How small is a small business?

No, that is not a Zen riddle. It's a question being asked by the federal government, a multibillion-dollar question whose answer could mean life or death for some small businesses that depend on government contracts.

The U.S. Small Business Administration is holding hearings around the country this month, including one in San Francisco on Tuesday, on how it should define a small business.

The agency's size standards determine eligibility for billions of dollars' worth of government contracts that have been earmarked for small business, as well as eligibility for government-backed loans. The size standards have traditionally varied by industry, with 37 different standards that cover more than 1,000 different industries, from soybean farming to frozen-cake manufacturing.

Most of the current standards are based on companies' revenues, but some are based on the size of their workforce. For instance, to be considered a small business:

-- General construction contractors must have average annual revenue of $28.5 million or less.

-- Most retailers must have revenue of $6 million or less.

-- Computer programming firms must have revenue of $21 million or less.

-- New car dealers must have revenue of $24.5 million or less, while used-car dealers must have revenue of $19.5 million or less.

-- Most manufacturers must have 500 or fewer employees, although some kinds can have up to 1,500 employees.

The agency proposed a new set of size standards in March 2004 that would have reduced the number of categories to 10 and switched to a workforce-based definition of 500 employees or fewer for most industries.

Agency officials said they were trying to simplify the size standards and make them more useful for today's era of larger, long-term contracts.

But the proposal sparked a storm of criticism from small business groups -- some of it contradictory.

Lloyd Chapman, founder of the American Small Business League, praised the idea of moving to a workforce-based standard, but said the cutoff should be at 100 employees rather than 500.

"As I travel around the country and talk to people, I ask them what they think a small business is," Chapman said.

"I've never had a normal person tell me a small business is more than 50 employees."

On the other hand, the National Small Business Association said the agency should stick with the revenue-based criteria.

Switching to an employee tally would create more paperwork for small businesses, the association said. And because the new proposal would have counted all employees regardless of hours worked, the association added, it might eliminate some small firms with large part-time workforces.

"Many small businesses, particularly those in the services/retail industries, would be harmed due to the large staffs of seasonal and part-time employees," it wrote in a letter.

Faced with the controversy, the agency withdrew its proposal in July.

In December, it went back to the drawing board and started seeking public comment on how to improve the size standard rules.

As part of that, the agency is holding hearings in 11 cities, including the San Francisco hearing Tuesday.