In 2018, Congress passed the Runway Extension Act, which changed the 3-year period for determining a concern’s size to a 5-year period. Whether a concern is "small" or "other than small" determines whether it is eligible for many federal small business assistance programs, including eligibility to obtain federal government contracts as a small business, whether competitively or non-competitively (sole-sourced). However, it was not until January 6, 2020, that the SBA issued a Final Rule implementing this change for its own size determination regulations.
Many comments received in response to SBA’s Proposed Rule, published June 24, 2019, expressed concern that an immediate change to a 5-year averaging period would adversely impact businesses whose revenues had been much lower in recent years. In other words, many companies would be considered "other than small" if their most recent 5 years were used to determine their average annual receipts compared to their most recent 3 years. To remedy these concerns, the SBA implemented a transition period in the Final Rule. During this transition period, which extends through January 6, 2022, concerns that that have been in business for 5 or more completed fiscal years can choose between calculating receipts using a 3-year average or a 5-year average.
13 CFR §121.105(c) provides:
(c) Period of measurement. (1) Except for the Business Loan and Disaster Loan Programs, annual receipts of a concern that has been in business for 5 or more completed fiscal years means the total receipts of the concern over its most recently completed 5 fiscal years divided by 5. For certifications submitted on or before January 6, 2022, rather than using the definitions in this paragraph (c), a concern submitting a certification may elect to calculate annual receipts and the receipts of affiliates using either the total receipts of the concern or affiliate over its most recently completed 5 fiscal years divided by 5, or the total receipts of the concern or affiliate over its most recently completed 3 fiscal years divided by 3.
For concerns that have been in business less than 5 complete fiscal years, their average annual receipts will be determined by calculating the total receipts for the period the concern has been in business divided by the number of weeks in business, multiplied by 52. The Final Rule also addresses the calculation of average annual receipts for concerns that have been in businesses 5 or more complete fiscal years but one of which was a short year.
This Final Rule does not impact either the Business Loan or Disaster Loan Programs. A separate final rule will be issued by the SBA at a later date for these programs. The Final Rule, without SBA’s Summary and Supplementary Information, is attached to this post.