What’s A Small Business?

Small businesses are defined in the eyes of the beholder.  A small business seen through the eyes of a large commercial bank any enterprise with less than $20 million revenue is “small.”   The FDIC defines a “small business loan” as one for $1 million or less. The Small Business Administration uses the FDIC definition for its reporting.   [HuffPo]  Programs for small business lending in the Treasury Department are based on different criteria.

The Treasury Department identifies criteria for a small business in two programs.  The one-shot State Small Business Credit Initiative provides for loans not exceeding $5 million to businesses with less than 500 employees. [Treasury pdf] The second program is the Small Business Lending Fund, ” Enacted into law as part of the Small Business Jobs Act of 2010 (the Jobs Act), the Small Business Lending Fund (SBLF) is a dedicated investment fund that encourages lending to small businesses by providing capital to qualified community banks1 and community development loan funds (CDLFs) with assets of less than $10 billion. ” [Treasury]

This is the point at which the IRS definitions can be inserted because for the purposes of implementing the Small Business Jobs Act of 2010 the IRS defines a small business as including a corporation which is not publicly traded, and the owner must have  $50,000,000 or less in average annual gross receipts over the three preceding tax years. [IRS] Those who would like to plow further into these weeds should see IRS publication 334. (pdf)

Just to make matters more complicated the Small Business Administration splits out its definition of a small business into sectors.  The agency makes its determinations based on the average number of employees over the previous 12 months, or on the sales volume averaged from the previous 3 years.   A manufacturing firm can have as many as 1500 employees depending on the product, and wholesaling operations from 100 to 500.   Services are based on revenue, the maximum ranging from receipts of $2.5 to $21.5 million depending on the service; the maximum range for retailing is $5 million to $21 million; construction company receipts are a maximum of $13.5 to $17 depending on the type of construction, special trade construction receipts ‘max out’ at $7 million.  An agricultural small business may be eligible if its receipts are under $500,000 to $9 million depending on the product.

What’s the point?  One point is that both political parties are overly fond of helping Small Business — and no one appears to have determined what that means.

As demonstrated in the opening section of this post, the definition of a small business can easily range from the Bechtel Corporation company to Barney’s Barber Shop.

What matters is how policies are shaped to assist economic growth, and how they define small business operations in terms of economic expansion.   The popular notion of a small business as exemplified by Barney’s Barber Shop, Charlie’s Catering, or Delilah’s Home Designs, is  perfectly acceptable if the policy objective is to promote local economic growth.

If our objective is to encourage the manufacturing of solar panels in the United States of America, then a “small” manufacturing business employing 450 meets the criteria for receiving assistance in lines of credit and in terms of tax breaks for a small business.

If the objective is to encourage financial transactions hedging risk and other financial manipulations, then a 499 person hedge fund can be classified as a small business.

What we have not had to date is a serious public discussion of What small business enterprises we want to encourage.

If our purpose is to promote economic growth in the manufacturing sector, then our public discourse should include proposals for the development of innovative products and technologies.  Merely propounding, for example, that the Trans Pacific Partnership will help small manufacturers find export opportunities isn’t enough.  We’ll need to talk about how to promote small business sales opportunities without having the outcome hijacked by multi-national corporate behemoths who are more interested in facilitating the flow of capital than they are about whether New Tech Innovations, Inc. can find buyers.

If our purpose is to promote small contractors and sub-contractors in their sector of the economy, then we need to ask if we are encouraging such infrastructure projects as will be of interest to and are attainable for those small contractors and subcontractors.  If there is still a surplus of unsold inventory in the single family housing sector, then why promote this kind of contracting when there is a need for affordable multi-family commercial properties?   Perhaps we should be asking questions like: What will be the economic  impact be of the (Fill in the Blank) project for our local contractors and subcontractors? Instead of obsessing on the project costs?

If our purpose is to promote the efforts of retailers, then do our tax policies and other public pronouncements, benefit small family owned enterprises, or can those enterprises benefit only as a segment of a sector dominated by big box corporations?   Worse still, are we creating a system in which the big box operations are given artificial advantages as they compete with smaller family owned enterprises?  Are we supporting the customers of those grocery, clothing, and other purveyors with “automatic stabilizers’  (food stamps, unemployment insurance benefits) during periods of economic volatility or contraction?

Singing the praises of Mom and Pop companies while promoting policies which give global corporations a leg up, is neither honest nor helpful.  Lauding the efforts of small business owners in 4th of July stump speech rhetoric isn’t productive unless it is backed up with proposals to encourage investment in new economic endeavors, and solicit assistance for local business activities.

We can dream that during this campaign season of specific plans to address equally specific needs in our local economies.   Small business owners are the first to feel the volatility in an economy. They are the first to feel it and too often are the last to recover from it.  They deserve more than to be told “It will all trickle back down on them…someday,” because they may have to make payroll tomorrow.

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