- What Is the Number of Small Businesses in the U.S.
- How Many U.S. Jobs Do Small Businesses Create?
- How Many Small Businesses Start Up Each Year?
- What Is the Small Business Failure Rate?
- What Are the Leading Causes of Small Business Failure?
Small business statistics highlight trends that impact your company. Here’s a look at 9 key sets of numbers shaping business in 2021.
We’ll cover stats affecting small business failure, employment trends, the impact of the coronavirus pandemic and how businesses are adjusting.
What Is the Number of Small Businesses in the U.S.
The Small Business Administration defines a small business by using size standards which vary by industry. These standards define the maximum average number of employees and annual receipts that a small business in the U.S. can’t exceed in a given industry in order to qualify as “small.”
Across all industries, the SBA’s standards encompass a range from 250 to 1,500 employees and $100,000 to $35.5 million in average annual receipts. In general, the SBA’s Office of Advocacy defines a small business as a company with 500 or fewer employees. The SBA’s size standards are applied for purposes such as qualifying for small business loans and government contracts.
At last count, there were 31.7 million small businesses in the U.S., accounting for 99.9% of the total number of companies in the U.S., according to the latest small business statistics from 2020 provided by the SBA’s Office of Advocacy. This was based on prepandemic numbers and doesn’t reflect the impact of COVID-19. The number of small business owners in 2020 represented an increase from 2018, when there were 30.2 million small businesses, and 2019, when there were 30.7 million.
How Many U.S. Jobs Do Small Businesses Create?
In 2020, U.S. small businesses employed 60.6 million people, according to the SBA. This accounted for 47.1% of the private workforce in the U.S.
Companies that employ between 20 and 99 workers account for the largest share of small business employment.
Industries that provide the largest share of small business employment are led by:
- Health care and social assistance
- Accommodation and food services
- Retail trade
- Professional, scientific and technical services
- Other services (not including public administration)
- Administrative, support and waste management
- Wholesale trade
- Finance and insurance
- Transportation and warehousing
- Educational services
- Real estate and rental and leasing
- Arts, entertainment and recreation
- Management of companies and enterprises
- Mining, quarrying and oil-and-gas extraction
- Agriculture, forestry and fishing and hunting
These numbers include self-employed business owners.
How Many Small Businesses Start Up Each Year?
The number of small businesses starting up has increased in response to the coronavirus pandemic, according to an analysis of U.S. Census Bureau data by The Wall Street Journal. During the first 9 months of 2019, 2.7 million new businesses applied for employer identification numbers (EINs). In the first 9 months of 2020, 3.2 million new businesses applied for EINs.
This increase represents the fastest rise in business startups since the Great Recession started 2007. It doesn’t include workers who became independent contractors after losing work because of the pandemic, since many self-employed business owners don’t apply for an EIN. Including these new self-employed business owners would push the number of startups even higher, according to The Wall Street Journal. As an indicator of the number of new independent business owners entering the economy during the pandemic, freelance website operator Fiverr told the Journal new freelance registrations on its site rose 48% year-over-year during the quarter from July to September of 2020.
The recent rise in small business start-ups stands in contrast to a long-term decline in new enterprises. From 1978 to 2012, the number of new companies as a share of all businesses fell 44%, according to an analysis of Census Bureau data by the Kauffman Foundation and Brookings Institution.
What Is the Small Business Failure Rate?
Between 1994 and 2018, an average of 67.6% of new businesses, or about two-thirds, survived beyond 2 years, according to long-term tracking of small business facts by the U.S. Department of Labor’s Bureau of Labor Statistics (BLS) and the Census Bureau.
About half of all new businesses survive 5 years or more. One-third survive 10 years or more. A quarter survive the 15-year mark. As this small business success rate indicates, the odds of a firm’s survival increase over time, going up once a business has persevered through the challenges of the start-up phase. These business survival rate trends have held consistently across all industries and economic conditions through decades of BLS tracking since 1994.
In the short-term, the number of small businesses open in the U.S. plummeted 44% by the second week of April 2020 compared with January 2020 levels, according to data collected by ecommerce provider Womply and graphically interpreted by Harvard University-sponsored nonprofit Opportunity Insights. From there, it declined 18.8% by early July and then fell again slightly to level off for the remainder of the year. At the end of 2020, the number of small businesses open was down 29.7% compared with January 2020.
What Are the Leading Causes of Small Business Failure?
Businesses typically fail for a number of common reasons, according to a survey by business analytics provider CB Insights. Causes of business failure are led by:
- No market need for the company’s product or service (cited as a factor by 42% of survey respondents)
- Cash-flow shortages (29%)
- Hiring the wrong personnel (23%)
- Competition (19%)
- Pricing or cost issues (18%)
- Product or service is not user-friendly (17%)
- No business model (17%)
- Poor marketing (14%)
- Poor customer service (14%)
- Mistiming of product release (13%)
To the extent these factors lie within the business owner’s control, they can be addressed by preventive measures such as writing a business plan based on solid market research and backed by a viable financing plan.
Of course, unforeseen variables such as the pandemic can affect factors such as market demand and cash flow. However, good planning can help you prepare for emergencies. For example, small business owners who had saved up emergency funds or were informed on how to access emergency loans were better equipped to respond to the pandemic than those who were less prepared.
What Is the Small Business Unemployment Rate?
According to state unemployment data published by the BLS and analyzed by the University of New Hampshire, all states except Utah and Idaho saw increases in unemployment between February and December of 2020. The country as a whole is experiencing the highest unemployment levels since the Great Recession, with 10 million jobs lost between February and December of 2020, a 6.5% drop.
The drop in the small business employment rate has been highest in industries affected by lockdowns, led by the leisure and hospitality sector, particularly the accommodation and food services industry and the arts, entertainment and recreation industry.
States with cities that depend heavily on these industries have experienced the highest declines in employment, led by Hawaii, Michigan and New York with declines of over 10%. At the other end of the scale, Alabama and Mississippi have experienced unemployment increases of less than 2%. In general, areas with rural populations, dominant industries such as agriculture and looser lockdown restrictions have seen smaller rises in unemployment.
How Has the Pandemic Impacted Small Business?
Weekly tracking data from the Census Bureau shows that the number of small businesses experiencing a large negative impact from the pandemic has declined and leveled off since late April 2020. At that time, 51.4% of small businesses reported a large negative effect. By August, this had fallen to 34.2% In early Sept., it dropped to 30.9%, and it has hovered around 30% since then, dipping as low as 29.7% in early Nov.
Meanwhile, the number of small businesses reporting a moderate negative effect has risen gradually over the same period. In late April of 2020, the number of small businesses experiencing a moderate negative impact stood at 38.5%. By early June, it had risen to 44.8%, where it has approximately remained, standing at 44.3% in early Jan. of 2021.
The contrast between these trends reflects the difference between the short-term and long-term impacts of the pandemic. Short-term cash-flow disruptions had an immediate and severe effect, particularly on businesses without cash reserves, while cumulative effects have been felt even by businesses that were in a stronger financial position. Over time, as businesses have adjusted and the initial shock has leveled off, positive outlook among small business owners has risen steadily since last April to level off in October, according to the Census Bureau’s data.
How Are Small Businesses Adjusting to the Pandemic?
To survive the pandemic, small businesses have been making adjustments. According to research by the Society for Human Resource Management, some of the most common adaptations include:
- Rethinking business models (43% of small business owners)
- Finding new ways to deliver existing services (32%)
- Upskilling employees to support changes to business operations (22%)
The need to find ways to deliver services has prompted many small businesses to transition to a more digital business and marketing model. As consumers under lockdown have shifted to online buying models, companies have accelerated their digital adoption an average of 3 to 4 years ahead of schedule, a survey by management consulting company McKinsey & Co. found. Companies are now 3 times likelier to say that at least 80% of their customer interactions are digital than they were before the pandemic.
How Are Small Businesses Finding the Financing They Need?
Another area where small businesses have had to adjust to the pandemic is financing strategy. During the early stages of the COVID-19 pandemic, 62% of small businesses experienced a disruption in cash flow, according to a survey conducted by the National Defense Industrial Association, a trade association for the U.S. government and defense industrial base.
Under normal circumstances, the most common way small business owners in the U.S. secure financing is from personal and family savings, tapped by 64.4% of small firms, according to a Census Bureau survey. Other popular financing resources are business loans (16.5%), personal credit cards (9.1%), and personal family assets other than owner savings (8.1%).
True to these tendencies, among the 80% of small businesses that experienced financial challenges during the first 6 months of the pandemic and the 6 prior months, 62% used owner personal funds to cover costs, according to a survey by Fed Small Business, a firm that provides research-based on Federal Reserve data. Among firms that applied for loans or other forms of financing, 42% turned to large banks, while 43% turned to small banks and 20% turned to online lenders.
During the first months of the pandemic, the SBA extended additional financing resources to small businesses through means such as the Paycheck Protection Program (PPP), designed to help companies continue covering payroll costs. However, a survey by financial provider Goldman Sachs found that 84% of the first round of PPP recipients had exhausted their funding by the first week of August 2020. A second round of PPP funding became available in January, with opportunities to apply open through the end of March.
Apply Statistic Insights to Stimulate Success
Knowing what small business statistics are shaping the economy can lend you insight for making better business decisions about the challenges and opportunities which lie ahead in 2021. While the pandemic has triggered many business failures and layoffs, particularly in certain industries, it has also opened up opportunities for companies that are able to adapt to a digital business and marketing model.
Making this transition successfully requires a winning financing strategy. If you’re one of the small businesses facing financing challenges in the wake of the pandemic, consider seeking an SBA loan, other business loan or another form of small business financing. Taking a few minutes to fill out our no-obligation online application will let you know what types of financing options you may qualify for.