What is a Small Business?

The U.S. Small Business Administration defines a small business as an independent business having fewer than 500 employees. Using this definition, as of 2019, there were over 40 million small businesses in the U.S. with over 80% of these being classified as ‘nonemployers’ – businesses with only one employee. We do not know, at this point, how many small businesses will survive the pandemic.

In terms of survival, 20% of small business startups make it into the second year of operation. About 50% survive 5 years and one-third survive 10 years.

About 30% of all small businesses are minority-owned. Of these, 12% are Hispanic, 10% Black, 7% Asian, and 1% Native American. Women-owned small businesses were 36%. Veterans owned slightly over 9%.

Structure of Small Businesses

Of small businesses 86% were structured as Sole Proprietorships. 7% as Partnerships, 5% as S-Corporations, and 2% as C-Corporations. About 14% of business owners are immigrants, with the greatest number of these (29%) operating in the food service industry. Transportation and warehousing took a close 2nd with 27%.

The rate of small business ownership by millennials is decreasing, and it is now less than the ownership of older individuals. About 19% of all small businesses are family-owned split 50/50 split between male or female managed. Real estate, accommodation and food service are the preferred  family-owned businesses.

Home-based businesses are primarily operated from the business owner’s home and represent 50% of all small businesses. The industries in which businesses are most likely to be home-based are: information – 70%, construction – 68%, professional and technical service – 65%.

Franchises make up 3% of all small businesses.

Small Business Composition/Funding

Startup employment averaged 6 employees per business. The average employment of all companies was 23.8 people.

The most common source of funding for small businesses is owner’s savings and family contributions (22%). Loans from banks totalled 4.5% and credit cards 3%.

Federal government contracting was a major source of revenue for many small businesses. Over 23% of Federal contracting dollars were awarded to small businesses – with the highest departments being the Departmant of Argriculture (60%), Interior Department (57%), and the Department of Commerce (43.5).

There were over 250,000 small businesses involved in high-tech. That represented 98% of all firms in the high-tech industry. The majority of these firms are in the computer systems design and architecture and design sectors. Also, highly represented, was the software publishing.

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