Size is often relative. Jumbo shrimp aren’t particularly large, while the Borneo pygmy elephant can grow up to 10 feet tall. Giant water bugs fit in the palm of your hand, but Little Cayman is an island 10 miles long.
So in the business world, what is considered a small business?
The most relevant way to define this is by referring to the sizing standards provided by the Small Business Administration. The SBA creates these standards in order to determine the maximum size of a company that will still qualify for their programs, ensuring the funding and resources go to the businesses that lack the advantages of their larger competitors and need the somewhat-leveled playing field provided by these loans.
It’s worth noting that according to the SBA, there isn’t a hierarchy within businesses that qualify as “small.” This lack of differentiation means a company with 1,400 employees would theoretically enjoy the same benefits as a company with only 14 employees. This equal footing can be frustrating for the smallest of companies, as it still might feel like a David versus Goliath scenario when a competing company has more than 1,000 employees more than you. But the sizing standards already specify so many details that if the SBA were to create sublevels, it would probably become too complex for anyone to figure out.
Myriad factors inform the SBA’s standards, but it mainly boils down to the number of employees you have and how much money you bring in each year. You can get insights into the most recent revisions to the standards by referencing this official document issued by the agency earlier this year.
One of the quickest ways to find out where your business falls in the SBA’s standards is by referencing their free Size Standards Tool. You’ll just need basic financial and staffing information to complete the questionnaire.
While the size of your business is obviously a crucial element of the sizing standards, be aware that the SBA also considers other aspects of your business operations. For example, your business must be physically located in the United States, operate as a for-profit, and be independently owned and operated.
Additionally, the sizing standards vary from industry to industry. According to the SBA, a wholesale trade business must have no more than 250 employees, while a finance company can have up to 1,500 employees. These variations are determined by the experts from the SBA, as they account for the vastly different business environments and factors within the primary business industries in the United States.
When companies are involved in the SBA bidding process, these size standards play a key role. And if a company loses a bid and feels the winner shouldn’t have qualified, they can file a protest with the SBA. Unsurprisingly, there are stiff penalties for any businesses that misrepresent their size in order to game the system.