More companies in the services sector can now qualify for government set-asides and other forms of aid, according to the Small Business Administration. While the agency recently raised the ceiling for companies in the facilities support services industry eligible for SBA aid from $6 million in average annual receipts to $30 million and for base maintenance firms to $30 million from $23 million, some say this might not be a good thing. Services provided by companies in these industries include janitorial work, maintenance, lawn care, trash disposal, security, mail routing, and laundry. Generally, a company must provide at least three of these activities to be included in these categories.
What does that assistance include? “They may qualify for some government contracts under small business set-asides,” says Gary M. Jackson, assistant administrator of the Office of Size Standards for the SBA in Washington, D.C. “In addition, they might be able to receive more favorable terms on loans under our loan programs.” According to Jackson, 58% of facilities support services contracts awarded to small businesses in fiscal years 2001 and 2002 went to companies considered socially or economically disadvantaged, so African American entrepreneurs are likely to be affected.
The question, then, is whether such business owners will be affected positively or negatively. As the SBA sees it, the change is one for the better. Just one contract might put a firm over the old $6 million limit, ending its chances for SBA aid.
“The new rule will allow small companies to compete at a higher level,” says Ronald N. Langston, national director of the U.S. Department of Commerce’s Minority Business Development Agency. “Previously, companies in this industry were somewhat limited in their ability to grow.”
Langston encourages small-business owners to focus on growth. “Medium-sized and large companies have the capacity to keep developing,” he says. “They’re the ones likely to expand and keep hiring additional employees. Rule changes like these can help a $10 million or $20 million business become more substantial.”
That may be the case, but what about the truly small business, with only $4 million or $5 million in sales? Previously, such companies had a lock on SBA aid in the facility services support category; now that aid can go to companies already four or five times as large.
“If I ran a very small company in this industry,” says Langston, “I would try to link up with another one. Two companies could form a good-sized partnership and still qualify for SBA help in growing the business even larger.”
Not everyone is so enthusiastic about the SBA’s announcement, though. “Despite what the SBA states publicly, its new size standard rule favors big business over small business,” says Rep. Nydia M. Velázquez of New York, ranking Democratic member of the House Small Business Committee. “It forces small firms to compete against corporate counterparts that are five times the previous $6 million standard.”
Velázquez contends that the SBA’s new size standards could hurt small businesses. “Smaller firms are pushed off to the sidelines,” she says. “They are being put, once again, at a disadvantage. This will obviously pose a challenge for many small, minority-owned companies that are already struggling to win federal contracts.”
President George W. Bush stated in his 2002 small business agenda that large federal contracts should be broken into smaller ones to make the $235 billion federal marketplace more open to small companies, the congresswoman points out. “The SBA’s latest move has taken a different approach: it changes the definition of ‘small business,’ therefore allowing more large companies to certify as small in order to receive government contracts,” Velázquez says. “If the SBA were really serious about helping small companies secure federal contracts, the agency would have instead taken the necessary steps to break down large contracts, which would do much more to give small businesses the chance they deserve.”
Regardless of the SBA moves, until Washington demonstrates an interest in downsizing its contracts, entrepreneurs may have to join forces in order to find favor with the Feds.