What is considered a small business? (2024)

Key takeaways

• Small businesses have fewer than 1,500 employees and make less than $38.5 million in annual revenue, depending on the industry
• Small businesses gain access to exclusive benefits like SBA loans, government grants, and research grants
• NAICS codes tell you the employee and annual revenue requirements to determine whether you operate a small business

There are more than 30 million small businesses in the United States, making up 99.9% of all U.S. companies. But what is considered a small business and why should you care?

Having a small business designation gives you access to resources like SBA loans, grants, and additional small business tools. But it’s not as easy as having a few employees to be considered a small business. There are specific employee and revenue requirements you must meet to be considered a small business.

Discover everything you need to know about what qualifies as a small business and the types of benefits you can receive if you fit the bill.

What is considered a small business?

A small business is a privately owned company like a corporation, sole proprietorship, or partnership. According to the U.S. Small Business Administration (SBA), a small business has no more than 1,500 employees and less than $38.5 million in average annual revenue, depending on your industry.

While these numbers seem enormous, it’s crucial to note that nearly 90% of small businesses have fewer than 20 employees. On top of that, 23 million small businesses have no employees, are self-employed, and are solely operated by the owner.

The small business classification is based on “size standards” set by the SBA. The SBA factors in the number of employees and average annual sales. These small business size standards also vary from industry to industry, so exact figures depend on which subsector your business falls under.

Definition of a small business by industry

While there’s a general answer to what is considered a small business, every industry has specific size standards set by the SBA. Each industry is broken down by sub-industries with different sizes and revenue requirements.

Here’s a table of size standards with industry requirements that will help you determine if your company is considered a small business:

• Agriculture, forestry, fishing, and hunting

• • • Average annual receipts: Less than $750,000
    • Employees: Less than 500 employees

• Mining, quarrying, and oil and gas extraction

• • • Average annual receipts: Less than $7.5 million to $38.5 million
    • Employees: Less than 250 to 1,500 employees depending on the subsector

• Utilities

• • • Average annual receipts: Less than $15 million to $27.5 million
    • Employees: Less than 250 employees for renewable electric power generation subsectors and less than 1,000 employees for electric power and natural gas distribution businesses

• Construction

• • • Average annual receipts: Less than $36.5 million
    • Employees: N/A

• Manufacturing

• • • Average annual receipts: N/A
    • Employees: Less than 500 to 1,500 employees depending on the subsector

• Wholesale trade

• • • Average annual receipts: N/A
    • Employees: Less than 100 to 250 employees depending on the subsector

• Retail trade

• • • Average annual receipts: Less than $7.5 to $38.5 million depending on the subsector
    • Employees: Less than 100 to 500 employees

• Transportation and warehousing

• • • Average annual receipts: Less than $7.5 million to $37.5 million depending on the subsector
    • Employees: Less than 500 to 1,500 employees

• Information

• • • Average annual receipts: Less than $7.5 million to $38.5 million depending on the subsector
    • Employees: Less than 500 to 1,500 employees

• Finance and insurance

• • • Average annual receipts: Less than $32.5 million to $38.5 million
    • Employees: Less than 1,500 employees for direct property and casualty insurance carriers

• Real estate, rental, and leasing

• • • Average annual receipts: Less than $7.5 million to $32.5 million
    • Employees: N/A

• Professional, scientific, and technical service

• • • Average annual receipts: Less than $7.5 million to $20.5 million depending on the subsector
    • Employees: Less than 1,000 to 1,500 employees

• Management of companies and enterprises

• • • Average annual receipts: Less than $20.5 million
    • Employees: N/A

• Administrative and support, waste management, and remediation services

• • • Average annual receipts: Less than $7.5 million to $38.5 million depending on the subsector
    • Employees: Less than 750 employees

• Educational services

• • • Average annual receipts: Less than $7.5 million to $38.5 million depending on the subsector
    • Employees: N/A

• Healthcare and social assistance

• • • Average annual receipts: Less than $7.5 million to $38.5 million depending on the subsector
    • Employees: N/A

• Arts, entertainment, and recreation

• • • Average annual receipts: Less than $7.5 million to $38.5 million depending on the subsector
    • Employees: N/A

• Accommodation and food services

• • • Average annual receipts: Less than $7.5 million to $38.5 million depending on the subsector
    • Employees: N/A

• Other services

• • Average annual receipts: Less than $7.5 million to $38.5 million depending on the subsector
  • Employees: N/A

You can use this small business size calculator to determine if your company qualifies as a small business. The SBA also considers several other factors beyond employee count and annual revenue. You’ll need to also consider the following questions:

• Is your company headquartered in the U.S.?
• Does your company primarily operate in the U.S.?
• Is your company a for-profit business?
• Are you independently owned and operated?
• Is your company a minority company within your industry?

Understanding NAICS codes

The Small Business Administration uses the North American Industry Classification System (NAICS) to determine which companies fall into the small business category.

Each business is assigned a six-digit NAICS code depending on your industry. Each industry is then broken down into subcategories.

For example, let’s say you own a full-service restaurant that makes $5 million in average annual revenue. Your business falls under sector 72: accommodation and food services. You will then go one layer deeper and determine that your business is in sub-sector 722. Within this subsector, there will be specific NAICS codes, such as:

• 722330: Mobile food services
• 722511: Full-service restaurants
• 722513: Limited-service restaurants
• 722410: Drinking places (alcoholic beverages)

As a result, your business has a unique code of 722511. You can then determine if you’re a small business. In this case, you qualify as a small business since the requirement for a full-service restaurant is having less than $8 million in average annual revenue.

Benefits of being a small business

As a small business, you have certain protections and benefits that aren’t available to large businesses. These benefits ensure that small business owners can compete with larger corporations that have a high market share in your industry.

Some of these benefits include access to small business loans, government contracts, and research grants.

Small business loans

Most small businesses will need to seek financing to launch or grow their business. The SBA has loan programs to help you secure loans that are available only to small businesses.

The SBA doesn’t lend business loans directly. Instead, they act as a sort of cosigner to your SBA loan. This helps you secure loans that have flexible lending terms with lower interest rates.

You can secure an SBA loan by preparing a business plan, meeting with a lender, and filling out a loan application. Your application is then submitted to the SBA for review.

The SBA will determine if you’re eligible for a loan and serve as your cosigner. You can find more information regarding the loan process at the Small Business Administration website.

Government contracts

Securing a government contract can give a substantial boost to your annual revenue. There are specific government contracts that are available only to small businesses, helping you compete with large enterprises in your industry.

You can use the Dynamic Small Business Search tool to find government contracts within your industry—like manufacturing mechanical components, constructing buildings, or providing legal services.

Research grants

The government and SBA set aside certain research grants specifically for small companies. These are known as Small Business and Innovation Research grants (SBIR). These grants allow you to explore innovative technology and commercialization research opportunities. One example is the Management and Technical Assistance Services grant which provides management and technical assistance to eligible small businesses.

You’ll need to first determine if you meet the general requirements before applying for a grant. You can then look through the various grant programs the SBA offers and apply for the grant of your choice.

Operating a small business has its advantages

Although a small business is defined as a company with fewer than 1,500 employees and less than $38.5 million in annual revenue, there are other criteria to consider based on your industry.

Look up your specific NAICS code to determine the requirements for your business. If you meet the criteria, you can start exploring the many benefits, like access to SBA loans, government contracts, or research grants.

You’ll also want to think of other ways to expand your business, like marketing initiatives, customer outreach, or creating a Yelp Business Page to receive more exposure in your local market.

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