What Exactly is a Small Business?

The term “small business” appears frequently, and often conjures up images of a “mom-and-pop” establishment like a neighborhood diner or restaurant, independent retail operation, professional office, or start-up manufacturing company. Small businesses can be organized as a sole proprietorship, partnership, corporation, or any other legal form.  According to the United States Census Bureau, the majority of U.S. Businesses have fewer than five employees, are usually created as small start-ups, are a vital segment of the national and local economies, and are a primary driver of U.S. financial growth.

There are several factors used to define what is a small business including the number of employees, sales revenue, size of individual location, or the size of the company that owns the locations. The definition of what is “small” is defined by the U.S. Small Business Administration and varies by industry.

For most industries, the U.S. Small Business Administration (SBA) defines a small business concern based on the company type, average number of employees over the past 12 months, or average annual receipts over time. Other factors SBA considers when establishing size standards include the average degree of competition in the industry, average firm size, start-up costs and entry barriers, and distribution of firms by size.

SBA maintains a table of size standards to help small businesses assess their business size which includes definitions for North American Industry Classification System (NAICS) codes, which vary by industry, revenue, and employment. NAICS codes divide businesses into industries and subclasses and depending upon the industry, there may be multiple levels of subclasses.

Why Business Size Matters

Fitting the definition of a small business can be important because certain government programs such as SBA loan programs, government contract opportunities, and research grants are reserved for small businesses. To qualify, businesses must satisfy SBA’s definition of a small business concern and the size standards for small business.

The size standard stated in number of employees or annual revenue and represents the largest size a business may be to remain classified as a small business for SBA and federal contracting programs. Under the SBA definition of small business, firm revenue can range from $1 million to over $40 million, and employment can range from 100 to over 1,500 employees, depending upon industry. The definition includes subsidiaries and affiliates in the maximum size.

Additional SBA criteria for a small business includes being organized for profit; having a place of business with the United States; operating primarily with the U.S. or contributing to the U.S. economy through tax payments or use of American products, materials or labor; and independently owned and operated and not dominant in its field on a national basis.

For more information about small business definitions, classifications, launching and growing your business, SBA programs, and more, visit the U.S. Small Business Administration website at www.sba.gov.

For more information about SBA loans including specific eligibility and application requirements, visit https://www.sba.gov/funding-programs/loans.

To learn more about business loans provided by Enterprise Bank, including SBA loans, visit https://www.enterprisebanking.com/business/loans/commercial-loans or contact us at 877-671-2265.

*Enterprise Bank is approved to offer SBA loan products under the SBA 7(a) and 504 loan programs as an authorized lender.