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Small Business

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small business (Photo: Tim Boyle / Getty Images)
Definition: Small businesses are critical to U.S. economic growth because they contribute 65% of all new jobs. Put simply, without small businesses, the economy won't grow. The vast majority of companies in the U.S. are very small businesses. In fact, 96% have 50 or fewer employees. That's 5.8 million out of 6 million total companies. However, they employ just about 34 million workers. (Source: Healthcare.gov)

But what exactly is a small business? It's specifically defined by the Federal government, which is important to know if you are looking for small business Federal grant or loan. Companies that are the following sizes or smaller are considered small businesses according to the Small Business Administration (SBA):

  • Manufacturing and mining industries - 500 employees.
  • Wholesale trade - 100 employees.
  • Retail and service - $6 million.
  • Construction - $28.5 million.
  • Trade contractors - $12 million.
  • Agricultural - $0.75 million.
Most federal agencies, and many state and local governments, use the size standards established by the SBA. You can search for further information and for loan opportunities on the SBA website.

Stimulus Spending

In 2009, the Economic Stimulus Act provided tax credits and funds for small businesses. In addition, the TARP program allocated $95 billion to strengthen community banks to provide loans to small businesses. In 2010, the Federal government allocated another $30 billion for these community banks to be used specifically for loans. This was continued in the FY 2011 budget. For more, see Stimulus Money for Small Businesses.

Tax Cuts

The Bush tax cuts, originally passed in 2001 and 2003, were extended in 2010. Policymakers agree they should be extended again in 2012 for those making less than $250,000 a year. Some argue they should also be extended for those making more because many of them are small business owners. In fact, only 3% of small businesses make that much. However, that 3% employs 25% of the workforce. A compromise is to extend the Bush tax cuts for these small businesses only.

As many as 70% of the wealthy don't own small businesses. If the tax cuts expire for them, it could reduce the deficit by $700 billion over the next 10 years. For more, see Extend Bush Tax Cuts for Small Business Owners.

Obamacare

In the last 10 years, the cost of providing health care insurance has skyrocketed for small businesses. The average premiums rose from $5,700 in 1999 to $12,700 in 2009. As a result, only 59% of small businesses offer health insurance benefits, down from 65% in 1999.

Small businesses with 50 employees or more are required by Obamacare to provide health insurance or they may have to pay a fine. The penalty is $2,000 per employee for all but the first 30 employees. However, more than 96% of such companies already do provide insurance. (Source: Healthcare.gov)

Businesses with fewer than 100 employees can use the state-run exchanges to shop for the most cost-effective plan. Businesses with fewer than 50 employees don't have to pay a fine if their workers get tax credits through an exchange.

Although they aren't required to, companies with 25 employees or less may qualify for a tax credit (35% now, 50% in 2014) if they do offer health plans. One criteria is the average annual salary must be $50,000 or less. To find out how to qualify, go to Small Business Tax Credit.

Businesses that offer health insurance as a benefit to early retirees 55-64 can get Federal financial assistance. Find out how at ERRP.

Investing in Small Businesses

Once a small business starts to do well, it often needs more capital to grow. Many businesses decide to access the stock market for that capital, and undertake the arduous process to issue an Initial Public Offering (IPO). Many people like to invest in these small cap stocks because they offer the possibility for strong growth. Small cap stocks are defined as companies with a market capitalization of less than $2 billion. (Article updated July 2, 2012)

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