Published December 22, 2021 by WC Team

What Is the SBA's Definition Of A Small Business And Why?

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What Defines A Small Business?

The answer varies based on the sector. But according to the SBA, a small firm has less than 1,500 workers. And a maximum annual revenue of $38.5 million.

The SBA established numerical "size standards" for each small business industry in the United States. So now its scale is determined by the number of workers and average annual earnings. 

This sizing criteria is however not one size fits all. The meaning of a small firm is determined by the industry because there is no single definition of small business. Let us break it down by industry.

Definition Of Small Business By Industry

The SBA maintains a thorough table of guidelines that breaks down allowable small business levels by industry and even sub-industries.

However, the following is an overview of the size classification by bigger industries:

There are numerous additional industries for which the SBA has particular size limits. So, check out their list of size standards to determine if your unique firm qualifies for small business.

You may conclude that all small firms in the United States are actually rather large after you look at SBA's various size guidelines 

To put these size restrictions in perspective small firms with 20 or more employees account for 89.6% of all commercial operations in the United States.  

Furthermore 23 million enterprises in the United States have no workers at all. Implying that the business is run solely by the operator.

Aside from hard figures the SBA considers the following criteria when determining whether a corporation may be classified as a small business:

Why Does The SBA’s Size Definition Matter?

Why does the SBA impose a limit on small enterprises in the United States?

The SBA has established a standard definition of a small business in order to protect and promote small firms in the wider economy.

The definition of a small business (modified for each sector) is an important metric for assisting the little guys in competing with the big market share holders in their industry.

Its purpose is to assist small firms in obtaining government business loans (or SBA loans). Plus, winning state contracts and gaining access to general tools that will help them compete with larger organizations.

On the other hand, some organizations with 1,500 workers are nonetheless classified "small". And have the same safeguards in place as a 10-person small business in their industry. So, the size threshold may not always assist the nation's smallest enterprises.

What Size Is Your Small Business?

If you believe yourself to be a small company owner then chances are you actually operate a small firm.

If your average yearly earnings are likely to put you over the brink then determine your company's size before applying for government funds or contracts.

This might be as simple as looking at the SBA's table of size guidelines and adding up the number of employees in your company. Or you may need to conduct a quick calculation to calculate your yearly earnings.

In any case, it's essential to be informed before applying for business finance!

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