What Is A Small Business?

A small business is a privately owned company in the legal form of a corporation, partnership, or sole proprietorship. The SBA defines a small business as one that typically makes a maximum of $750,000 – $38.5 million in annual revenue and has less than 100 – 1,500 employees, depending on industry. A majority of businesses are small businesses.

How Business Sizes Are Measured

Generally, business sizes are determined based on the company’s industry, its average annual revenue, and the number of its employees. In the US, businesses are typically classified in one of two broad categories: a small business or a large enterprise. Micro-businesses and sole proprietorships fall under the small business category, while mid-sized businesses are considered a larger enterprise.

The Small Business Administration (SBA) has established a table of small business size standards to help business owners determine their business size. Size standards are usually stated in number of employees or average annual receipts. It indicates how large a business can grow to still be classified as a small business.

The SBA uses the North American Industry Classification System (NAICS) as the basis for its size standards. The NAICS classifies businesses depending on their economic sectors and industries. The following table shows the different industries and their corresponding annual receipts and/or number of employees required to be classified as a small business. Anything above the maximum limit of revenue and headcount is considered a large enterprise.

Size of a Small Business By Industry

To determine whether your company qualifies as a small business under SBA standards, you first need to identify your NAICS code and check the SBA’s corresponding table of small business size standards. To make it easier, you can also use the SBA size standard tool to check if your company is classified as a small business.

Types of Small Business Sizes

A company is typically considered a “small” business based on the industry size standards established by the SBA. However, within the small business category, companies can be further broken down into either a sole proprietorship or a micro-business. The difference between the two is largely based on headcount.

Sole Proprietorship

A sole proprietorship is the smallest form of business. It’s usually an unincorporated business owned and operated by one person. The sole owner is personally responsible for the business and all its liabilities. It can either operate under the name of its owner or under a chosen trade name, but the owner is still legally responsible.

Micro Business

A micro-business is any small business that runs extremely lean (by choice or necessity) and employs less than 6 people. They are also typically defined as businesses that need less than $35,000 in starting capital. A micro business is any small business with less than six W2 or 1099 employees, not including the business owners.

Unique Opportunities for Small Businesses

There are several opportunities available for small businesses. For instance, a small business can apply for SBA loans, which typically offer the best rates and terms for small business financing. In addition, there are certain government contracting programs available that specifically provide business opportunities for small businesses.

1. SBA Loans

SBA loans are only available to small businesses. SBA loans are one of the best ways to finance a small business because they typically offers flexible terms and lower interest rates. There are different types of SBA loans available, such as SBA 7(a), SBA 504, SBA Express, SBA Community Advantage and Microloans.

To qualify for an SBA loan, your company must meet the small business size standards as defined by the SBA. While there are other qualification requirements such as personal credit score and annual revenue, your business size is the first thing that’s considered before you can even apply.

2. Government Contracting

There are different types of government contracting programs specifically intended for small business. For example, small business set asides are open to all small businesses and those with certain designations (like minority business owners). Small business set asides are government contract opportunities “set-aside” for small businesses that have the ability to perform the services or provide the products required for a government contract.

Key Small Business Statistics

According to 2015 data from census.gov, approximately 28.8 million small businesses are in the United States – about 99.7% of all domestic businesses. 4.18 million of those small businesses are micro-businesses. This is compared to just 12.5K mid-sized businesses.

In 2015, 48% of the US private workforce – a total of 56.8 million people – were small business employees, creating a gain of 1.1 million jobs that year. Small businesses also account for nearly 98% of all US exports.

Bottom Line

There are many different types of small business sizes. However, the largest majority of small businesses in the US are small businesses, varying in size from sole proprietorships to micro-businesses and beyond. Small businesses are an important part of the global economy and are given unique opportunities like SBA loans and government contracts.