We have been hearing many references to “Small Business” in every sector of the news. The President says two out of every three jobs is created by “small business”. That particular fact is available on the SBA website, if you are interested. There are special tax havens for “small business”. There are tax breaks and insurance credits in the Health Care plan for “small business”. So…the question occurs, what constitutes a “small business“? What is the size of a “small business”?
A “Small Business” is defined by having 500 employees or less according to the SBA. This is the measure that all politicians use!
In fact, by the 500-employee definition, the vast majority of all firms are “small businesses.” As SBA says: 99.7 percent of the approximately 6 million businesses with employees are small businesses.
Republican Senator Mitch McConnell has said that in the last quarter of 2009, 84% of all jobs lost were lost in small business. That figure was based on the Bureau of Labor statistics for firms up to 499 employees. The total percent of job loss for that group is actually much higher, at 87%. Keeping that in mind, one would have to check with the politician to define what they are thinking of for small businesses.
Finally, while the SBA is the final arbiter of exactly what a small business is defined to be, in order to qualify for some government programs the legal standards can and do vary by industry.
For example, for cookie and cracker makers the standard is 750 workers, and firms engaged in manufacturing breakfast cereal or specialty canning can employ up to 1,000 workers and still qualify. A “small” oil refiner can employ up to 1,500. And many industries have no limit on the number of workers, so long as their average dollar receipts stay within a set limit. A “small” chicken or egg producer can take in an average of $12.5 million a year and still qualify as “small” under SBA guidelines, for example.
Under the new health care law, small business definitions vary as well. Subsidies are offered to businesses with fewer than 25 employees and income levels of $50,000. Employers with less than 50 employees are exempt from offering health care plans at all.
In closing, it is readily apparent that the small business terminology has been so distorted that the very real small businesses are forced to compete for too few dollars for too little assistance. I will post the SBA standards here, with a link, just in case you are curious. It is clear that small business is no longer small, and the business of creating jobs has been distorted for the benefit of a very few.
Size standards are usually reflected in the business’s number of employees and average annual receipts.
Based on those criteria, the SBA has established the following standards for a small business:
500 employees for most manufacturing and mining industries, and
$7 million in average annual receipts for most non-manufacturing industries.
While there are many exceptions, these are the primary size standards by industry.