Small Business Runway Extension Act of 2018 becomes law


News - Published Jan 24, 2019

The Small Business Runway Extension Act of 2018 became federal law in December of 2018, however, the Small Business Administration (SBA) has issued an opinion stating that it is not yet effective until SBA rulemaking is formally adjusted to take it into account. The legislation amends the Small Business Act by specifying that a contractor's size, for the purposes of considering it a small business, shall be measured (in part) with reference to the annual average of its previous five years of revenue. Before the 2018 Act, the law specified that the measurement would be with reference to the previous three years of revenue.

The SBA's position, outlined in an information notice is that until its formal rulemaking process is complete, all decisions will continue to take place using the three-year standard. The position is theoretically open to legal challenge but no such challenge has yet been made.

The purpose of the bill, according to a House report, is an attempt to ensure that small businesses can make the jump to being larger, successful businesses without hitting a difficult middle period in which viability drops off after losing small business certification. However, it is noted that some small businesses may no longer be eligible to be considered as small under the five-year rule, if the additional two years of prior revenue being considered raises their average enough to push them out of eligibility. The SBA has previously stated it believes a three-year revenue average balances "the problems of fluctuating receipts with the overall capabilities of firms that are about to exceed the size standard".

Read the SBA's notice at https://media.mcguirewoods.com/publications/2019/2019-Five-Year-Revenue-Rule-SBA.pdf

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