If you operate a business you might consider whether it meets the federal definition of a small business. Business concerns that meet the Small Business Administration’s (“SBA”) definition of a “Small Business” can qualify for preferential financing and award of federal government contracts. The purpose of this article is to briefly discuss what a Small Business is and the advantages of determining whether your business meets that definition.
There are many advantages to being a Small Business. If your business would sell its products to the federal government, there are certain set-asides and preferential rules for the award of federal contracts to small, disadvantaged or veteran-owned businesses. Also, there are many loan and financing programs available to Small Businesses. These include American Recovery Capital Loans (“ARC”) – interest-free loans for companies harmed by the recent recession, loans for small businesses involved in export, micro-loans of $35,000 and long-term fixed financing for modernizing or acquisition of fixed assets.
The relevant term, for purposes of the Small Business Act, is a “small business concern.” To be eligible for that Act’s benefits, the entity must be both a “business concern” and “small.” A business concern is, ” … a business entity organized for profit, with a place of business located in the United States, and which operated primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor. 13 CFR Sec. 121.105. This definition is very broad: it requires that a recipient of SBA assistance be a business located in the United States, that pays taxes to the United States and/or uses domestic products, materials or labor. This still leaves the question of what is “small.”
A business is small when the SBA says it is. The SBA’s definition of what constitutes a small business may differ depending on whether a company is applying for SBA financing or whether it is applying or bidding for federal government contracts (in which case small is generally defined as 500 employees or fewer). For purposes of financing, the SBA divides all of American industry into one of the approximately 1,000 classifications defined by North American Industry Classification System (“NAICS”). SBA has assigned a different definition of “small” to each of these classifications. A specific’s industry’s classification as “small” is based on either its numbers of employees or the amount of its annual sales. There are over 87 pages of regulations describing these different classifications.If you want more information about whether your business qualifies as a Small Business, please contact us.