Opinion: Tucson business owner worries SBA proposal could squeeze smallest firms

The U.S. Small Business Administration was created in 1953 to help small businesses access capital, compete for contracts and grow jobs in their communities. Today, the SBA is proposing a major expansion of what qualifies as a “small business,” initially estimating that more than 110,000 additional firms would qualify.

While the proposal is intended to help growing companies remain eligible for SBA programs, it raises an important question: At what point does a small business stop being small?

As the owner of a small manufacturing company in Tucson, I worry that this proposal moves the SBA further away from its mission. Expanding the definition of small business does not create more opportunities. It simply allows more businesses to compete for the same pool of contracts, loans and assistance programs. When eligibility expands, but resources do not, the smallest businesses inevitably receive a smaller share.

A business with 10, 20 or 50 employees operates very differently from a business with several hundred employees. Larger firms often have dedicated accounting departments, human resource teams, proposal writers, and significantly greater access to financing. Yet under the SBA's proposal, many of these businesses would continue to compete alongside micro-businesses for programs intended to help small businesses overcome barriers to growth.

This issue is particularly striking in manufacturing. In my industry, apparel manufacturing, companies with up to 750 employees can already qualify as small businesses under existing standards. From the perspective of someone running a genuinely small manufacturing operation, it's difficult to understand how a company with hundreds of employees, multiple facilities, and substantial financial resources should be classified the same way as a company with less than 20 employees.

The SBA's proposal would also rely more heavily on employee counts and less on revenue-based measures in many industries. That should concern anyone who values fairness and effective public policy. Employee count alone does not tell the whole story. Two companies with the same number of employees can have vastly different levels of revenue, assets, profitability, market power and access to capital. Treating those companies as economic equals ignores reality.

The true purpose of SBA programs should not simply be determining whether a company is “not dominant in its field.” It should be identifying where government assistance will have the greatest impact.

Consider a $100,000 loan or federal contract. For a business with 10 employees, that loan/contract might fund new equipment, create jobs, increase production capacity, or open doors to new markets. For a company with hundreds of employees and substantial financial resources, the impact is far less significant. If taxpayers are investing in small-business programs, shouldn't those investments be directed where they generate the greatest return for local communities?

The smallest businesses are often the most deeply rooted in those communities. They hire local workers, provide first jobs to young people, support local nonprofits, participate in workforce development programs, and reinvest close to home. Their owners sit on local boards, volunteer in schools, coach youth sports, and contribute to the civic fabric of the places where they live and work.

Instead of continually expanding the definition of small business, the SBA should consider creating tiers. Businesses with fewer than 20 employees, fewer than 50 employees, fewer than 100 employees, and larger qualifying firms could be offered different levels of assistance and contracting opportunities. Such an approach would recognize that a one-size-fits-all definition fails to capture the wide range of businesses now grouped under the label “small.”

Helping growing companies is a worthy goal. But it should not come at the expense of the smallest businesses the SBA was created to serve. When the definition of small business continues to expand, the smallest firms are squeezed ever further. More competitors are chasing the same opportunities, and the programs designed to help emerging businesses become less effective. The result is less support for the entrepreneurs taking the greatest risks, creating local jobs, and building the next generation of American companies.

Before we redefine “small” once again, we should ask whether we're strengthening the small-business ecosystem or merely enlarging it. There is an important difference. For the smallest businesses in America like mine, that difference matters.