Alert 08.24.26
SBA Proposes Sweeping Changes to Small Business Size Standards
The proposed rule would significantly expand the pool of firms eligible for federal small business programs.
Alert
Alert
09.15.26
On September 10, 2026, the Small Business Administration (SBA) announced new guidance implementing recent reforms to the 8(a) Business Development Program for individually owned firms. The guidance addresses three key areas: (1) the treatment of pending applications under the new social disadvantage standard; (2) the reinstatement of the “potential for success” review requirement; and (3) the prioritization of 8(a) applications from firms in defense-critical industries.
Pending Applications Returned for Resubmission
On September 10, 2026, SBA’s final rule overhauling the social disadvantage eligibility standard for individually owned 8(a) firms took effect. Under the new rule, all applicants must demonstrate social disadvantage by certifying and submitting evidence that a governmental or private entity discriminated or was biased against the applicant’s racial, ethnic or cultural group during the applicant’s lifetime, and that such discrimination conferred material harm on the applicant. The prior rebuttable presumption of social disadvantage for members of designated racial and ethnic groups has been eliminated.
To facilitate the transition, SBA has begun returning pending individually owned 8(a) applications to applicants through the agency’s “Return to Business” system. Applicants will have 45 calendar days from the date their application is returned to update their submissions to comply with the new social disadvantage standard, including the submission of updated financial records, and resubmit for review.
Reinstatement of Potential for Success Reviews
SBA also announced that it is reinstating the “potential for success” review requirement for 8(a) applicants. Under 13 C.F.R. § 124.107, SBA must determine that an applicant concern possesses reasonable prospects for success in competing in the private sector. To establish potential for success, an applicant must demonstrate that it has been in business and has received contracts in its primary industry classification for at least two full years immediately prior to the date of its application, unless a waiver is granted. The regulation requires SBA to evaluate, among other things, the applicant’s access to credit and capital, the technical and managerial experience of the applicant’s managers, the concern’s operating history, its record of performance on prior federal and private sector contracts, and its financial capacity.
SBA stated that the prior administration had waived these reviews, resulting in fewer than half of 8(a) graduates achieving long-term commercial viability after leaving the program. The agency characterized the reinstatement as part of a broader effort to return merit to the 8(a) Program, ensuring that participating firms possess the capabilities needed to successfully deliver on federal contracts. SBA has not issued additional guidance beyond the announcement regarding how it intends to apply the potential for success standard going forward.
Prioritization of Defense-Critical Industries
In support of the recently established Smaller War Plants Commission—a partnership between SBA and the Department of Defense—SBA announced that it will prioritize the review and processing of 8(a) applications from small businesses operating in 10 defense-critical NAICS codes. The prioritized NAICS codes are:
The Smaller War Plants Commission, announced on August 25, 2026, is a federal coordinating body designed to expand domestic production capacity and strengthen critical supply chains within the defense industrial base. The Commission’s focus areas include munitions and their components, drones and one-way attack systems, microelectronics, strategic and critical minerals, shipbuilding and repair components, sensors, batteries, castings and forgings, and textiles.
Impact on Prospective and Pending 8(a) Applicants
Small businesses with pending individually owned 8(a) applications should be prepared to act promptly upon receiving notification that their application has been returned. The 45-day resubmission window is a firm deadline, and applicants will need to ensure their submissions comply with the new social disadvantage standard and include updated financial records. Given SBA’s announced intent to more rigorously evaluate potential for success, applicants should also be prepared for comprehensive review of their access to capital, operating history, contract performance record, and technical and managerial capabilities. Firms operating in the 10 prioritized defense-critical NAICS codes may benefit from expedited processing of their applications.