Does Your Company Really Classify as a Small Business?

August 26, 2022 by First Federal Bank

small businessThere are many benefits to being categorized as a small business, but your company has to fall within specific constraints to qualify. You may assume that, by its name, the company automatically qualifies if it has very few employees or limited operations. But is that the case?

To ensure your business meets the necessary requirements and can receive all the perks of this designation, review the requirements:

Employee requirements

The U.S. Small Business Administration sets clear, strict guidelines regarding how a company classifies as a small business or another designation depending on the industry it’s in. One of the key factors is the number of people your business employs, including all full-time and part-time workers, plus temporary and terminated employees.

According to Yelp for Business, the SBA standards regarding employment qualifications are that a small business should have no more than 1,500 employees but at least 100 over the past 12 months. If your company has fewer than 100 employees, it’s more likely to qualify as a micro-business. Those exact numbers vary by the industry your company is in, so confirm the SBA standards for your specific field.

Keep in mind these totals factor in the employees across all locations within your company, not just a single site.

Revenue requirements

Even if your company doesn’t have many employees, it still may not qualify as a small business. Why? Revenue is another major criterion. In fact, the SBA only looks at the annual receipts of small businesses in some industries, disregarding their employment numbers altogether.

Business News Dailys Sean Peek identifies the current average annual receipt constraints for small businesses in over a dozen industries. These range from as little as $750,000 (agriculture, forestry, fishing and hunting) to as high as $38.5 million (healthcare and social assistance). The breadth of that range shows why it’s important to know which sector and subsector your company operates in.

Again, these numbers consider the revenue across all locations within your company, not just on a site-by-site basis. And they’re based on the average receipts from the past three years, not just a single year that may be uncharacteristically above or below the threshold.

Other requirements

Once you meet those two stipulations, there are a handful of other qualifications the U.S. Small Business Administration has set.

Ijeoma S. Nwatu outlines the requirements as follows: Your company must be a for-profit organization, must be physically located and operating in the U.S., and cannot nationally dominate or own the majority market share in its field. Your business must be independently owned and operated, meaning no parent company is involved, even in an affiliate arrangement.

The qualifications of being a small business under the Affordable Care Act are very different than the SBA’s requirements, so make sure to check those regarding your eligibility for the Small Business Health Options Program.

There are many perks of being a small business, such as qualifying for government contracting programs and access to select SBA financial tools. If your company meets the criteria, make sure you’re taking full advantage of these exclusive benefits.

Categories: Small Business

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