basis if the proposal were finalized as written. That is an agency estimate, not a closed fact for your file.
- A receipts-to-employee shift can move a firm across the line without any change in earning capacity.
- Size status changes the financed buyer pool. It does not replace Revenue Ruling 59-60 analysis of the company.
- Write the live NAICS and the live standard in the deal memo. Keep the proposal in a labeled scenario tab.
Eligibility is a buyer-universe fact, not a multiple
On August 20, 2026, the Small Business Administration published a proposed rule in the Federal Register, 91 FR 53741, with comments due September 21, 2026. The proposal would set about 338 standards in place of roughly 1,000 industry-level lines, shift many receipts tests to employee tests, and, by SBA’s own estimate, classify about 114,541 additional firms as small on a net basis. Nothing in that notice is a final size status.
The 7(a) loans page still describes a program for eligible small businesses, including certain changes of ownership. SOP 50 10 is the lender procedure book that implements program rules. If a target is not small under the standard that actually applies, a financed “searcher” may drop out. Cash buyers and strategics remain. The bid set changes. The company did not become a different operation overnight.
NAICS is the door, and the door can be the wrong one
The Census Bureau’s North American Industry Classification System is how the government names the economic activity. Size status follows the primary industry, not the trade name on the van. A firm that calls itself a contractor but earns most receipts from manufacturing will be measured on the manufacturing line. Misclassification is a valuation issue because it misstates who can bid with a guaranteed loan.
County Business Patterns can show how many establishments sit in that industry and geography. That is context for competition and labor, not a price. SBA acquisition guidance still tells buyers to value the company, write agreements, and complete diligence. Size status is one diligence item. It is not a substitute for earning-capacity analysis under Revenue Ruling 59-60 as reprinted in the IRS valuation job aid.
A receipts-to-employee shift changes who clears the line
The proposal would convert many receipts-based industries to employee-based measures. A high-revenue, low-headcount firm can look “too big” on receipts and “small” on people, or the reverse. Until a final rule, do not reprice a sale on a worksheet that assumes the proposal already governs. Model it as a scenario. Label it as a scenario.
Affiliation rules still matter. Size is not only the target’s headcount or receipts. Common ownership, common management, and identity of interest can pull related entities into the calculation. A buyer group that looked eligible as a standalone searcher may not be eligible once affiliation is applied. Confirm that with counsel and the lender. Do not treat a NAICS table as the whole test.
How a moving perimeter shows up in price talks
If a final rule later enlarges the small pool in the target’s industry, more 7(a) buyers may be able to compete. That can support liquidity. It does not raise earning capacity. If a final rule later tightens a line, some financed buyers fall away and remaining bidders may be cash or strategic. The owner then faces a thinner stack, not an automatic markdown of operations.
Do not pre-spend a proposed expansion. Lenders will underwrite to the standard in force on the file, and contracting officers will not treat a proposal as a current certification. The comment deadline of September 21, 2026, is a rulemaking date. It is not a closing date. Keep the live standard in the deal file and the proposal in a sensitivity tab.
What to put in the valuation memo while the rule is open
Write the current NAICS, the current size standard, the target’s receipts or employees on the applicable measure, and whether affiliation is even a question. Then add one paragraph on the proposed grouping and measure if the industry is in flux. That memo keeps price talks honest. It prevents a seller from claiming “we will be small next month” as if the Federal Register already changed the world.
The valuation conclusion still follows earnings, assets, transfer, and terms. Size status can change the identity of the probable buyer. It cannot replace the earnings bridge. A planning review can keep those layers separate. A purpose-specific appraisal for a defined legal use is a different product if you later need one.
Eligibility checks that belong in a valuation memo
Treat size as a buyer-universe input. Price still comes from earnings, assets, transfer, and terms.
| Issue | What the owner should assemble | What a buyer is likely to test | Why it changes the decision |
|---|---|---|---|
| Primary industry | Receipts by activity and a NAICS assignment that matches how the company actually earns money. | Reject a friendlier code that does not describe the work. | The wrong door produces the wrong standard and a brittle financed bid. |
| Live standard | Current receipts or employee measure and the threshold now in force. | Compare the target with the live line, not the proposed line. | A “we will be small soon” claim is not a present eligibility fact. |
| Proposed grouping | Whether the industry would move to a 4-digit or 5-digit group and to employees versus receipts. | Run a labeled scenario only. Do not reprice the sale as if the notice were final. | Liquidity may change later. Operations did not change on August 20. |
| Affiliation | Ownership, management, and related-entity chart for buyer and seller where relevant. | Ask counsel and the lender whether other entities are pulled into size. | A standalone table can lie once affiliation applies. |
| Buyer-universe effect | List of probable bidders who need 7(a) eligibility versus cash or strategic bidders who do not. | Re-rank the bid set under live rules and under a final-rule scenario. | A thinner financed pool can change terms even when earnings are unchanged. |
Worked example: a manufacturer near an employee line
This example is hypothetical. A component manufacturer reports $18,400,000 of revenue and $1,620,000 of recast earnings. It has 520 employees. Assume, for illustration only, that the live size standard on its current 6-digit line is 500 employees and that a proposed industry-group standard would be 750 employees. A searcher who needs 7(a) eligibility is the leading bidder at $7,100,000. A strategic cash buyer is at $6,400,000. The owner wants to wait for the proposal to “make the searcher safe.”
| Fact | File today | If the proposal finalized as assumed | Valuation use |
|---|---|---|---|
| Employees | 520 | Still 520 | Measure, not a multiple |
| Live standard (assumed) | 500 employees | No longer the line | Governs today’s loan eligibility |
| Proposed group (assumed) | Not in force | 750 employees | Scenario only |
| Searcher 7(a) path | Offside on the live line | Possibly onside if finalized | Buyer-universe switch |
| Strategic cash bid | $6,400,000 | Still available | Floor while the rule is open |
| Earnings | $1,620,000 recast | Unchanged by the notice | Still the value engine |
On the assumed live 500-employee line, the searcher’s guaranteed-loan path is offside today. The Federal Register notice does not change that. Waiting for a final rule is a timing and political bet. It is not a present increase in earning capacity. The strategic $6,400,000 is the bid that does not need the proposal.
If a final rule later used a 750-employee group standard, the searcher might re-enter and the $7,100,000 stack might become financeable. That would be a liquidity event. The recast would still be $1,620,000. Census NAICS and County Business Patterns would still describe the industry. They would not have raised the company’s cash flow.
The honest memo states both bids, labels the proposal as open through September 21, 2026, and refuses to treat 91 FR 53741 as a closing condition. Affiliation is still untested in this sketch. If the searcher has other portfolio companies, even a final 750-employee line might not save the path.
Keep size in the memo without letting it steal the valuation
Document the live test, isolate the proposal, and return to earnings. Eligibility is a lane, not the whole road.
- 01
Assign the real NAICS
Allocate receipts by activity and pick the primary industry from how the company earns money. Do not shop a code.
Deliverable: Activity-to-NAICS allocation
- 02
Write the live size test
Record the current measure, the current threshold, and the company’s receipts or employees on that measure.
Deliverable: Live-standard comparison
- 03
Add a labeled proposal scenario
If the August 20, 2026 notice would regroup the industry, note the proposed measure and the comment date. Keep it off the base case.
Deliverable: Scenario tab with 91 FR 53741 cited
- 04
Chart affiliation
List related entities for the buyer and, where relevant, the seller. Flag common management and ownership.
Deliverable: Affiliation sketch for counsel
- 05
Re-rank the bid set
Separate bidders who need small-business financing from those who do not. Show how the set changes if a final rule later moves the line.
Deliverable: Buyer-universe matrix
- 06
Return to the earnings bridge
Keep the valuation conclusion on documented earning capacity, assets, and terms. Use size only to explain who can pay.
Deliverable: Memo that separates price from eligibility
Where otherwise credible analyses break down
Treating the proposed rule as already effective
Why it matters: Lenders and contracting officers use the live standard. A sale timed to a notice can miss both the searcher and the strategic.
Better approach: Underwrite today on today’s table. Scenario the proposal.
Shopping a NAICS code to stay small
Why it matters: Primary industry follows economic reality. A cosmetic code is a diligence land mine.
Better approach: Allocate receipts honestly and accept the door that fits.
Raising the ask because SBA estimated more small firms
Why it matters: A national net increase of about 114,541 firms is not your earning capacity. Liquidity is not cash flow.
Better approach: Price the company. Treat a larger pool as a later, contingent benefit.
Ignoring affiliation while celebrating a higher employee cap
Why it matters: Related entities can pull a buyer or target over the line even after a grouping change.
Better approach: Run affiliation with counsel before you call the path safe.
What a defensible owner decision looks like
Size standards are a perimeter around the financed buyer pool. The August 2026 proposal may redraw that perimeter for hundreds of industries, or it may change in a final rule, or it may stall. Until then, the live table governs. Earnings still govern price.
I would rather keep a searcher in a scenario tab than let a Federal Register notice inflate an asking price. A planning review can map the universe. It is not a certified appraisal, and it cannot turn a proposal into a present loan approval.
Questions owners ask
Does the August 2026 proposal already change who can get a 7(a) loan?
No. It is a proposed rule. Current size standards remain until a final rule takes effect. Underwrite to the live standard.
If SBA estimates more small firms, does my sale price go up?
Not automatically. A larger eligible buyer pool can improve liquidity. Price still follows documented earning capacity and terms.
Can I pick a friendlier NAICS to stay small?
Primary industry follows actual economic activity, not a preferred label. Misclassification is a diligence problem and can unwind a financed bid.
Should I delay a sale until after the comment period?
Only if you are making a conscious timing bet. Comments were due September 21, 2026. A final rule, if any, comes later. A strategic bid in hand is not required to wait.
Do size standards apply to cash buyers?
Not as a loan-eligibility screen. They can still matter if the buyer wants future set-aside work or a later 7(a) refinance. Ask why they care.
Where do I read the proposal?
The Federal Register notice at 91 FR 53741 is the proposed rule. SBA’s 7(a) loans page and SOP 50 10 remain the program and procedure context. There is no separate size-standard key in this site’s source list, so the Register citation lives in the prose.
Sources and review date
Last reviewed: September 3, 2026. Sources are linked for context; a national benchmark is not a substitute for local comparable sales or a purpose-specific appraisal.
- U.S. Small Business Administration: 7(a) loans — Current 7(a) loan-program overview, including change-of-ownership financing that can affect equity injection, seller notes, and underwriting.
- SBA SOP 50 10 lender and development company loan programs — Current SBA lending procedures; financing rules can affect valuation scope, equity injection, seller debt, and change-of-ownership underwriting.
- U.S. Small Business Administration: Merge and acquire businesses — Owner-oriented guidance on valuation, agreements, due diligence, and professional support in an acquisition.
- U.S. Census Bureau: North American Industry Classification System — Official industry definitions used to separate economically different operating models before selecting comparable data.
- U.S. Census Bureau: County Business Patterns — Public establishment, employment, and payroll context by industry and geography; not a source of transaction multiples.
- IRS valuation job aid and Revenue Ruling 59-60 — Appendix A reproduces Revenue Ruling 59-60 and its closely held business valuation factors; the job aid itself states that it is not legal authority.
- International Business Brokers Association glossary — Professional definitions for SDE, transaction terms, and Main Street business brokerage concepts.