SBA Reorganization and Size-Classification Changes Risk Favoring Big Business and Undermining Worker Standards
Project 2025's SBA agenda would create a 'medium-sized business' classification, freeze the SBA budget, and support the Fair and Open Competition Act (FOCA) and expanded SBREFA panels—moves that structurally advantage large firms, weaken worker protections in federal contracting, and reduce accountability. The SBA's March 2025 reorganization partially aligns with these goals, but the most consequential legislative proposals remain unenacted.
Project 2025 frames its SBA reforms as efficiency measures, but the distributive stakes are clear. Creating a separate 'medium-sized business' classification risks carving out a privileged tier that can access SBA capital programs while evading the small-business contracting and worker standards tied to the 'small' designation. The Fair and Open Competition Act would ban project labor agreements on federal construction—exactly the kind of collective bargaining tool that raises wages and safety for workers on taxpayer-funded projects. Locking those out under the banner of 'leveling the playing field' writes the largest contractors a free pass to lowball labor costs.
The budget-freeze-and-termination approach, while administratively tidy, would starve enforcement at the Office of Advocacy and the regulatory-flexibility functions that give small firms a voice against agency overreach. Meanwhile, expanding SBREFA panels to all agencies—without parallel investments in worker or consumer representation—tilts the rulemaking process toward business interests alone. The HEALS and American Innovation and Manufacturing Acts, if revived, could redirect SBIC financing toward capital-intensive manufacturers. That is a policy with merit, but only if paired with guardrails that prevent capture by large firms whose 'capital intensity' is code for automation and layoffs.
A progressive alternative would preserve SBA's mission to serve genuine small businesses—defined by revenue and headcount, not by pass-through structure—while strengthening worker standards in federal contracting through pro-PLA policy and robust enforcement of prevailing wage and safety rules. Budget increases should go to oversight, fraud prevention, and the Office of Advocacy, not to a freeze that shuts down program evaluation. SBIC reform should be coupled with requirements that recipient firms maintain domestic production, pay living wages, and respect collective bargaining.
The humanitarian alternative
Condition all SBA capital-access programs—SBIC loans, 7(a), 504—on verifiable labor and environmental standards via a 'Fair Trade Lending' label. Require annual supply-chain transparency reports from borrowers (publicly posted) disclosing forced-labor risks, wage theft, and pollution compliance. Align SBIC reform with the net-zero manufacturing act proposed in the Climate-Smart SBA bill (not yet reintroduced). Fund a new Ombuds for Worker Rights within SBA’s Office of Advocacy, using RRM-style facility-level penalties for noncompliance.
Rollback path — how this gets undone
This action has already been implemented. These are the concrete levers that could reverse it.
- Repeal the Fair and Open Competition Act (H.R. 1552) if enacted If FOCA becomes law, the next Congress would need to pass a standalone bill (or attach a repeal rider to an omnibus) that restores the executive branch’s authority to require PLAs via executive order, modeled on Biden EO 14063.
- Reverse the SBA March 2025 reorganization directive The incoming director of OMB (or a future SBA Administrator) should rescind the March 21, 2025 agency-wide reorganization memo, restoring full programmatic allocations for 504/7(a) green loans and reinstating the Climate Smart Facility pilot.
Reversing it is step one. The forward agenda — what we build so it can’t recur — is in Answers to this entry →
Grounded in
- Small Business Size Standards: Monetary-Based Industry Size Standards
- Small Business Administration Announces Agency-Wide Reorganization
- Fair and Open Competition Act (H.R. 1552) — EPI Policy Watch
- Higgins Introduces Legislation Strengthening Right-To-Work Protections
- Small Business Investment Company Investment Diversification and Growth (2022)
- Small Business Administration: A Primer on Programs and Funding (CRS)
Original source — excerpted
project2025 Project 2025 ch. 26: Trade (pp 790-792)"— 757 — Small Business Administration largely duplicates private-sector venture capital to the extent that the sector receiving much of its support is software and information technology, which already receive the lion’s share of venture capital investment.65 In addition, Congress should reform the SBIC program to make its financing more favorable to capital-intense investments and small manufacturers. The Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act, introduced in 2020, 66 and American Innovation and Manufacturing Act, introduced in 2021, 67 would allow SBIC to offer longer-term financing to manufacturers and make the program more fiscally sustainable. Small-Business Size Standard Modernization. Many small-business pro- grams both inside and outside the SBA use the SBA’s definition of “small business.” Under the Small Business Act, the SBA is tasked with defining what counts as a small business and ensuring that the definition varies from industry to industry to reflect differences in regular size by industry. However, the SBA’s small-business size standards reflect a one-size-fits-all approach under which all businesses within its siz…"