What is a small business?

Since the mid-1990s, small businesses have created 60 to 80 percent of the net new jobs. In the most recent year with data (2005), employer firms with fewer than 500 employees created 979,102 net new jobs, or 78.9 percent. Meanwhile, large firms with 500 or more employees added 262,326 net new jobs or 21.1 percent. For an in-depth look at employment dynamics by firm size from 1989 to 2005, see (www.sba.gov/advo/research/data.html#us).

Small businesses employ about half of U.S. workers. Of 116.3 million nonfarm private sector workers in 2005, small firms with fewer than 500 workers employed 58.6 million and large firms employed 57.7 million. Firms with fewer than 20 employees employed 21.3 million. While small firms create 60 to 80 percent of net new jobs, their share of employment remains steady since some firms grow into large firms as they create new jobs.

Source: U.S. Dept. of Commerce, Bureau of Census.

In 2007, there were 27.2 million businesses in the United States, according to Office of Advocacy estimates. Census data show that there were 6.0 million firms with employees and 20.4 million without employees in 2005. Small firms with fewer than 500 employees represent 99.9 percent of the 27.2 million businesses (including both employers and nonem- ployers), as the most recent data show there were slightly more than 17,000 large businesses in 2005.

Source: Office of Advocacy estimates based on data from the U.S. Dept. of Commerce, Bureau of the Census, and U.S. Dept. of Labor, Employment and Training Administration.

The number of nonemployer firms has risen steadily in this decade, from 16.5 million in 2000 to an estimated 21.1 million in 2007. An estimated 637,100 new employer firms began operations in 2007 and 560,300 firms closed that year.

e = Advocacy estimate. For a discussion of methodology, see Brian Headd, 2005 www.sba.gov/advo/research/rs258tot.pdf).

Source: U.S. Dept. of Commerce, Bureau of the Census; Administrative Office of the U.S. Courts; U.S. Dept. of Labor, Employment and Training Administration.

Commercial banks and other depository institutions are the largest lenders of debt capital to small businesses. They accounted for almost 65 percent of total traditional credit to small businesses in 2003. (This includes credit lines and loans for nonresidential mortgages, vehicles, equipment, and leases.) Credit cards account for much of the growth in small business lending over the past few years. For more information, see Advocacy’s annual publication, Small Business Lending in the United States (www.sba.gov/advo/research/lending.html).

Very small firms with fewer than 20 employees annually spend 45 percent more per employee than larger firms to comply with federal regulations. These very small firms spend four and a half times as much per employee to comply with environmental regulations and 67 percent more per employee on tax compliance than their larger counterparts. For data broken out by industry, see www.sba.gov/advo/re-search/rs264tot.pdf.

Source: The Impact of Federal Regulations on Small Firms, an Advocacy- funded study by W. Mark Crain, 2005 (www.sba.gov/advo/research/rs264tot.pdf).

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In 2002, minorities owned 4.1 million firms that generated $694 billion in revenues and employed 4.8 million people. Hispanic Americans owned 6.6 percent of all U.S. businesses; African Americans, 5 percent; Asian Americans, 4.6 percent; American Indians or Alaska Natives, 0.8 percent; and Native Hawaiian or other Pacific Islanders, 0.1 percent. Male veterans’ self-employment rates were higher than those of non-veterans from 1979 to 2004. The rate was 13.7 percent in 2003, compared to 12.2 percent for non-veterans. According to a study on veteran business ownership, about 22 percent of veterans in the U.S. household population were either purchasing or starting a new business or considering purchasing or starting one in 2004, and almost 72 percent of these new veteran entrepreneurs planned to employ at least one person at the outset of their new venture

Source: U.S. Dept. of Commerce, Bureau of the Census, Survey of Business Owners; Office of Advocacy: Women in Business (www.sba.gov/advo/research/rs280.pdf) and Minorities in Business (www.sba.gov/advo/research/rs298.pdf); Advocacy-funded research by Robert Fairlie, 2004 (www.sba. gov/advo/research/rs243.pdf) and Waldman Associates, 2004 (www.sba. gov/advo/research/rs242.pdf).

For many years, the cost and availability of health insurance has been a top small business concern. Aspects of insurance that drive small business concerns are premium increases and administrative costs. Advocacy research shows that: (1) insurers of small health plans have higher administrative expenses than those that insure larger group plans, and (2) employees at small firms are less likely to have coverage than the employees of larger entities.

These results are confirmed by the Kaiser Family Foundation, which also finds that firm size is an important indicator of whether a firm offers health insurance. This survey shows that about half of businesses with fewer than 10 workers offer health benefits to their employees. The ratio grows to about three-fourths for firms with 10–24 employees, to almost 90 percent for firms with 25–49 employees, and to 98 percent for firms with 200 employees or more. Two-thirds of workers in firms of all sizes take health insurance coverage if offered..

Source: National Federation of Independent Business; Kaiser Family Foundation; Advocacy-funded research by Rose C. Chu and Gordon R. Trapnell, 2003 (www.sba.gov/advo/research/rs224tot.pdf); Joel Popkin and Com-pany, 2005 (www.sba.gov/advo/research/rs262tot.pdf); and Econometrica, Inc., 2007 (www.sba.gov/advo/research/rs295tot.pdf).

For more detailed information, visit www.sba.gov/advo. Sign up at http://web.sba.gov/list for email delivery of Advocacy’s newsletter, press, regulatory news, and research. For RSS feeds, visit www.sba.gov/advo/rsslibrary.html. Economic research by the Office of Advocacy can be found at www.sba.gov/advo/research. Specific points of interest include:

• Firm size data (U.S., state, and metropolitan static and dynamic data): www.sba.gov/advo/research/data.html
• Small firm lending studies (1994–present): www.sba.gov/advo/research/lending.html
• State economic profiles (1995–present): www.sba.gov/advo/research/profiles
• The Small Business Advocate monthly newsletter (2000– present): www.sba.gov/advo/newsletter.html
  Direct questions to (202) 205-6533 or advocacy@sba.gov.