How Big Can a Small Business Be?

For retail operations, total revenue is used as the basis for judging whether a business is small. In general, the maximum size ranges from $7 million (hardware stores) to $30 million (boat stores and electronics shops). But there can be large variations even within the same industry: A shop that sells women's clothing is considered "small" by the government if it has revenue of less than $25 million, but a jewelry boutique with the same amount of revenue cannot take advantage of the SBA's small-business services (it must have sales of $14 million or less to qualify).

Such regulations may not matter all that much to jewelry stores, which are unlikely to compete for government contracts. But they can make a big difference to transportation or professional-services companies, which need to fall within the SBA's guidelines to snag federal contracts set aside for small businesses.

Companies that straddle the line between "small" and "medium-sized" are the ones benefiting most from these new classifications, as it allows them to hang onto their "small" designation even as they build up sizable revenue. Being able to access SBA loans gives them an added advantage when it comes to growth. But the broadened classifications don't do much for the smallest of the small, the companies that are too little or unproven to qualify for an SBA loan in the first place.

The classifications also are a boon to not-so-small businesses in certain designated industries, most notably defense. While architectural firms or companies that offer administrative office services are no longer considered small if they have more than $7 million in revenue, firms that specialize in naval engineering, military weapons and aerospace equipment can bring in up to $35 million a year and still meet the "small" threshold.

A family farm that nets five figures each year might not have much in common with a defense contractor with tens of millions of dollars in annual revenue. But according to the government, they are both small businesses, even if the more generous guidelines give an advantage to larger companies over tiny startups.

And speaking of tiny, keep in mind that the vast majority of small businesses in the United States have little to no interaction with the SBA at all. According to U.S. Census figures, about three-quarters of all U.S. businesses have no payroll because they are operated by a single person.

Now that's small.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

« First ‹ Previous 1 2