Advocacy Small Business Statistics and Research

Advocacy Small Business Statistics and Research

Small Business Administration

What is a small business?

    What is a small business?

    The Offce 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 specified by the U.S. Small
    Business Administration (SBA) Office of Size Standards. These standards
    vary by industry; see


Advocacy Small Business Statistics and Research

Small Business Administration

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 more than 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).
    • Supplied 22.8 percent of the total value of federal prime contracts in FY 2005.
    • 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 percent of all identified exporters and produced 28.6 percent of the known export value in FY 2004.
    • Small
      innovative firms produce 13 times more patents per employee than large
      patenting firms, and their patents are twice as likely as large firm
      patents to be among the one percent most cited.
  2. Small firms:

    Source: U.S. Dept. of Commerce, Bureau of the Census; Advocacy-funded research by Kathryn Kobe, 2007 (; Federal Procurement Data System; Advocacy-funded research by CHI Research, 2003 (;
    U.S. Dept. of Labor, Bureau of Labor Statistics, Current Population
    Survey; U.S. Dept. of Commerce, International Trade Administration.

How many small businesses are there?

    In 2006, there were 26.8 million businesses in the United States, according to Office of Advocacy estimates. Census
    data show that there were 5.9 million firms with employees and 19.5
    million without employees in 2004. Small firms with fewer than 500
    employees represent 99.9 percent of the 26.8 million businesses
    (including both employers and nonemployers), as the most recent data
    show there were more than 17,000 large businesses in 2004.

    Source: Office of Advocacy estimates based on data from the U.S. Dept.
    of Commerce, Bureau of the Census, and U.S. Dept. of Labor, Employment
    and Training Administration.

How do regulations affect small firms?

    small firms with fewer than 20 employees annually spend 45 percent more
    per employee than larger firms to comply with federal regulations.
    very small firms spend four and a half times as much per employee to
    comply with environmental regulations and 67 percent more per employee
    on tax compliance than their larger counterparts. For data broken out
    by industry, see

    Table of Annual Cost of Federal Regulations by Firm Size

    Source: The Impact of Federal Regulations on Small Firms, an Advocacy- funded study by W. Mark Crain, 2005 (

How many businesses open and close each year?

    Estimates for businesses with employees indicate there were 649,700 new firms and 564,900 closures in 2006.

    Table for Starts and Closures of Employer Firms, 2002-2006

    e = Advocacy estimate. For a discussion of methodology, see Brian Headd, 2005 (

    U.S. Dept. of Commerce, Bureau of the Census; Administrative Office of
    the U.S. Courts; U.S. Dept. of Labor, Employment and Training

How many new jobs do small firms create?

    Over the past decade, small businesses created 60 to 80 percent of the net new jobs.
    In the most recent year with data (2004), small firms accounted for all
    of the net new jobs. Firms with fewer than 500 employees had a net gain
    of 1.86 million new jobs. Large firms with 500 or more employees lost
    more jobs than they created, for a net loss of 181,122 jobs. For
    information on employment dynamics by firm size from 1989 to 2004, see

    Source: U.S. Dept. of Commerce, Bureau of the Census.

    The SBA’s Office of Advocacy was created by Congress in 1976 to
    protect, strengthen, and effectively represent the nation’s small
    businesses within the federal government. As part of this mandate, the
    office conducts policy studies and economic research on issues of
    concern to small business and publishes data on small business
    characteristics and contributions. For small business resources,
    statistics, and research, visit the Office of Advocacy’s home page at Updated August 2007

What is small firms’ share of employment?

    Small businesses employ about half of U.S. workers. Of
    115.1 million nonfarm private sector workers in 2004, small firms with
    fewer than 500 workers employed 58.6 million and large firms employed
    56.5 million. Firms with fewer than 20 employees employed 21.2 million,
    and firms with 100 employees, 41.8 million. Although 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.

    Source: U.S. Dept. of Commerce, U.S. Bureau of the Census.

What is the survival rate for new firms?

    of new employer establishments survive at least two years, and 44
    percent survive at least four years, according to a recent study.
    results were similar for different industries. Firms that began in the
    second quarter of 1998 were tracked for the next 16 quarters to
    determine their survival rate. Despite conventional wisdom that
    restaurants fail much more frequently than firms in other industries,
    leisure and hospitality establishments, which include restaurants,
    survived at rates only slightly below the average. Earlier research has
    explored the reasons for a new business’s survivability. Major factors
    in a firm’s remaining open include an ample supply of capital, being
    large enough to have employees, the owner’s education level, and the
    owner’s reason for starting the firm in the first place, such as freedom
    for family life or wanting to be one’s own boss.

    Source: “Survival and Longevity in the Business Employment Dynamics Database” by Amy E. Knaup, Monthly Labor Review,
    vol. 128, no. 5 (May 2005), pp. 50-6; “Redefining Business Success:
    Distinguishing Between Closure and Failure” by Brian Headd, Small Business Economics, vol. 21, no. 1 (August 2003), pp. 51-61.

How are small businesses financed?

    Commercial banks and other depository institutions are the largest lenders of debt capital to small businesses. They
    accounted for almost 65 percent of total traditional credit to small
    businesses in 2003. (This includes credit lines and loans for
    nonresidential mortgages, vehicles, equipment, and leases.) Credit
    cards account for much of the growth in small business lending over the
    past few years. For more information, see Advocacy’s annual
    publication, Small Business Lending in the United States (

What role do women, minority, and veteran entrepreneurs play in the economy?


    • Of
      the 23 million nonfarm businesses in 2002, women owned 6.5 million
      businesses. These firms generated $940.8 billion in revenues, employed
      7.1 million workers, and had $173.7 billion in payroll. In addition,
      another 2.7 million firms were owned equally by both women and men;
      these firms added another $731.4 billion in revenues and employed
      another 5.7 million workers.
    • In 2002, minorities owned
      4.1 million firms that generated $694 billion in revenues and employed
      4.8 million people. Hispanic Americans owned 6.6 percent of all U.S.
      businesses; African Americans, 5 percent; Asian Americans, 4.6 percent;
      American Indians or Alaska Natives, 0.8 percent; and Native Hawaiian or
      other Pacific Islanders, 0.1 percent.
    • Male veterans’
      self-employment rates were higher than those of non-veterans from 1979
      to 2004. The rate was 13.7 percent in 2003, compared to 12.2 percent
      for non-veterans.
    • According to a study on veteran
      business ownership, about 22 percent of veterans in the U.S. household
      population were either purchasing or starting a new business or
      considering purchasing or starting one in 2004, and almost 72 percent
      of these new veteran entrepreneurs planned to employ at least one
      person at the outset of their new venture.

  2. Source: U.S. Dept. of Commerce, Bureau of the Census, Survey of Business Owners; Offi ce of Advocacy: Women in Business ( and Minorities in Business ( ); Advocacy-funded research by Robert Fairlie, 2004 ( ) and Waldman Associates, 2004 ( ).

What research is there on the cost of health insurance

    to a National Federation of Independent Business membership survey, the
    cost and availability of health insurance are a top small business
    issue. Aspects of insurance that drive small business concern are
    premium increases and administrative costs. Advocacy research shows
    that: (1) insurers of small health plans have higher administrative
    expenses than those that insure larger group plans, and (2) employees
    at small firms are less likely to have coverage than the employees of
    larger entities.

    These results are confirmed by the Kaiser
    Family Foundation, which also fi nds that firm size is an important
    indicator of whether a firm offers health insurance. This survey shows
    that about half of businesses with fewer than 10 workers offer health
    benefits to their employees. The ratio grows to about three-fourths for
    firms with 10–24 employees, to almost 90 percent for firms with 25–49
    employees, and to 98 percent for firms with 200 employees or more.
    Two-thirds of workers in firms of all sizes take health insurance
    coverage if offered.

    Source: National
    Federation of Independent Business; Kaiser Family Foundation;
    Advocacy-funded research by Rose C. Chu and Gordon R. Trapnell, 2003 (;  Joel Popkin and Com-pany, 2005 (; and Econometrica,  Inc., 2007 (

Whom do I contact about regulations?

    To submit comments on proposed regulations, send email to or visit Advocacy’s regulatory alerts page at
    To inquire about unfair regulatory enforcement, contact SBA’s Office of the Ombudsman at

How can I get more information?

  2. For more detailed information, visit Sign up at for email delivery of Advocacy’s newsletter, press, regulatory news, and research. For RSS feeds, visit  Economic research by the Office of Advocacy can be found at Specific points of interest include:

Is there a PDF version of the FAQ?

    Yes. The pdf version is located at:

Leave a Reply