Federal Government Small Business Definition
Small businesses are often said to be the backbone of the American economy, but the definition of what a small business is can vary depending on the source. One standard definition is provided by the U.S. Small Business Administration. The SBA's definition is part of federal regulations and is used as a reference for many funding and licensing applications.
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Definition
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The Small Business Administration defines a business as an organization conducting commercial activities for profit within the United States, and having a physical business location in the U.S., operating primarily in the U.S., and making a significant contribution to the U.S. economy through taxes or material and products. The agency further defines a small business as independently owned, not dominant in its field on a national basis, and having fewer employees and monetary assets than a specific number, depending on the industry.
Codification
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The definition of small business is found in the Code of Federal Regulations (CFR). Within the CFR, the definition is referenced under Title 13, Part 121. Small businesses are further categorized in the federal North American Industrial Classification System according to income and industry.
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Standards
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There are two standards, size and monetary value, that determine whether an operation qualifies as a small business, according to the SBA. Depending on the industry, a small business is one either with fewer than 500 employees or net assets under a specific dollar amount of after-tax income for the previous two years. A "micro-business" is any operation with nine or fewer employees.
Utilization
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The federal government's small business definition is used for a variety of purposes including grants, loans and taxes. Qualified businesses can take part in specialized government bidding programs and contract with government agencies or larger government contractors for goods or services. The definition also comes into play when an operation applies for location assistance such as joining a business incubator or a special enterprise zone within a municipality.
Significance
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No federal agency or unit may use a different standard outside of the federal government's small business definition unless it meets specific guidelines approved by the SBA administrator. This definition is the determining benchmark for all programs regulated by government agencies from the local level upward.
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References
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