{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-are-the-financial-criteria-for-a-business-to-qualify-as-small-under-the-alternative-s","api_url":"https://dealroom.so/api/public/questions/what-are-the-financial-criteria-for-a-business-to-qualify-as-small-under-the-alternative-s","question":"What are the financial criteria for a business to qualify as 'small' under the alternative size standard?","topic":"Affiliation & Size","audience":"lender","bot_mode":"lender","short_answer":"Under the alternative size standard, a business qualifies as 'small' if its tangible net worth is not more than $15 million AND its average net income after federal income taxes (excluding carry-over losses) for the two preceding fiscal years is not more than $5 million.","rule":"The SBA's alternative size standard provides an additional pathway for businesses to qualify as 'small' if they do not meet the industry-specific NAICS code size standard. This standard focuses on financial metrics rather than employee count or revenue, allowing some businesses with higher revenue but limited net worth or profitability to be eligible for SBA programs.","example":"A construction company has annual revenue of $40 million, exceeding its NAICS code size standard of $38 million. However, its tangible net worth is $10 million (below $15M) and its average net income for the past two years is $3 million (below $5M). This company qualifies as 'small' under the alternative size standard.","what_lenders_check":"Lenders must accurately calculate tangible net worth and average net income, including ensuring proper exclusions for carry-over losses. Miscalculating these figures can lead to an ineligible borrower, which would jeopardize the SBA guaranty.","required_facts":["Tangible net worth","Net income average","Two fiscal years","Maximum limits","Excluding losses"],"source_families":["13 CFR Part 121 - Small Business Size Regulations","SBA Table of Size Standards","SOP 50 10 - Lender and Development Company Loan Programs"],"official_sources":[{"title":"13 CFR Part 121 - Small Business Size Regulations","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-121"},{"title":"SBA Table of Size Standards","url":"https://www.sba.gov/document/support-table-size-standards"},{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"}],"related_questions":[{"question":"How does the SBA define 'affiliation' when checking business size?","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-define-affiliation-when-checking-business-size"},{"question":"When does common management or shared facilities trigger affiliation for SBA 7(a) size determination?","url":"https://dealroom.so/for-lenders/questions/when-does-common-management-or-shared-facilities-trigger-affiliation-for-sba-7-a-size-dete"},{"question":"What factors are considered when evaluating affiliation between businesses that share common management?","url":"https://dealroom.so/for-lenders/questions/what-factors-are-considered-when-evaluating-affiliation-between-businesses-that-share-comm"},{"question":"Does an unfunded stock option agreement trigger affiliation for SBA 7(a) size standard calculations?","url":"https://dealroom.so/for-lenders/questions/does-an-unfunded-stock-option-agreement-trigger-affiliation-for-sba-7-a-size-standard-calc"},{"question":"What criteria does the SBA use to determine common management that triggers affiliation for size standard purposes?","url":"https://dealroom.so/for-lenders/questions/what-criteria-does-the-sba-use-to-determine-common-management-that-triggers-affiliation-fo"},{"question":"How does a lender determine affiliation when a prior owner retains less than 20% equity and a consulting contract?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-determine-affiliation-when-a-prior-owner-retains-less-than-20-equity-and"}],"related_terms":[{"term":"Small Business Size Standards","url":"https://dealroom.so/glossary/small-business-size-standards"},{"term":"Small business size standard","url":"https://dealroom.so/glossary/small-business-size-standard"},{"term":"For-profit small business","url":"https://dealroom.so/glossary/for-profit-small-business"},{"term":"Alternative size standard","url":"https://dealroom.so/glossary/alternative-size-standard"},{"term":"Small business","url":"https://dealroom.so/glossary/small-business"},{"term":"7(a) Small Loan","url":"https://dealroom.so/glossary/7-a-small-loan"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/what-are-the-financial-criteria-for-a-business-to-qualify-as-small-under-the-alternative-s","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}