For many, the American Dream includes more than a house with a white picket fence and a well-manicured lawn. Many people dream of owning their own business, but that’s a dream accomplished much easier in the US compared to other nations.
It’s not surprising that over 99 percent of all US-based companies are small businesses. However, the global pandemic set off a motion of events that dealt a major blow to these business owners.
Luckily, the federal government stepped up and provided support to the entrepreneurs that prevented a nationwide meltdown. But only small businesses falling under specific criteria were able to receive support from the SBA.
So what is a small business? Keep reading to learn more about the SBA small business definition and if you qualify under their guidelines.
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What Is a Small Business?
If you approach a group of 100 people and inquire about their interpretation of a small business definition, you would get a wide range of numbers. For some, a small business might be a family business with less than five employees, while others may define it as a business with at most a couple hundred.
So, what is a small business?
The SBA small business definition broadly qualifies a small business as having fewer than 500 employees and includes startups that have been in business for one year or less.
However, the SBA takes it a step further to refine its broad definition based on several characteristics of a small business. That includes business types, annual receipts and affiliates.
Type of Business
How many employees does a small business have? That’s a fairly loaded question because the number of employees for a large retail store greatly differs from a small restaurant.
One of the most reliable ways to determine if you qualify as a small business is to use the SBA’s preferred tool, the North American Industrial Classification System (NAICS).
Receipts
In addition to the number of employees and type of business, the SBA considers the average gross annual receipts spanning back three years. Businesses that are sized based on average annual receipts include the following:
- Retail
- Farming
- Service
- Construction
However, there are exceptions which is why it’s vital that you find your NAICS classification number. For example, new car dealerships use the number of employees to qualify, while used car dealerships qualify based on their annual receipts.
The global pandemic set back many small business owners at the end of the day. A reassuring way to determine if you qualify for this SBA support is to contact a locally licensed CPA.
Affiliates
When people hear this term, they typically think of affiliates that earn a commission every time they introduce a new client who makes a purchase.
However, in the eyes of the SBA, an affiliate is a business concern that has 50 percent ownership or greater. If your business has less than 50 percent ownership, it may fall under the affiliate status based on several varying factors.
Small Business, Long Road
Small businesses have a long road ahead of them, and any kind of support is typically welcomed with open arms. So what is a small business, you ask?
The broad SBA definition qualifies a small business if there are fewer than 500 employees or if it’s a startup that’s been in business for a year or less.
The stricter definition involves looking into your NAICS classification to determine if your business qualifies based on the number of employees, business type or the average gross annual receipts.
If you enjoyed reading this article, check out our other recent posts on small businesses and the SBA.
