The rules of engagement have changed for small businesses looking to set up a contract with the government. From January 2022, these rules will go into effect and change the landscape that businesses operate on dramatically. Let’s look at the act, its definition, purpose, and advantages and disadvantages. See what it means for the future of small businesses.
How to Define A Small Business?
The Small Business Runaway Extension Act was passed to determine who is eligible for contracting opportunities with the government. It also highlights those entitled to the incentives offered to small businesses over those who do not. It’s essential to make sure the contracted company is a small business.
The Small Business Runaway Extension Act
This Act requires the Small Business Administration (SBA) to use the gross receipts of the small business over the last five years. The period was previously three years when considering small businesses proposals for a government contract. This Act is in place to help small businesses bridge the gap between competing with other small businesses and larger companies in the market.
Businesses that operate on employee-based standards will have to submit 24 months of payroll details instead of the 12 months required before. The impetus behind the act was to allow small businesses room to grow, profit, and generate employment opportunities. The Runway Extension Act has come under fire for the space between its interpretation and implementation.
The Purpose of The Runway Extension Act
You have to register to do business with the federal government, do business with the government, and avail incentives. The act aimed to allow small businesses opportunities to grow their competitive edge. This will eventually let them go up against the titans of industry.
Unfortunately for businesses in limbo between small businesses and not, this regulation imposes challenges for their growth. With increasing uncertainty, there is concern over certifications, licensing, and loss of revenue streams, and hampered development opportunities.
The Advantages and Disadvantages of the Act
Some expanding businesses will benefit from this Act, including older receipts, which gives them grace room to operate as small businesses. However, some expanded companies will be forced to stay large despite being unsustainable.
It boils down to some backsliding businesses being penalized by the size limitations. Suppose a company is considered large by the Act’s metrics but cannot sustain itself. This could also potentially exclude them from the incentives available to small businesses, which could have helped tide them over.
Anticipating this, the SBA’s solution has allowed businesses to choose the standards to apply- three years or five years. However, the standards are only applicable till the deadline of Jan 6, 2022. This means that after January 2022, the five-year period is mandatory.
In-Review
The runway extension act is a positive change for government contractors. It’s a vision meant to offer start-ups and small businesses development opportunities. In the implementation, lawmakers must address the negative impacts of the act and work on mitigation strategies to smooth the way forward.
