Small Business Impacts From Trump 2.0 and DOGE Initiatives

The Small Business Administration (SBA)’s latest changes will significantly impact small business participation in the federal marketplace in positive and negative ways.

SBA announced this week plans to reduce staffing by 43% in compliance with executive order (EO) 14210 Implementing the President’s Department of Government Efficiency Workforce Optimization Initiative. This downsizing eliminates 2,700 of about 6,500 positions via “voluntary resignations,” RIFs, and expiration of COVID-era and other Biden-term appointments.

According to the announcement, the SBA will eliminate “non-essential (non-mission-critical) roles, and returning to pre-pandemic staffing levels” by restoring the organization to that of the first Trump administration. SBA Administrator Kelly Loeffler said the restructure will not apply to “core” services such as loan guarantees, disaster assistance programs, or field and veteran operations. The Office of Veterans Business Development and the Office of Manufacturing and Trade will remain intact, and the agency will assume oversight of the Federal Student Aid Office from the Department of Education.

In a separate announcement the agency released plans to reinstate lender fees to small business loans. Effective March 27, SBA will add the Lender’s Annual Service Fee and the SBA Guaranty Fee (aka Upfront Fee) on Core 7(a) loans. These loans provide up to $5M for small businesses with “special requirements” to provide working capital, refinance business debt and finance operations. Reinstated fees will apply to FY 2025 loans processed after March 27, 2025, and are not retroactive for previous loans.

These actions, combined with the previous EOs and DOGE activities, leave small companies feeling uncertainty of the new business model.

Small Business Landscape

According to the SBA Small business participation in federal contracting has been declining since 2016. During the first three years of Trump 1.0, the number of small businesses in federal contracting dropped 16%. The reduction during Biden’s first three years was 6%. (Procurement scorecards are not yet available for FY 2024).

 

Nevertheless, small business utilization retained a steady climb through FY 2023, followed by an 11% dip in FY 2024. Under the Biden Administration the emphasis on small business opportunity creation resulted in growth across all socioeconomic categories and an expansion in pro-small business procurement policies.

 

Now, at the FY 2025 mid-point, small business spending is down significantly in part attributable to the Trump/DOGE initiatives. This does not include Defense spending due to the inherent reporting delays. During the past six months, although small businesses held 84% of active contracts, SB spending was less than half of all reported obligations.

 

In addition to the agency restructuring, small businesses are experience more contract terminations across the board. To date, small businesses held 60% of the 9,595 terminated contracts as of April 3.

 

While small business impacts from Trump/DOGE and agency activities have driven concern and uncertainty, the glass is not half empty. Short- and long-term possibilities remain.

The Good News:

• Fewer contracts and contractors narrow the playing field for small businesses competing for remaining opportunities and creates options for teaming, mentoring and other strategic alliances that can strengthen small business positions and alleviate financial burdens.
• Contract cancellations and consolidations could preempt funding redistributions and inform FY 2026 budgets driving new opportunities especially in the R&D, energy and IT sectors.
• Proposed FAR changes to increase micro-purchase thresholds, SAP threshold and 8(a) Sole Source Justifications, if implemented, can increase contract distribution among the socio-economic categories.
• FY 2022 NDAA changes could improve small business understanding of the regulation and require DoD development and adoption of a Small Business Bill of Rights.
• Tariffs on goods from imported good and the Made in America Manufacturing Initiative could drive boost domestic manufacturing.
• Fewer regulatory burdens may reduce compliance costs, provide operational flexibility (i.e., energy/health care) and administrative workloads.
• Tax Code Revisions and tax cuts could provide reinvestment opportunities for small businesses toward product development and internal R&D to bring innovative ideas to market.
• Small business can expedite maturity and enhance past performance portfolios by leveraging large business knowledge, expertise and investments through mentoring and collaborative alliances.
• Subcontracting opportunities may increase, especially under the large Department of Energy Management and Operation contracts.
• Decentralized disaster related services to field offices may reduce communication and oversight barriers, provide lease and administrative contracting requirements and narrow the competitive field within geographic locations.
• If implemented, the Rule of Two may increase SB participation on multiple award contracts (MACs), potentially offsetting from losses from GWAC consolidations.

The Not-so-Good News:

• Contract consolidations, especially under GSAs Category Management and MAS downsizing may significantly reduce the small business footprint.
• Contracting freezes are forcing small firms out of federal contracting and out of business. Small business exiting the market is outpacing new entrants.
• Purchase card freezes and delayed reimbursement creates financial hardships impeding firms’ ability to meet obligations potentially leading to non-compliance in financial capacities, reductions in force and failure to maintain contract performance.
• Reinstating 7(a) loan fees increases financial liabilities and risks.
• Increased reporting/compliance requirements add burdens small business employees already wearing multiple hats.
• Upcoming and unknown changes to FAR (FAR 2.0) and revised NDAA could drive changes to SBA program structure and programs (i.e., SBIR/STTR).
• Tariffs on imported goods limit supply chain sources.
• DEI initiatives and immigration policies may drive labor shortages, especially for firms dependent upon migrant labor.

Key Takeaways

Navigating the sea of ongoing changes may seem overwhelming, but there are ample reasons for optimism. Small businesses can still thrive in the new federal contracting world. Fundamental business processes, maintaining performance, compliance and consistency coupled with adaptability can strengthen chances for success.

Established customer satisfaction techniques still apply. Pinpoint your customer pain points and offer solutions to address and alleviate those needs. Assess your portfolio for offering that no longer align with the government’s strategy and identify internal processes and costs for efficiencies. Explore new business models and offerings correlating to restructured requirements to bolster your marketability especially to new agencies and acquisition officials. Consider strategic collaborative partnerships to expedite bringing to market previously shelved innovations. And finally, take advantage of informative events like the upcoming SBA National Small Business Week Summit to stay informed on rules, regulations and upcoming changes.

For more on the movements of the new administration, refer to GovWin’s First 100 Days Resource Center.