How Does the SBA Define a Small Business

SBA small business definition.

The SBA’s definition of a small business varies by industry and is defined either by a business’s average annual receipts or by the number of employees.

The SBA’s set size standards for every industry are sorted by the North American Industry Classification System (NAICS). A NAICS code is a six-digit code number that helps companies explain what they do. 

If you don’t know what your NAICS code is, visit Census.gov/NAICS to explore your options. In the event you can’t find a perfect match, go with the closest option. Keep in mind that your NAICS code should describe the primary activity of your business or the one that produces the most revenue.

Here’s a look at several industries and the maximum average annual receipts (your gross income plus the “cost of goods sold,” based on your federal tax returns) or number of employees (the number of workers you hire each of the pay periods for the preceding completed 12 calendar months) that qualify them as a small business. 

Only one size standard applies per industry.

In addition to maximum average annual receipts and maximum number of employees, the SBA will consider whether your company is headquartered in the U.S. and whether it primarily operates in the U.S. It will also look into whether your company is a for-profit business and whether it’s independently owned and operated.

Do you qualify as a small business?

To find out if the SBA considers your company a small business, follow these steps.

1. Visit the SBA size standards table to locate your industry and NAICS code.
2. Look at the figure under average annual receipts or number of employees.
3. Do some math or research to determine if you meet the threshold for average annual receipts or number of employees. 

You can also go to the SBA size standards tool and plug in your NAICS code. The tool will then ask for your average number of employees or average annual receipts. Based on your answer, it will verify whether you meet the SBA’s criteria for a small business.

Benefits of being a small business.

If the SBA does count your company as a small business, you might be wondering how you can take advantage of this classification. Here are some ideas. 

SBA loans

There are a number of SBA loan programs that offer low rates and longer repayment terms you might not be able to find elsewhere. The 7(a) loan is the SBA’s most popular program and offers up to $5 million in capital for small business owners. Upon approval, you can use this capital to cover a variety of expenses, such as startup expenses, real estate, short- and long-term working capital, and equipment. 

Business development programs.

The SBA has Small Business Development Centers (SBDCs) throughout the U.S. to provide small businesses with counseling, training, and technical assistance. Another organization called SCORE also offers free mentorship and resources. You can utilize these development programs if you qualify as a small business.

Government contracts. 

The SBA works partners with federal agencies to award 23% of prime government contract dollars to qualifying small businesses. If you meet the SBA definition for small business, you can submit bids and take advantage of government contracts, which offer an additional, reliable stream of income. 

Research grants

The Small Business and Innovation Research research grants are designed to encourage small business owners to dive into technology and commercialization opportunities. While this is a highly competitive program, it also offers small businesses the chance to expand your technological investment and potentially profit from commercialization.

Tax incentives

As a small business, you can also save money with tax incentives. The Small Business Health Insurance Tax Credit, for example, gives eligible small business owners the chance to save up to 50% of employee health care costs, if they buy insurance from the Small Business Health Options Program (SHOP). Some cities, like Philadelphia, also award tax credits to entrepreneurs and small business owners.

Bottom line

If you believe you’re a small business owner, there’s a good chance the SBA does, as well. But your average annual receipts and number of employees may position you as a medium sized or larger business instead. That’s why it’s wise to do some research and determine where you stand. If the SBA does consider you as a small business, go ahead and take advantage of everything you can! See if you qualify and apply for an SBA loan.

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