Does Your Company Really Classify as a Small Business?

There are many benefits to being categorized as a small business, but your company has to fall within specific constraints to qualify. You may assume that, by its name, the company automatically qualifies if it has very few employees or limited operations. But is that the case?  

To ensure your business meets the necessary requirements and can receive all the perks of this designation, read this simple rundown.

Employee requirements  

The U.S. Small Business Administration sets industry-specific size standards for whether a company qualifies as a small business. These standards are generally based on either average annual receipts or average number of employees, and the threshold depends on the NAICS code that applies to your business or opportunity. 

For employee-based standards, the SBA generally looks at average employment over a defined period and includes all employees, whether full-time, part-time, temporary or otherwise paid through payroll. Because limits differ significantly by industry, confirm the current SBA size standard for your specific NAICS code before relying on small-business status. 

Keep in mind that these totals factor in the employees across all locations within your company, not just a single site.  

Revenue requirements  

Even if your company doesn’t have many employees, it still may not qualify as a small business. Why? Revenue is another major criterion. In fact, the SBA only looks at the annual receipts of small businesses in some industries, disregarding their employment numbers altogether.  

Annual receipt limits also vary widely by industry. The SBA’s current table is the best source for the applicable threshold, and businesses should use the standard tied to their specific NAICS code rather than relying on a single general revenue figure. This is especially important for companies pursuing SBA loans, certifications or government contracting opportunities. 

Again, these numbers consider revenue across all locations within your company, not on a site-by-site basis. They are also based on average receipts over a defined period, which helps avoid relying on a single year that may be unusually high or low.  

Other requirements  

Once you meet those two stipulations, there are a handful of other qualifications the U.S. Small Business Administration has set.  

Additional SBA requirements generally include operating as a for-profit organization, being physically located and doing business in the U.S., and not dominating the national market in your field. Your business must also be independently owned and operated, which means ownership or control by another company may affect whether you qualify.  

Also, the qualifications for health-insurance programs are different from SBA size standards. In most states, SHOP coverage is generally available to employers with 1 to 50 full-time equivalent employees, while some states allow employers with up to 100. Employers should also check participation, coverage and work-site requirements before enrolling. 

There are many perks of being a small business, such as qualifying for government contracting programs and access to select SBA financial tools. If your company meets the criteria, make sure you’re taking full advantage of these exclusive benefits. 

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At Five Star Bank, we are proud to offer services, tools and resources that helps your operations grow and thrive. Reach out to us today for advice and personalized support.

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