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What's Considered a 'Small Business' by the SBA?

What's Considered a 'Small Business' by the SBA?; How does the SBA define a small business? Learn more about what qualifies from Lantern by SoFi.
Susan Guillory
Susan GuilloryUpdated April 22, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
If your company meets the government’s definition of a small business, you may be able to qualify for low-interest loans backed by the Small Business Administration (SBA), as well as attractive government contracts. The SBA’s size standards are based either on your yearly revenue or the number of people you employ and vary based on industry. Figuring out if your business qualifies as “small” can be somewhat tricky. However, it can be well worth the effort if you’re looking for financing or a new business opportunity. 

What Qualifies as a Small Business?

What qualifies as a “small” business by the SBA isn’t cut and driedy but varies based on the type of business you own. The SBA’s size standard is based either on the number of employees you have or your annual revenues, depending on your industry.  Here’s a quick example of the definition of a small business for the SBA based on industry.
IndustryMaximum Size
Mining, quarrying, and oil and gas extraction500-1,250 employees, depending on subcategory
Truck transportation$27.5 million in annual revenues
As this example shows, there’s no one single answer to what is considered a small business by the SBA because the business’s industry makes a difference. If you run a small marketing firm with annual revenues of $110,000, the idea that a truck transportation company making over $27 million is also considered small might surprise you. But it’s all relative to the costs and expenses associated with each industry.You can use the SBA’s Size Standards Tool to see if your business qualifies as a small one. You’ll need your North American Industry Classification System, or NAICS, code to use the tool (more on that below).

Why Size Matters (to the SBA)

Why would you want to go to the trouble of determining whether your business is considered small by the SBA? First of all, to qualify for an SBA loan, you must meet the agency’s size requirements. Larger businesses often find it easier to get financing, so the SBA has created its loan programs to be specifically for small businesses, which might not qualify for financing elsewhere. Size also matters if you’re thinking about competing for a government contract. It can be intimidating to put in a bid knowing that some of the other companies bidding could be 10 times the size of yours. Fortunately, the federal government reserves a portion of all government contracting opportunities for small businesses so they can compete.Recommended: Understanding Different Types of Small Business Loans

What are the Benefits of a Small Business Designation?

Being considered a small business by the SBA can provide your business with opportunities. If your company qualifies, you could potentially:
  1. Expand your business through government contracts
  2. Qualify for low-interest financing
  3. Apply for certain business grants
  4. Stand out with a small business certification
We’ll examine each of these potential advantages in more detail below.

1. Government Contracts

Let’s say you run a landscaping business. Are you aware of all the government buildings in your city that need landscaping? This is a great example of a government contract your business could potentially score (or at least be in the running for) if it qualified as a small business. Win the contract, and you’ve got steady work that typically pays on time.

2. Small Business Loans

While there are other types of small business loans you can consider, SBA loan rates are some of the lowest you’ll find. Despite the name, the government actually does not lend directly to business owners. Instead, they partner with lenders and partially guarantee these loans to reduce the lender’s risk. This increases accessibility to financing for small business owners. To be considered for one of these loans, however, you must meet the SBA’s definition of a small business.Recommended: Guide to Typical Small Business Loan Requirements 

3. Small Business Grants

In addition to loans, there are also small business grants offered by federal and local governments only to small businesses. Grants can provide capital that you don’t have to pay back. Your business will, however, have to meet both the SBA’s size requirement as well as any other specific qualifications, such as being a woman-owned business or operating in a particular industry, depending on the grant.Recommended: How to Get a Small Business Grant? 7 Tips to Win a Grant 

4. Small Business Certification

The federal government offers several certifications to small businesses that meet the SBA’s size standards as well as other criteria. Some individuals and companies go out of their way to hire businesses that are certified as one of the following:There are also other types of certifications available. If your business can be certified, you may get access to a logo you can put on your website to let visitors know your establishment has the certification.

What You Need to Know About NAICS Codes

Industries are sorted by the North American Industry Classification System (NAICS). A NAICS code is essentially a way for companies to describe what they do. This six-digit number also decides which NAICS size standard — average annual receipts or number of employees — applies to your business. In addition, you need to know your NAICS code to bid on government contracts.

Look Out for NAICS Changes

NAICS is reviewed every five years to ensure that it keeps up with our changing times. If it’s been a while since you checked your code, it might be a good idea to do it again and see if it’s changed.

How NAICS Works

Similar companies that are in the same line of business will be assigned the same NAIC codes. Keep in mind, however, that you assign the code yourself based on which one best suits your business — no one assigns this code for you. To identify the proper code for your company, you can use the NAICS search tool.

The Takeaway

If you plan to take out an SBA loan or bid on a government contract, knowing what is considered a “small business” is key. As a small business, you can qualify for special business opportunities that could elevate your company quickly.As your small company continues to grow, you may also find you’re in the market for small business financing. If so, Lantern by SoFi can help. You can use our fast online search tool to get a personalized small business loan option in minutes.Let Lantern help you find the right financing solution for your small business.

Frequently Asked Questions

What is considered a small business according to the SBA?
Why is being a small business important?
What are NAICS codes?

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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