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The Criteria for Small Business Classification

Updated: Jan 1

Small businesses are the backbone of the American economy, making up 99.9% of all businesses. But what exactly qualifies a business as "small"? This outline examines the criteria used to define small businesses.


Number of employees

  • The most common metric is number of employees.

  • The SBA defines a small business as having fewer than 500 employees.

  • Other government agencies use different employee limits, ranging from 50 to 1,500.


Revenue

  • Annual revenue is another key factor.

  • The SBA defines small manufacturing firms as those with fewer than 1,000 employees OR less than $1 million in average annual revenue.

  • For most non-manufacturing industries, small firms have revenue under $8 million.


Revenue limits by industry

  • The SBA uses detailed size standards that vary by industry.

  • For example, small farms have sales up to $1 million while small air transportation firms can have revenue up to $41.5 million.


Ownership structure

  • Independently owned and operated

  • Not dominant in its field


Other considerations

  • Location/operations in the United States

  • Organized for profit

  • Operates primarily within the U.S. or makes a significant contribution to the U.S. economy


While number of employees is most often used, the official SBA definition uses both employee count and annual revenue to determine if a business is "small"—with detailed size standards by industry. Ownership structure and geographic factors are also taken into account.


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