How the SBA Defines Small Businesses

How the SBA Defines Small Businesses

Small businesses play an essential role in the United States’ economy. According to the Small Business Administration (SBA), they represent over 99.9% of all firms in the country. But what exactly is the definition of a small business, and how does the SBA classify them?

The SBA defines a small business as “one that is independently owned and operated and is not dominant in its field of operation.” This definition varies by industry, and the SBA sets size standards for each one, based on factors such as the number of employees, the amount of annual revenue, or the type of business activity. For example, a manufacturing business with up to 1,500 employees would be considered small, while a retail business with up to $8 million in annual revenue would be classified as such.

The primary purpose of the SBA’s size standards is to help small businesses access federal government contracts and assistance programs. By law, federal agencies must set aside a portion of their contracts for small businesses, and the SBA ensures that only eligible companies can participate. Additionally, small businesses may qualify for loans, grants, and other resources from the SBA and its partners.

Some industries have special rules and exceptions to the SBA’s size standards. For instance, the restaurant industry is classified by the number of locations instead of the number of employees, and a few industries, such as cable television, have their own special criteria. It’s also worth noting that the SBA’s size standards are periodically revised to reflect changes in the economy and industry trends.

In recent years, the SBA has made efforts to streamline and simplify its size standards, in response to feedback from small business owners and experts. One of the main changes was to eliminate the “affiliation” rule, which counted the revenue and employees of affiliated companies when determining a business’s size. This change allows more small businesses to be eligible for federal contracts and resources.

To sum it up, the SBA defines small businesses as independently owned and operated entities that are not dominant in their industry. Their size standards vary by industry, based on factors such as employees, revenue, and business activity. Small businesses can access federal contracts and assistance programs and may benefit from the SBA’s resources. Understanding the SBA’s definition and criteria is crucial for any small business looking to grow and succeed.