What is a Small Business? What You Need to Know and Why
by Caron_Beesley, Community Moderator
- Created: April 9, 2009, 8:12 am
- Updated: April 30, 2012, 6:59 pm
Seems like a straight-up question and answer, right?
Not really. The government has strict sizing rules and regulations that define what a small business is. Understanding these can help empower small business owners to take advantage of a wide variety of government programs, SBA loans, and contracting opportunities that are reserved exclusively for them.
Am I a Small Business?
If you are interested in government contracting opportunities, are looking for SBA-guaranteed funding, or believe your business qualifies for other government programs such as its Minority Enterprise Development Program or Small Business Innovation Research Program, you’ll need to understand official government small business sizing classifications.
There isn’t a magic number that defines a small business, whether it be size or income. So it’s worth taking the time to understand where your small business falls in terms of official sizing determinations.
Below is an overview and links to information that can help you determine whether your business is officially 'small', the impact of sizing on SBA-backed loan eligibility, and opportunities to take advantage of small business government contracting set-asides.
1. What are Small Business Size Standards?
While the Small Business Act outlines a very broad definition of what constitutes a small business, the SBA publishes its own size standards that define whether a business entity is 'small'.
The most widely used, and SBA-endorsed, sizing criteria for small businesses is the following - the business must have no more than 500 employees for most manufacturing and mining industries, and no more than $7 million in average annual receipts for most nonmanufacturing industries.
To get a more accurate picture and find out if your particular business can be classified as a 'small business', you can refer to this Summary of Size Standards by Industry or, for more specific detail, refer to the SBA’s Table of Small Business Size Standards.
The SBA’s sizing standards published in these links are matched to the North American Industry Classification System (NAICS), and are stated in number of employees or average annual receipts. Also, be aware that the SBA always outlines the largest size that a business can be for it to remain a classified 'small business'.
Do note that these size requirements are constantly changing. You can stay current or find out what’s new on the SBA Web site here.
2. Small Business Sizing and SBA Loan Eligibility
When applying for an SBA-guaranteed loan, lenders will generally need certain information from small business owners to evaluate a loan request, including a business profile (outlining annual sales and number of employees, among other data).
In other words, be aware that the same sizing standards will apply to your loan application and determine your eligibility for an SBA-backed loan. You can find out more about individual loan eligibility, for all manner of SBA loans including the Basic 7(a) Loan Program, on Business.gov’s guide to SBA loans, here.
3. Small Business Sizing and Government Contracting Set-Asides
Small business size standards are particularly important and regulated when it comes to federal contracting set-asides.
Federal, state and local governments offer businesses opportunities to sell billions of dollars worth of products and services. Many government agencies require that some percentage of the procurements be set aside for small businesses. In this case, having your small business certified can help provide a competitive advantage.
Read more here about what types of certifications are available - from an 8(a) to a veteran- or woman-owned to a HUBZone business designation, and more - that can help you when applying for contract opportunities that have been set aside for a specific business type .
Government acquisition regulations set out how the government buys goods and services from commercial vendors. You can read more about these here.
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