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New Size Standard For SBA 504 and 7a Loans

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An Alternative Size Standard has been made permanent as a Final Rule published in the Federal Register as of 2/15/2024. The Rule accounts for inflation and significantly increases the allowable net worth and after-tax net income for small businesses looking to apply for SBA 504 and 7a loans. This is exciting news, as it means many more businesses will now be eligible for these loans. 

What Are SBA Size Standards?

Size standards are parameters that define how big a business can be in order to participate in contracting programs, such as the SBA loan programs. They can be based on various numbers, such as the number of employees and affiliates or a company’s annual receipts. They are ultimately used to help determine if your business qualifies as “small.” 

In the case of the new Alternative Size Standard, the allowable amounts for  tangible net worth and average net income after Federal Income Taxes have been re-defined. 

When Does the SBA Review Small Business Size Standards?

There are three scenarios obligating the SBA to review and make adjustments to small business size standards:

  1. Changes in industry structure and Federal market conditions
  2. Inflation
  3. Adoption of the most recent revision to the North American Industry Classification System (NAICS) by the Office of Management and Budget

Inflation is the reason behind the recently increased size standards for net income and net worth for small businesses.  

What Is The Alternative Size Standard?

The Alternative Size Standard was first proposed in July 2023. Up to that point, the standard had not been adjusted for inflation since 2010. The proposed rule was made Final and published in the Federal Register on 2/15/2024. It makes the following adjustments in eligibility for SBA 504 and 7a loans:

  • Businesses can have a tangible net worth of up to $20 million. This is a $5 million increase from the previous standard.
  • Businesses may have an average net income (after Federal Income Taxes for two fiscal years before application) of up to $6.5 million. This is an increase of $1.5 million from the prior standard.

What Does This Mean for Small Businesses?

The increased allowable amounts are meant to expand access to SBA loans for small businesses who would previously be ineligible due to higher incomes and net worth. The standards have been increased by 34.46%–a huge amount that means many, many more businesses will potentially qualify for these loans. 

When Does the Alternative Size Standard Go Into Effect?

The new size standards for small businesses will go into effect March 18, 2024. The standard may be further adjusted as needed by the SBA, who will continue to monitor inflation and economic factors in order to ensure the loan is accessible by as many small businesses as possible. Currently, the SBA is obligated to review monetary-based size standards and adjust for inflation every five years, so we may see an increase in 2029.  

SBA Loans in Colorado

CEDCO.org is a Certified Development Company that has been helping Colorado small businesses achieve their dreams for more than 40 years. With the new size standards, we are excited to be able to assist even more entrepreneurs in securing a SBA 504 loan. Call our office or go online to schedule a consultation. 

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CEDCO Small Business Finance
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