What are small businesses?

Small businesses, defined as companies with fewer than 10 employees, are an important part of the American economy and are the most common type of business in the United States. As of 2016, small businesses employing nearly 4 million employees represented 75% of all private sector employers and provided over 10% of private sector jobs.

Types of Small Businesses

Many small businesses exist in the retail, construction, healthcare, and social assistance sectors. Additionally, small breweries can also be considered small businesses, defined by producing fewer than 15,000 barrels of beer annually. The number of states linking the term “small business” to cannabis-related companies for licensing purposes is increasing. For instance, California has a small business license allowing for cannabis cultivation and for companies operating as distributors or manufacturers or retailers.

How Small Businesses Operate

Small businesses start in much the same way that larger companies do, including:

• Selecting a formal legal structure for the business, such as a limited liability company, corporation, or partnership
• Setting up the financial, marketing, administrative, and operational aspects
• Obtaining business licenses and permits

Note: If you are considering starting a sole proprietorship, you may consider starting as a sole proprietorship – the simplest form of business. If you need a business loan, you may need to register in your state as a limited liability company or corporation.

Small businesses also operate in the same way that other types of businesses do. They are taxed based on the type of business the owner chooses – whether it is a sole proprietorship, corporation, partnership, or limited liability company – and they must pay business income taxes, payroll taxes, sales taxes, property taxes, and other taxes required by state and federal government.

How to Get a Small Business Loan

Small businesses, including small enterprises, often face greater difficulty obtaining loans for startup and expansion, partly because they have little capital (cash and other assets) to contribute, and also because traditional lenders typically do not like to lend small amounts.

There are opportunities to obtain a loan for your small business if you wish to get a small amount of money (less than $50,000). The Small Business Administration (SBA) small loan program offers loans up to $50,000 for small businesses. It works with intermediary lenders (known as small lenders), which are certain nonprofit community organizations that run the programs in addition to providing training and planning assistance.

Note: Small lenders make all lending decisions regarding SBA loans. Contact your nearest SBA office for more information, or check the list of SBA intermediary lenders.

You may also be able to get a small loan from a local bank or credit union, or from peer-to-peer lenders.

Advantages and Disadvantages of Small Businesses

Advantages of small businesses:

• Simple process
• Potential for growth

Disadvantages of small businesses:

• Harder to obtain loans
• Harder to hire employees because they may not be able to pay as much as others

Key Takeaways

Small businesses are the smallest enterprises, with a few employees. They start and operate in the same way that other types of businesses do. Your small business may be able to obtain a small loan from the Small Business Administration. If your company is in an underserved area, you may be able to get a small loan from an investment company.

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Sources:

• Small Business Administration. “Small Business Facts: The Role of Small Business Owners in the Economy.” Accessed November 3, 2020.
• SBA

Small businesses in the United States. “The role of small businesses in the economy.” Accessed November 3, 2020.

• Official website of the state of Vermont, Department for Children and Families. “Small Business Development Program (MBDP).” Accessed November 3, 2020.
• ASQ. “What is a small business?” Accessed November 3, 2020.
• Brewery Association. “Categories of the Craft Brewing Market.” Accessed November 3, 2020.
• California Cannabis Control Office. “Small Businesses.” Accessed November 3, 2020.
• U.S. Small Business Administration. “Small Loan Program.” Accessed November 3, 2020.
• MECKNC.gov. “Small Business Stabilization Fund.” Accessed November 3, 2020.
• Nebraska Department of Revenue. “Guide to the Small Business Tax Law.” Accessed November 3, 2020.

Source: https://www.thebalancemoney.com/differences-between-micro-business-and-small-business-4159188