How SBA picks your primary industry

The rule is two sentences long

Section 121.107 asks how SBA determines a concern's primary industry and answers in two sentences. In determining the primary industry in which a concern, or a concern combined with its affiliates, is engaged, SBA considers the distribution of receipts, employees and costs of doing business among the different industries in which business operations occurred for the most recently completed fiscal year. SBA may also consider other factors, such as the distribution of patents, contract awards and assets. Two points follow. The look-back is the single most recently completed fiscal year, not the five-year receipts average used for size. And the test can be applied to the concern combined with its affiliates, so an affiliate's lines of business can change the answer. The text sets no percentage threshold such as "the industry with more than 50 percent wins."

Why it matters

The primary industry selects the size standard that applies in places where the standard is tied to the firm rather than to a particular solicitation. The clearest one is the 8(a) Business Development program: under 121.404(d), an applicant must qualify as small under the size standard corresponding to its primary industry classification. For the other certification programs (HUBZone, women-owned, service-disabled veteran-owned), the test is any NAICS code listed in the SAM profile. For loans, 121.301 ties the size test to the industry in which the applicant is primarily engaged, and for a concern with affiliates it uses the higher of the standards for the applicant's primary industry alone or the applicant and affiliates combined. For a particular federal contract, the rule is different, as the next section explains.

Contract NAICS codes come from the contracting officer

For a solicitation, section 121.402(b) has the contracting officer designate the NAICS code and size standard, selecting the single code that best describes the principal purpose of the product or service being acquired. Primary consideration goes to the industry descriptions in the NAICS Manual, the solicitation's product or service description, the relative value and importance of the components of the end item, and the function of the goods or services. A procurement is generally classified by the component that accounts for the greatest percentage of contract value. Supplies are classified under a manufacturing or supply code, not wholesale or retail trade, and a firm furnishing a product it did not make is a nonmanufacturer, deemed small at 500 or fewer employees if it meets the requirements of 121.406(b). Your own primary industry does not choose the code for a contract. The designation is final unless timely appealed to the Office of Hearings and Appeals, and adversely affected parties may appeal under part 134.

Worked example

A firm had $6 million of receipts from software development, $3 million from IT consulting and $1 million from equipment resale last fiscal year. The receipts distribution is 60 percent, 30 percent and 10 percent, which points to software development. SBA would also look at where the employees work and how costs are spread; if most employees and most costs sit with the consulting line, the answer is not automatic. The tool above computes the receipts shares only, since the other measures are not numbers you can enter without definitions the rule does not provide.

Using the answer

Once you know your likely primary industry, look up the standard in the table in 121.201, which is large and changes, or through the size standards lookup, and find the code with the NAICS code lookup. Then test your size by averaging receipts or employees, including affiliates (see affiliation). Choose SAM codes truthfully; SAM is a certification (see self-certification).

What the rule does not say

Section 121.107 does not weight the factors, does not say how to treat a tie, and does not say how to measure costs of doing business or employees by industry. It also does not give you the right to pick the code you prefer; SBA decides, and a business that lists many codes in SAM is treated differently in the certification programs than in the 8(a) program. If the answer is close, document how you computed it.

Sources

• 13 CFR 121.107 (eCFR, issue date 2026-10-29): How does SBA determine a concern's primary industry? Read November 2, 2026.
• 13 CFR 121.402 (eCFR, issue date 2026-10-29): Size standards applicable to Federal Government Contracting programs. Read November 2, 2026.
• 13 CFR 121.404 (eCFR, issue date 2026-10-29): When is the size status of a business concern determined? Read November 2, 2026.
• 13 CFR 121.301 (eCFR, issue date 2026-10-29): Size standards and affiliation principles for financial assistance programs. Read November 2, 2026.

Edition read: 13 CFR part 121 as published in the eCFR, current to the issue date October 29, 2026 (read November 2, 2026). Regulations change; check the current eCFR text and the solicitation or loan program rules that govern your situation. This page explains the regulation in plain language and does not replace it. Review needed: business-law YMYL page, not yet reviewed by a qualified professional.