Soaring fuel oil costs added one more worry to heating oil dealers’ growing list—the danger of losing their small business status. The rule under the North American Industry Classification System (NAICS) had based the small business size for fuel oil dealers on annual average receipts or total income of a given business. However, the U.S. Small Business Administration has recently decided to change this standard to 50 employees or less for the heating oil dealers industry.
After the New England Fuel Institute submitted comments to the proposed rule as well as urged the regulation to be pushed through in light of the anticipated tumultuous winter heating season, the final rulemaking was published on July 21, 2008.
Some small fuel oil dealers were starting to exceed their existing size standards due to rising crude oil prices. Although they were continuing to deliver the same amount of fuel products, the increasing oil costs were causing these dealers to hike up prices for their customers, which drove up their sales receipts. Under the old version of the rule, heating oil dealers were considered small businesses only if their receipts were $11.5 million or less. Propane dealers had to stay under the $6.6 million threshold.
NEFI asked for the small business determination to be set by a given company’s number of employees instead of its sales total, and the SBA agreed.
“We recognize that these are challenging economic times for small businesses, so we made these changes to the size standards to help small businesses reduce the impact of volatility in heating oil prices and ensure their continued eligibility to receive help from SBA’s financial and contracting assistance programs,” said Jovita Carranza, SBA acting administrator.
According to the U.S. Energy Information Administration, heating oil and propane average weekly prices have increased by 95.9 percent and 74.5 percent and have fluctuated by more than 35 percent between 2002 and 2007.
The lobbying effort by NEFI began several years ago when the Department of Transportation announced it was going to increase the already costly HAZMAT fees for large businesses, according to Jim Collora, vice president of NEFI and director of the NEFI Legislative & Regulatory Action Center. Years ago, this DOT registration requirement was only for companies who transported hazardous materials across state lines. “After 9-11, anyone who transports hazardous materials must register,” Collora said. Large businesses now have to pay $725 dollars more than small businesses in HAZMAT registration fees, and that could rise to thousands more in the coming year.
“The threshold becomes important when other agencies write rules,” said Dan Gilligan, director of Petroleum Marketers Association of America, such as proposing to more than double the HAZMAT fees for large fuel oil dealers. Gilligan said these organizations have to analyze the impact on small businesses, but under the current small business standard for the oil heating industry the PMAA feared many small fuel oil dealers would be overlooked.
“Our message to the SBA (was), ‘Your classification system is out of date because of the increase in product costs,’” said Collora.
NEFI and the Petroleum Marketers Association of America both had recommended that the small business size threshold should include 100-employee fuel dealers to ensure all small dealers were covered.
“We have some family-run businesses that are small dealers, but, to run a heating oil company these days, need 100 employees,” Collora said.
However, the SBA found that more than 90 percent of fuel oil dealers have under 50 employees and contribute 53 percent of overall industry sales. Therefore, the organization concluded that a 50-employee size standard for the oil heating industry is viable.
Some fuel oil dealers can still qualify as small businesses if they structure their employees a certain way, according to Collora. NEFI will be putting out an instructional piece on how dealers can apply for SBA loans and benefits.
The SBA is planning an overhaul of all its size standards; however, the NEFI and PMAA urged the SBA to expedite the rule revision process since the upcoming winter could be difficult on the oil heating industry, with signs that many dealers’ credit lenders are drying up.
“With the increasing cost of product, businesses need to have access to capital as soon as possible,” Collora said. The small business status is crucial for many heating oil and propane dealers because lenders and state and local governments use the federal guidelines to determine the cost of various fees and eligibility for certain government contracts. This rule revision ensures these dealers will continue to be able to have access to SBA Small Business 7(a) loans, Economic Impact Disasters loans and additional private credit from local lenders.
Moreover, small businesses are eligible for the reduced $275 annual U.S. Department of Transportation HAZMAT fee and registration. The new SBA rule presents a significant amount of savings since this same fee could cost large businesses in 2009 $2,500 per year.
The new size threshold for the industry went into effect August 22, 2008.