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March 16th, 2009
04:25 PM ET

What is a small business?

Editor's Note: President Obama vowed Monday to ease the financial plight of the nation's small businesses, promising immediate action to revive frozen credit markets. The president called small businesses "one of the biggest drivers of employment that we have" and said his administration is "working diligently to increase liquidity throughout the financial system."

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2009/POLITICS/03/16/AIG.bonuses/art.obama.pool.jpg caption="The president announced a plan Monday to help small businesses during the credit crisis."]

So what exactly is a small business? Here's a quick fact-sheet from the U.S. Small Business Association.

1. What is a small business?

The Office of Advocacy defines a small business for research purposes as an independent business having fewer than 500 employees. Firms wishing to be designated small businesses for government programs such as contracting must meet size standards speci?ed by the U.S. Small Business Administra- tion (SBA) Office of Size Standards. These standards vary by industry; see http://www.sba.gov/size.

2. How important are small businesses to the U.S. economy?

• Represent 99.7 percent of all employer firms.
• Employ about half of all private sector employees.
• Pay nearly 45 percent of total U.S. private payroll.
• Have generated 60 to 80 percent of net new jobs annually over the last decade.
• Create more than half of nonfarm private gross domestic product (GDP).
• Hire 40 percent of high tech workers (such as scientists, engineers, and computer
workers).
• Are 52 percent home-based and 2 percent franchises.
• Made up 97.3 percent of all identified exporters and produced 28.9 percent of the known
export value in FY 2006.
• Produce 13 times more patents per employee than large patenting firms; these patents are twice
as likely as large firm patents to be among the one percent most cited.

3. How many new jobs do small firms create?

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.

4. What is small firms’ share of employment?

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.

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soundoff (21 Responses)
  1. Muriel Thompson

    My son-in-law has a small auto repair business in Ma. It is a 3rd generation business. They are loosing everything (including their house) as the EPA came in and made them do a clean up of the property as it had gas and oil in the soil. They took a loan to do a clean up and EPA would not sigh off after testing was done. They now have had to do phase 2,and EPA will still not sign off. They have no more money and cannot meet the payments. The bank is going to foreclose as the house was put up as collateral. No Lawyer will help them as they have no money! How can the get HELP?
    Help Help A concerned Mom

    March 17, 2009 at 9:35 am |
  2. Dennis Willard

    I will agree with most stating more should be done for small businesses and entrepreneurs since they have always been important to employment and keeping prices down since they are direct competition to large companies. We have seen what big companies and banks have done to our economy.

    March 17, 2009 at 5:28 am |
  3. MELINDA

    Why do all these "rescues" have to be so complicated? When I was first out of dental school in 1980 the ONLY reason I could ever open my own dental practice with no credit history, $150K in school debt, and 18% interest rates was something called an INVESTMENT TAX CREDIT. For every dollar you use to buy capital goods (equiptment, autos, etc) for a business, you get to deduct that cost DIRECTLY OFF THE TOP of your taxes for as many years as it takes to repay you, the business owner, for its cost (not just a one or two year deduction off your net income)!! It's much more efficient than some rinky-dink loan savings and cheaper for both the businesses and the government as it has been shown many times to be the best way to ensure a new or small business survives! This is the most powerful stimulus for both large and small businesses and INSTANTLY stimulates the economy. IT'S SIMPLE TO UNDERSTAND, AND THE MONEY CAN'T BE SPENT ON OTHER FRIVOLOUS THINGS, JUST THE DURABLE MACHINES THAT CREATE SOLID GOODS AND SERVICES for a community... in my case dental chairs, x-ray machines, sterilizers, etc. In times like this, it is the only stimulus that will work.... always has, always will! Checks in the mail, gimmicky loans, accelerated deductions, all are debt traps either for the government (THAT's US) or the borrower, or most likely BOTH! An investment tax credit gives the purchaser of capital goods (whether it's borrowed money or not) a way to make a living and a tax breather while they pay the money back or just get their business going. The purchase (usually expensive machines) itself has to be made by other businesses and therefore INSTANTLY creates new jobs and income for other businesses and manufacturers.

    March 17, 2009 at 3:01 am |
  4. vic muzyka

    How stupid do the politicians think we are? Their plan for small business is to write off losses the last 5 years to help them out now. For the last 5 years I showed a loss that was already written off there is no way you can do it again. The messiah is blowing smoke as usual. God help this country .

    March 17, 2009 at 1:25 am |
  5. Stargirl

    I'm a new business owner seeking 2 reach out 2 youth. PROJECT STARZ promotes- Gang Prevention, U R SomeBody Program, ASL-youth & adult, mentoring, counseling individual & families, advocate, case managment. I seek guidance from our President

    March 17, 2009 at 1:24 am |
  6. Kamanonie

    I'm a small business just starting to provide personal assistance service 2 the disable in Houston, TX. I'm in need of homes to place clients who needs a home. How would this help me?. email if possible.

    March 17, 2009 at 1:16 am |
  7. Luis

    Doesn't Obama want to punish Small Business?

    Didnt he say he would tax companies or people making over $250,000 a year?

    Am I wrong?

    What the incentive to have a business when you get taxed 40%?

    March 17, 2009 at 12:22 am |
  8. Max

    Assuming that the numbers on small businesses are correct, the government may be an affective to in finding products that other countries need that could be produced in the United States and exported. We need to quite supporting these ponzi schemes and start producing tangible products. Do 9 out of 10 small businesses still fail in the first 18 months? The bottom line is that we need to export export export to create wealth. If we continue to become a debtor nation we will not pull out of this financial slide. We need to start making things with our hands which created all the wealth we are currently giving back.

    March 16, 2009 at 11:30 pm |
  9. SHARON

    I think there should be a lower category defined as mini businesses. There are a lot of small businesses who employ less than 25 people. If they would do that they would realize that a lot of us would like some help other than a tax cut since many of us don't even see a black bottom line after expenses. The SBA doesn't even seem too interested in businesses of our size. I'm a female business owner and did not find them helpful at all.

    March 16, 2009 at 11:20 pm |
  10. Dolores Granados

    Our business consist of,My husband, and son. They are partners in a small car lot business. My husband is 75yrs old . He works 7days a week, not even taking Holidays off, He is behind $250.000 in debt to banks that gave him credit to run the business. Now because of what happend, no one can get credit to buy a used car. I don't know what will happen to his business. Does he fit in the catagory where their might be help for him? He has, had this business for 35yrs.

    March 16, 2009 at 10:46 pm |
  11. pastor Carol Yard

    Hello, My parents was watching tonight ac 360 and informed me about the President pass a new bill about small businessess and filing taxes and admending taxes on the last 5 years pass if your business took a lost I had a business and took and lost and was forced to close my business can you give me infor about the segment on small business

    March 16, 2009 at 10:46 pm |
  12. karen

    From your experts.... I would love to know more about the creative small businesses ideas especially green related. Also, trends for new small business and succesful small businesses. karen

    March 16, 2009 at 10:42 pm |
  13. KIm

    Unlock the SBA security backed loans today ! Obama explained all this well and you don't have to be a wizard finance major to understand what he said ! Which banks were ready today ?

    March 16, 2009 at 10:35 pm |
  14. david turner

    I have five rental houses three of my houses was empty at one time. It has been hard to get back on my feet because my tents are not working. What can I do.

    March 16, 2009 at 10:33 pm |
  15. VGarcia

    I have owned by small business for 8 years. I understand what President Obama wants to do for us small business owners. But how will this really help us. I have gone to my local SBA to request a loan to help me through these hard times, but they want to see capacity. I need to have positive cash flow in my business for me to get a loan. With the ecomony being the way it is I do not have positive cash flow. I need a bail out. The government bailed out BIG businesses. What about me. I had 7 employees and I'm down to 3.
    Who can help me? How is SBA going to work with small businesses when they no longer have positive cash flow?
    I fear the day is coming where I will have to close my doors and get a fulltime job. Know one is hiring.

    March 16, 2009 at 10:28 pm |
  16. Norma

    Give banks more money for small businesses?! The SBA needs to have direct lending authority. If not, banks will continue to use their criteria to discriminate!

    March 16, 2009 at 10:02 pm |
  17. L. Meyer

    I would like to see AIG institute the Adopt an American Family Program. For every million an executive accepts in bonuses then I believe they should adopt 20 American families that have been impacted by the economic recession that Wall Street created. You see my husband is a small business owner and due to frozen credit markets, he now has no buyers or sellers. We are faced with bankruptcy.

    Since, my tax money went to the Wall Street Bailout then they in turn should adopt the families who helped them keep their jobs. I figure 20 families, $50,000 per family would help jump start the economy because then we could start saving our small businesses, purchasing, saving and investing again.

    Regards,
    L. Meyer

    March 16, 2009 at 5:53 pm |
  18. Jen

    I am a small business owner of 10 years (construction). My business has dropped more than 90% over the last year.

    I do not see how increasing the liquidity throughout the financial system will help me directly. I do not have any loans for my business, nor do I intend to pull any. I have been on a cash only basis for 9 of the 10 years that I've owned my business & will continue to do so. Equipment is only purchased when I can afford it.

    Asking small business owners to borrow more money to stay afloat is irresponsible. The idea that debt is good has created this monster within the system, and now the government is going to promote this?

    March 16, 2009 at 5:00 pm |
  19. Isabel, Brazil

    A few years ago in Brazil, the government did something alike. So was created a different classification for Small Enterprise (micro). For companies that have a low annual turnover, the payment of taxes can be made simpler and optantes companies collect the taxes and contributions due, calculated on gross revenues through the application of single aliquot.

    This encouragement of the government saved many companies from bankruptcy. And as a result minimized unemployment.

    March 16, 2009 at 4:54 pm |
  20. Joe G. (Illinois)

    Translation.. Brace yourself “Small Business”. It seems… (Correction) Actually fact is that when Obama goes out on a limb claiming one thing.. The very next day, if not the other he does just the very opposite. Then of course we have to watch the Press Secretary on TV going on and on while degrading honest people at large who might have questions or seek clarification.. I’ll say, although 53% of Americans evidently believe in Fantasy Heroes… As a matter of courtesy, Obama should still show a level of “Whatever” so that honest hard working people and the stock market doesn’t go array all the time he speaks..

    March 16, 2009 at 4:45 pm |