The SBA’s size standards determine whether or not your business qualifies as small. Size standards vary by industry and are generally based on the number of employees or the number of annual receipts your business has.
If you’ve been thinking about starting your own small business, you’re not alone. In fact, there are nearly 30 million small businesses in operation in the U.S. today. But not all of these small businesses look, well, small.
When most think of a small business, they envision a local operation with a handful of employees. In reality, many small businesses have hundreds of employees—and their activities are far from localized.
So what is considered a small business, and why is that designation important? Keep reading to learn more.
How Small Businesses Are Classified
There are plenty of solopreneurs out there. While it may seem odd that such outfits share the same “small business” designation as larger entities, there’s a reason for it: Neither can compete with the resources or reach of major corporations.
With so much variance in what is and isn’t considered a “small business,” the distinction itself might not seem to matter. After all, the small business size standard allows some businesses to have up to 250 employees, while others can have 1,500. A business in one industry may be able to bring in average annual receipts of $38.5 million, while another can bring in just $750,000 before losing their “small business” title.
However, the variance is necessary. The changing qualifications for what defines a small business helps to make up for industry variations. For example, it’s unlikely that a small stationery store in a tiny Midwestern town is ever going to see the same profits as a small construction company in a large city.
Who Sets the Standard?
The U.S. Small Business Administration, or SBA, is in charge of setting the definition for what defines a small business. However, the SBA definition of “small business” is far from a one-size-fits-all answer. Rather than creating a single, overarching definition, they’ve chosen to set guidelines for businesses in different industries.
SBA Small Business Definition By Industry
The SBA small business definition sets the number of employees and average annual receipts a business can have for hundreds of industries.
You can find a breakdown of the SBA’s guidelines for all types of businesses in this table.
Some of the most common industries and their guidelines are as follows:
- Agriculture: Businesses may receive a maximum of $750,000 in average annual receipts. The number of employees varies.
- Manufacturing: Businesses may have between 500 and 1,500 employees depending on the type of manufacturing. About a quarter of all businesses in the manufacturing industry can have a maximum of 500 employees.
- Retail Trade: A portion of retail trade businesses can receive up to $7.5 million in average annual receipts. Most companies can have between 100 and 500 employees in total.
- Information: Most types of businesses in the information industry can have between 500 and 1,500 employees. The average annual receipt allowance varies from $7.5 million to $37.5 million.
- Real Estate, Leasing and Rentals: Businesses can receive between $7.5 million and $32.5 million in average annual receipts, depending on their sub-industry.
Other Details the SBA Considers
The SBA definition of a small business also looks at other details to determine whether a specific company should be considered a small business.
- They’ll look at whether or not the company is headquartered in the U.S., as well as whether that’s where it’s primary operations occur.
- They’ll also consider whether it’s a for-profit or non-profit business, as the latter is a different distinction entirely.
- They’ll also determine whether the company is truly independently owned, or whether it may be a branch of a larger business.
Why Does the SBA Small Business Definition Matter?
The title of small business packs a powerful punch.
The SBA and the federal government choose to define some businesses as “small” to help them compete in our economy. That small, local stationery store wouldn’t have much of a shot competing against national, multi-billion dollar corporations without a little help.
That’s why the government chooses to offer help to businesses under a certain size and profit margin.
Businesses lucky enough to call themselves “small” gain access to several benefits.
Benefits of the Small Business Designation
A large corporation that brings in millions of dollars in profits and has at least that amount of investments in equipment and property isn’t likely to have much trouble getting a loan when they want to expand or reach out to new markets. But a small, local business that’s either just starting or struggling to get on its feet has less to show for their efforts. For this reason, they may be denied a loan.
That’s where SBA Loans come in. An SBA Loan is a financing program established by the SBA and designed to help small businesses get the funding they need. These loans are partly guaranteed by the SBA, which helps to decrease the risk for lenders, making them more apt to lend to small businesses.
There are other benefits available to small businesses. The SBA provides specific resources, like counseling, local mentoring, business planning, online courses and more, to help small business owners get started or grow their businesses. Some government contracts also give preference to small businesses.
Determining Your Business’s Size
Now that you know more about what is considered a small business to the SBA and why it matters, it’s time to determine where your business fits in.
Take a look at the SBA’s table of industries, as well as an in-depth look at your business operations. Go beyond your industry; consider different sub-industries that your business may best fit within.
Once you’ve received your small business distinction, you’ll gain access to important resources like SBA loans that can help you get your business off the ground and help give you the boost you need to be successful.