Investopedia Explores Small Business Definitions and Their Role in the U.S. Economy

What's Happening?

Small businesses in the U.S. are defined by the SBA as independent entities with fewer than 500 employees, although size standards can vary by industry. As of 2024, there are over 34.7 million small businesses in the U.S., employing approximately 59 million people. These businesses are vital for innovation and job creation, contributing significantly to the country's GDP and private-sector payrolls. The SBA uses NAICS codes to classify businesses and apply size standards, which are crucial for accessing government contracts and financial programs.

Why It's Important?

Small businesses are the backbone of the U.S. economy, representing 99.9% of all businesses and accounting for 43.5% of the GDP. They play a critical role in job creation, having contributed to 61.1% of net new jobs from 1995 to 2023. The SBA's classification and support enable small businesses to compete for government contracts, fostering economic growth and resilience. This support is essential for maintaining a diverse and dynamic economy, providing opportunities for entrepreneurs and contributing to economic stability.