What is a small business?
When you think of businesses, it’s easy to imagine big companies and large corporations. But according to a 2018 study done by the Small Business Administration (SBA), 99.9% of businesses in the United States are classified as a small business and employ roughly 48% of all American workers. Small businesses are prevalent across a wide array of different industries, each measured under different requirements. Determining what exactly a small business is may not be cut and dry, but these considerations can be helpful to get a better understanding of how they are defined:
Small business standards
Whether or not your business classifies as a small business falls within guidelines set by the Small Business Administration (SBA) and are generally dependent upon the number of employees who work there and revenue earned within a year based on your industry. While it varies across the board, you may qualify if you:
- Employ below or between 100 – 1,500 employees
- Earn below or between $750,000 – $35,000,000 in sales in a fiscal year
Other requirements include:
- Your business is owned and operated within the United States
- Your business must be for-profit and not owned by a parent corporation
- You must not hold major market share in your industry
The SBA defines the maximum amount of employees and revenue based on your industry, which they set through the North American Industry Classification System (NAICS). These codes break out specific industries even further into sub-classifications that will apply to how your business will qualify. You can see the standards and find your NAICS code in this PDF provided by the SBA. The most recent NAICS code update was in 2019.
While the SBA has its own set of standards for defining a small business, their method is not used across the board. For example, the Affordable Care Act (ACA) considers your business small if you have under 50 employees, meaning you would not be legally required to provide health insurance. The IRS on the other hand, goes off individual laws to define what a small business is.
Why is this definition important?
The guidelines for determining a small business are set forth by the SBA to help protect small businesses from larger businesses that may dominate the economy, and help them grow by offering programs and benefits for which they may not have the initial resources. By being classified as a small business, you have the opportunity to secure loans backed by the SBA, which often have lower interest rates and flexible repayment plans to help your business get started.
Small businesses may also be able to take advantage of tax breaks that are available strictly to small business owners based on certain criteria, like the Health Insurance Tax Credit that can help cover employee premium costs if your business has less than 25 employees.
Your small business may also be eligible for Small Business and Innovation Research (SBIR) research grants , giving your business the resources and opportunities to explore new ideas and technology for commercialization.
How to find out if you run a small business
As the number of employees you have or revenue you accrue will vary from year to year, you will want to frequently address the SBA’s table of small size business standards to ensure that you are well within the requirements of being a small business.
Small businesses play a crucial role in the economy and keep business moving forward towards innovation. The Nationwide Business Solutions Center offers small business resources and insights on how to grow your business and be set up for success.