Small Business Contracting in the Federal Marketplace: Navigating Opportunities and Challenges in 2025

Introduction

As we progress through 2025, the federal government's approach to small business contracting is undergoing significant changes under President Donald Trump's administration. These shifts present both opportunities and challenges for small business owners and entrepreneurs aiming to engage in federal contracting. Understanding the evolving landscape, associated hurdles, and effective strategies is crucial for success in this sector.

The Federal Government’s Commitment to Small Business Contracting

Under the previous Biden-Harris Administration, small businesses saw record-high levels of federal contracting awards. In Fiscal Year (FY) 2024, small businesses received over $183 billion in prime contracts, accounting for 28.8% of all federal contracting dollars—a notable increase from the previous year. This marked the fourth consecutive year of growth in this domain.

Additionally, Small Disadvantaged Businesses (SDBs) received a record-breaking $78.1 billion in FY 2024, surpassing prior achievements. This aligned with the administration’s goal of allocating 15% of federal contracting dollars to SDBs by FY 2025. The government also expanded resources such as MySBA Certifications and the GovCon Match tool to help small businesses navigate the procurement process.

Anticipated Shifts Under the New Administration

With President Trump's return to office in 2025, several policy changes are expected to impact small businesses:

• Tax Policy Reforms: The administration has renewed efforts to close the carried interest tax loophole, which currently allows private equity and hedge fund managers to pay a lower capital gains tax rate on a portion of their income. Eliminating this loophole could generate an estimated $14 billion in tax revenue over a decade. While this move aims to increase tax fairness, investment groups express concerns that it might stifle high-risk investments in innovative startups, potentially affecting small businesses seeking venture capital. (Reuters)

• Regulatory Adjustments: The administration is focusing on reducing federal government size and spending. Efforts to cut federal jobs are significantly impacting regions like Virginia, which has a large population of federal employees and contractors. These workforce reductions could lead to decreased demand for certain contracted services, affecting small businesses dependent on federal contracts. (AP News)

• Environmental Policy Changes: Significant rollbacks on climate and environmental regulations are being implemented to reduce compliance costs and promote business growth. While this deregulatory approach is designed to support American entrepreneurship and innovation, it creates uncertainty for businesses relying on stable policies. Corporations have expressed concerns over the rapid regulatory shifts' financial risks, highlighting the need for consistent regulation. (Time)

Challenges in the Federal Contracting Landscape

Despite previous growth, the federal marketplace faces ongoing challenges:

• Declining Small Business Participation: While federal spending on small business contracts has grown, the number of small businesses participating in federal contracting has declined by approximately 40% since 2010. Even more concerning is the 60% drop in new or recent entrants into the federal marketplace over the same period.

• Complex Regulatory Requirements: Navigating the intricate web of federal regulations remains daunting for small businesses, often deterring them from pursuing federal contracts.

• Intense Competition: The competitive nature of federal contracting, especially against larger, more established firms, continues to be discouraging for small enterprises.

• Resource Constraints: Many small businesses lack the necessary resources, such as time, capital, or expertise, to effectively compete for and manage federal contracts.

Strategies for Small Businesses to Succeed in Federal Contracting

To overcome these challenges and capitalize on available opportunities, small businesses should consider the following strategies:

1. Obtain Relevant Certifications: Programs like the 8(a) Business Development Program, Women-Owned Small Business (WOSB) Program, and Service-Disabled Veteran-Owned Small Business (SDVOSB) Program offer avenues for set-aside contracts.

2. Leverage New Online Tools: Utilizing tools that assist small businesses in identifying federal agencies interested in their products or services can enhance a business’s ability to find and secure contracting opportunities.

3. Engage in Networking and Outreach: Building relationships with procurement officers, attending industry events, and participating in workshops can increase visibility and open doors to potential contracts.

4. Stay Informed and Compliant: Understanding the Federal Acquisition Regulation (FAR) and keeping abreast of any changes is crucial.

5. Consider Subcontracting: Partnering with larger firms as a subcontractor can provide valuable experience and insights into the federal contracting process.

GoVets’ Perspective: A Small Business Supporting Other Small Businesses

At GoVets, we understand firsthand the challenges and opportunities that small businesses face in federal contracting. As a Service-Disabled Veteran-Owned Small Business (SDVOSB), we’ve navigated the same regulatory hurdles, procurement complexities, and competitive pressures that many entrepreneurs encounter in this space.

We recognize that past successes do not guarantee future opportunities. The evolving policies of the new administration, combined with shifts in federal spending priorities, mean small businesses must remain adaptable and proactive in securing government contracts.

Conclusion

The federal contracting landscape in 2025 presents both opportunities and challenges for small businesses. While the Biden administration increased small business participation in federal contracts, the new Trump administration is realigning priorities with a focus on deregulation and reduced federal spending.

To succeed, small businesses must stay informed, leverage certifications, adopt new technologies, and build strategic partnerships. By doing so, they can navigate uncertainties and position themselves for long-term success in federal contracting.

References

1. “Trump’s Carried Interest Tax Plan Sparks Controversy Among Investors” – Reuters, February 7, 2025. Link
2. “Trump’s Federal Job Cuts Could Hit Virginia Hard” – AP News, February 6, 2025. Link
3. “Businesses Face Uncertainty as Trump Reverses Climate Policies” – Time, February 5, 2025. Link
4. “2025 Government Contracting Trends: What Small Businesses Need to Know” – FedBiz Access, January 2025. Link
5. “Small Business Weekly Forecast: Optimism Rises Despite Inflation Pressures” – U.S. Chamber of Commerce, January 2025. Link
6. “Agencies Spending Record Amounts on Small Business Contracts Amid Shrinking Pool of Firms” – Federal News Network, May 23, 2023. Link