Small businesses are defined as companies that employ fewer than 500 employees (in the manufacturing sector) or 100 employees (in the wholesale trade sector). The federal government specifies certain definitions for small businesses across all other industries.
How Small Businesses Impact the U.S. Economy
Small businesses are critical to the growth of the U.S. economy. They account for 65% of all new job opportunities. Without small businesses, the economy would not be able to grow.
The Congressional Research Service found that the best establishments for creating jobs are those that employ between 20 and 499 employees. They are more likely than smaller firms to stay in business after five years. At least half of all new startups fail before reaching this milestone.
Very small businesses make up the vast majority of firms in the United States. In fact, 96% of them have 50 employees or fewer. This means 5.8 million out of 6 million companies. However, they employ about 34 million workers.
Programs to Assist Small Businesses
The federal government recognizes the important role that small businesses play. Programs target small business owners in most major legislation. Here are some examples:
Tax Cuts
The Tax Cuts and Jobs Act of 2017 helped small businesses that are considered pass-through entities. These include sole proprietorships, partnerships, limited liability companies, and S corporations. They also encompass real estate companies, hedge funds, and private equity funds.
The law offers them a standard 20% deduction on qualified income. This deduction expires after 2025. The deductions for service professionals phase out once their income reaches $157,500 for individuals and $315,000 for joint filers.
Health Care
In the last decade, the costs of providing health insurance for small businesses have risen significantly. Average premiums increased from $5,700 in 1999 to $12,700 in 2009. As a result, only 59% of small businesses offered health insurance benefits. This is down from 65% in 1999.
The Affordable Care Act requires small businesses with 50 or more employees to provide health insurance or pay a penalty. The penalty is $2,000 for each employee, excluding the first 30 employees. Despite what you may hear, this requirement does not harm most small businesses. This is because over 96% of these businesses already offer health insurance.
Stimulus Spending
In 2009, the Economic Stimulus Act provided tax credits and funds for small businesses. The TARP program allocated $95 billion to community banks for lending to small businesses. In 2010, the federal government provided them with an additional $30 billion added to the 2011 budget.
Small Business Administration Loans
The Small Business Administration offers various types of loan guarantees. The smallest are microloans, which are loans of less than $50,000. Larger businesses must apply for the 7a program for loans that can go up to $2 million.
Small Business Grants
Grants are typically available only for specific types of businesses or activities that the government seeks to encourage. There are 20 categories on Grants.gov alone. These categories range from agriculture to transportation. They are funded by various federal agencies. For example, the Department of Agriculture offers grants to businesses providing high-speed internet services in rural areas.
States provide grants to specific businesses that enhance their economic plans. These include centers for child care and innovative technology or alternative energy. While grants are provided by local and state governments, the funding comes from the national level.
How to
Investment in Small Businesses
Once small businesses start to gain traction, they often require additional capital for growth. Many companies decide to access the stock market to obtain this capital. They do so by issuing an initial public offering. These initial offerings are available only to large investors. They are very risky because you cannot sell shares during an initial time period. If the value of the shares decreases, you have to watch your investment shrink.
It is easier and safer to invest in small-cap stocks. The advantage of this is that they offer the potential for healthy growth. Small-cap stocks are defined as companies with a market capitalization of less than $2 billion.
Here is some information about small businesses and their impact on the economy. Small businesses are critical for economic growth and job creation. The federal government offers many programs and grants to help small businesses and keep them competitive.
Source: https://www.thebalancemoney.com/small-business-3305963
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