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

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Susan Guillory

Susan Guillory

Updated July 9, 2021
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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.
If you’re exploring small business loans to grow your company, you may be considering a loan from the Small Business Administration (SBA). The SBA has several low-interest long-term loans that can provide working capital for a variety of purposes, from equipment to real estate to business expenses.But before you apply for an SBA loan, you may want to be sure what exactly the SBA considers a small business? There are specific criteria your business needs to meet in order to qualify for an SBA loan.

What Qualifies as a Small Business?

There are many definitions of small business, depending on the context. But realize that what’s considered a small business by the government in your state may be slightly different from a small business as defined by the SBA.The industry you’re in may also be a factor. Different industries may have different requirements to qualify as a small business, typically based either on the number of employees or annual revenues.Here are a few examples of the definition of a small business for the SBA, based on industries.
So, there’s not one single answer to what is considered a small business by the Small Business Administration 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 $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 NAICS code, which we’ll talk about shortly.

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? Good question, and there are a few good answers.First of all, if you’ve looked at how you qualify for a small business loan, you already know that, for SBA loans, you must meet the agency’s size requirements to qualify. If your business is larger, it wouldn’t be fair for you to take a loan out when a smaller business might need it more. Larger businesses tend to qualify for larger loans, so the SBA has created its loan programs to be specifically for small businesses, which might not qualify for financing elsewhere. Also, small businesses may want to compete for government contracts. 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. But the federal government reserves a portion of all government contracting opportunities for small businesses so they can compete.

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:
  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 pays on time.

2. Small Business Loans

While there are other financing options for business you can consider, SBA loan rates are some of the lowest you’ll find. But you’ll only qualify for them if your company meets the SBA’s requirements for small businesses.

3. Small Business Grants

In addition to loans, there are also grants offered by federal and local governments. Grants can provide capital that you don’t have to pay back. Your business will, however, have to meet both the 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.

4. Small Business Certification

People may often be impressed by certifications, and the federal government offers several. Some individuals and companies go out of their way to hire businesses that are certified as one of the following:
  • Woman-Owned Small Business
  • Service-Disabled Veteran-Owned Small Business
  • 8(a) Business Development Business
  • Historically Underutilized Business Zone Business
And there may be other certifications also available. If your business can be certified, you may get access to a logo you can put on your site to let visitors know your establishment has the certification.

What You Need to Know About NAICS Codes

As you’re looking at what the SBA considers a small business, it’s useful to be aware of what’s called the North American Industry Classification System (NAICS). Federal agencies (like the SBA and those offering government contracts) use this system for several purposes, including contracting.  Some contracts are only offered to businesses with a specific NAICS classification, and there may be tax incentives for certain NAICS codes. Without a NAICS code, you may not be able to bid on government contracts.Going back to those size standards we talked about: each category and subcategory is based on a NAICS code. Once you know your code, you can see what the specific requirements are to qualify as a small business for the SBA.

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

Not sure what your NAICS code is? You can search for keywords related to your business on Census.gov to find it.Let’s say you run a marketing firm, so you type in the keyword “marketing.” You’ll be presented with NAICS codes for any type of business that uses the word marketing, from Student Loan Marketing Association to Marketing Research Services. Choose the one that has the description that best fits your business and there you have your code.If you decide to bid on a government contract, you will be asked to provide your NAICS code.

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 fantastic 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. Lantern Credit can help. Check rates with multiple lenders in our network, just by filling out one simple form.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0621101

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

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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