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What Counts as a Small Business?

A small firm may be described as a company with a maximum of 250 workers or a maximum of 1,500 employees, depending on your sector. They’re small, privately held companies, partnerships, or sole proprietorships with lower revenue than bigger firms.

Small business is significant for the US economy, with 28 million small companies accounting for 99.7% of all firms in the country.

What do these tiny companies look like, though?

That question may be answered with the assistance of the government, particularly the Small Business Administration.

Here’s how the Small Business Administration defines small business and why these criteria were created in the first place.

What Constitutes a Small Business, as Defined in This Article?

Small Business Definition by Industry

What Is the Importance of the SBA’s Size Definition?

What is the size of your business?

What Does It Mean to Own a Small Business?

According to the Small Company Administration, a small business has less than 1,500 workers and average annual revenues of less than $38.5 million.

The Small Company Administration (SBA) establishes numerical criteria, or “size standards,” for every small business sector in the US, based on the number of workers and average annual revenues. These sizing guidelines, however, aren’t one-size-fits-all. Instead, the definition of a small company is determined by the industry in which it operates.

Let’s break down the definition of small company, industry by industry, since there isn’t a single solution.

Industry-by-industry definitions of small business

The Small Business Administration (SBA) maintains a comprehensive table of guidelines that breaks down the allowable sizes of small companies by industry (and sub-industries, even).

However, here’s a quick rundown of how bigger businesses define size:

Agriculture: Maximum average revenues of $750,000.

Mining: Depending on the subsector of mining, there are a maximum of 250 to 1,500 workers.

Utilities: Maximum employee numbers vary from 250 (for renewable electric power generating subsectors) to 1,000 (for all other subsectors) (for electric power and natural gas distribution businesses).

Construction: Maximum average revenues of $36.5 million.

The maximum number of workers in manufacturing varies from 500 to 1,500. (with approximately 27 percent of all manufacturing businesses having a maximum employee cap at 500 employees).

The maximum number of workers in the wholesale trade varies from 100 to 250.

Retail Trade: Size requirements are established at $7.5 million in average yearly revenues for one-third of all retail trade sub-industries. Other sectors have workforce limits of 100 to 500.

The maximum number of workers in transportation and warehousing varies from 500 to 1,500. The average yearly revenues of certain transportation and warehousing sub-industries vary from $7.5 million to $37.5 million.

Information: Depending on the sub-industry, the maximum number of workers varies from 500 to 1,500. This industry’s maximum average yearly revenues vary from $7.5 million to $38.5 million.

Finance and insurance: A limit of 1,500 workers (for direct property and casualty insurance carriers) and $32.5 million to $38.5 million in average yearly revenues.

Real estate, rental, and leasing: Average yearly revenues range from $7.5 million to $32.5 million.

Professional, Scientific, and Technical Services: Average annual revenues of $7.5 million to $20.5 million, or a workforce of 1,000 to 1,500 people.

Health Care and Social Assistance: Average yearly revenues range from $7.5 million to $38.5 million.

There are many more industries for which the SBA has precise size requirements, so check out their table of size standards to determine whether your company qualifies as a small business.

When you look at the SBA’s various size criteria, it’s easy to believe that all small companies in the United States are really very large.

To put these size requirements in perspective, small companies with less than 20 workers account for 89.6% of all businesses in the United States.

 [1] Furthermore, 23 million companies in the United States have no workers at all, implying that the company is run entirely by the owner.

In addition to actual statistics, the SBA considers the following factors when determining whether a firm qualifies as a “small business”:

Whether or whether the business is based in the United States

Whether or whether it is mainly focused on the United States

Whether it’s a for-profit or non-profit enterprise,

Whether it’s a small business or a large corporation,

Whether it’s a small business or a bigger industry

What Is the Importance of the SBA’s Size Definition?

Why does the Small Business Administration (SBA) impose a limit on small companies in the United States?

To protect and promote small companies in the broader economy, the SBA has established a standard definition for an official small business.

The definition of a small company (modified for each sector) is a critical metric for assisting smaller businesses in competing with larger, market-share holders in their industry.

Its goal is to assist small companies in obtaining government business loans (also known as SBA loans), winning government contracts, and gaining access to general tools that may help them compete against bigger organizations.

When a small business owner operating a soda distribution firm with just 30 workers wants to get a small business loan or work out a contract with the local or state government, they have the tools and resources they need.

However, some companies with 1,500 workers are nonetheless deemed “small” and have the same safeguards in place as a 10-person small company in their industry—suggesting that the size criterion may not always help the country’s smallest enterprises.

What is the size of your business?

If you consider yourself a small company owner, you almost certainly do.

If your average yearly revenues are on the verge of tipping you over the brink, assess your company’s size before applying for government financing or government contracts.

This may be as simple as looking up your company’s size on the SBA’s table of size requirements and adding up the number of individuals who work for you, or you may need to perform a fast calculation to figure out your yearly revenues.

In any case, it’s better to be informed before applying for business financing!