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Understanding Small Business Size Standards

By Garrett Spence   |    March 28, 2016   |    10:45 AM

The Small Business Administration Small Business Size Standards

The Small Business Administration, or SBA, is a federal entity that provides resources, loans, and other helpful information to small business owners throughout the country.

The SBA also creates the federal definition for what constitutes a small business and they use that definition to determine eligibility for the small business loans that they provide. Small business size standards are an important part of that definition, and here’s what you need to know about them and their impact on your small business funding options.

What is a small business size standard?

Size standards are generally based on the number of employees or average annual receipts that a business has, and they represent the largest size a business can be while still being federally classified as a small business. If you’d like to receive financial assistance for your small business from the SBA you’ll need to make sure that your small business fits the size standards for its industry.

To elaborate more, according to the SBA, your small business could be eligible for programs that help small business concerns. You’ll have to meet certain qualifying criteria that satisfy the SBA’s definition of a business concern, along with the criteria for small business standards.

What is a business concern?

The definition of a business concern is an important part of defining small business size standards: “A business concern eligible for assistance from SBA as a small business is a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.”

Small agricultural cooperatives are an exception to this definition, and they have different criteria.

The SBA’s standards for classifying small business

There are different size standards for different industries, but the SBA has created two general standards that are widely used: no more than 500 employees for most manufacturing and mining industries and $7.5 million in average annual receipts for many nonmanufacturing industries.

Still, there are many exceptions. Industry classifications are categorized using the North American Industry Classification System (NAICS) and the SBA has created a Table of Small Business Size Standards that correlates with those classifications. To determine whether your business satisfies size standards begin by reviewing the standards for your industry.

Recent changes to size standards that could help your small business

If you own a small business that hasn’t met size standards in the past, consider reevaluating your classification. The SBA revised many size standards during the beginning of 2016 and they now estimate that more than 8,400 additional businesses will have gained small business status. That status makes them eligible for helpful financial programs and federal government procurement programs.

For even more information on size standards, be sure to review the SBA’s comprehensive guide to small business size standards.