U.s. Sba Office Of Advocacy Frequently Asked Questions, 2009
Office of Advocacy
Frequently Asked Questions
ww w.sba.gov/advo
Advocacy: the voice of small business in government
What is a small business?
Starts and Closures of Employer Firms, 2004–2008
The Office of Advocacy defines a small business for research
purposes as an independent business having fewer than 500
Category
2004
2005
2006
2007
2008
employees. Firms wishing to be designated small businesses
Births
628,917 644,122 670,058 663,100e 627,200e
for government programs such as contracting must meet size
Closures
541,047 565,745 599,333 571,300e 595,600e
standards specified by the U.S. Small Business Administra-
Bankruptcies
34,317
39,201 19,695
28,322
43,546
tion (SBA) Office of Size Standards. These standards vary by
Notes: e = Advocacy estimate. Bankruptcies include nonemployer firms.
industry; see www.sba.gov/size.
For a discussion of methodology, see Brian Headd, 2005 (www.sba.gov/
advo/research/rs258tot.pdf).
How important are small businesses to
Source: U.S. Dept. of Commerce, Bureau of the Census; Administrative
the U.S. economy?
Office of the U.S. Courts; U.S. Dept. of Labor, Employment and Training
Small firms:
Administration.
• Represent 99.7 percent of all employer firms.
• Employ just over half of all private sector employees.
What is small firms’ share of employment?
• Pay 44 percent of total U.S. private payroll.
Small businesses employ just over half of U.S. workers. Of
• Have generated 64 percent of net new jobs over the past
119.9 million nonfarm private sector workers in 2006, small
15 years.
firms with fewer than 500 workers employed 60.2 million and
• Create more than half of the nonfarm private gross domes-
large firms employed 59.7 million. Firms with fewer than 20
tic product (GDP).
employees employed 21.6 million. While small firms create
• Hire 40 percent of high tech workers (such as scientists,
a majority of the net new jobs, their share of employment
engineers, and computer programmers).
remains steady since some firms grow into large firms as they
• Are 52 percent home-based and 2 percent franchises.
create new jobs. Small firms’ share of part-time workers (21
• Made up 97.3 percent of all identified exporters and pro-
percent) is similar to large firms’ share (18 percent).
duced 30.2 percent of the known export value in FY 2007.
Source: U.S. Dept. of Commerce, Bureau of the Census: Statistics of U.S.
• Produce 13 times more patents per employee than large
Businesses, Current Population Survey.
patenting firms; these patents are twice as likely as large
firm patents to be among the one percent most cited.
How many small businesses are there?
Source: U.S. Dept. of Commerce, Bureau of the Census and International
In 2008, there were 29.6 million businesses in the United
Trade Admin.; Advocacy-funded research by Kathryn Kobe, 2007 (www.
States, according to Office of Advocacy estimates. Census
sba.gov/advo/research/rs299tot.pdf) and CHI Research, 2003 (www.sba.
data show that there were 6.0 million firms with employees in
gov/advo/research/rs225tot.pdf); U.S. Dept. of Labor, Bureau of Labor
2006 and 21.7 million without employees in 2007 (the latest
Statistics.
available data). Small firms with fewer than 500 employees
What share of net new jobs do small
represent 99.9 percent of the 29.6 million businesses (includ-
businesses create?
ing both employers and nonemployers), as the most recent
data show there were about 18,000 large businesses in 2006.
Firms with fewer than 500 employees accounted for 64
Source: Office of Advocacy estimates based on data from the U.S. Dept. of
percent (or 14.5 million) of the 22.5 million net new jobs
Commerce, Bureau of the Census, and U.S. Dept. of Labor, Employment and
(gains minus losses) between 1993 and the third quarter of
Training Administration.
2008. Continuing firms accounted for 68 percent of net new
jobs, and the other 32 percent reflect net new jobs from firm
What is the survival rate for new firms?
births minus those lost in firm closures (1993 to 2007).
Seven out of ten new employer firms last at least two
Source: U.S. Dept. of Labor, Bureau of Labor Statistics, Business Employ-
years, and about half survive five years. More specifically,
ment Dynamics. Note that the methodology used for the figures above counts
according to new Census data, 69 percent of new employer
job gains or losses in the actual class size where they occurred.
establishments born to new firms in 2000 survived at least
two years, and 51 percent survived five or more years. Firms
How many businesses open and close
born in 1990 had very similar survival rates. With most firms
each year?
starting small, 99.8 percent of the new employer establish-
An estimated 627,200 new employer firms began opera-
ments were started by small firms. Survival rates were simi-
tions in 2008, and 595,600 firms closed that year. This
lar across states and major industries.
amounts to an annual turnover of about 10 percent for entry
Source: U.S Dept. of Commerce, Bureau of the Census, Business Dynamics
and 10 percent for exit. Nonemployer firms have turnover
Statistics. Note that the figures could be skewed slightly by the rare occur-
rates three times as high as those of employer firms, mostly
rence of new firms opening multiple establishments in their first few years.
because of easier entry and exit conditions.
Updated September 2009
How are small businesses financed?
In 2007, the overall rate of self-employment (unincorpo-
Commercial banks and other depository institutions are
rated and incorporated) was 10 percent, and the rate was 7.1
the largest lenders of debt capital to small businesses.
percent for women, 7.4 percent for Hispanic Americans, 5.2
They accounted for almost 65 percent of total traditional
percent for African Americans, 10.1 percent for Asian Ameri-
credit to small businesses in 2003. (This includes credit lines
cans and Native Americans, and 14.4 percent for veterans.
and loans for nonresidential mortgages, vehicles, equipment,
According to a recent study, service-disabled veterans were
and leases.) Credit cards account for much of the growth in
less likely than non-service-disabled veterans to be employed,
small business lending over the past few years. For more in-
and they had lower self-employment rates.
formation, see Advocacy’s annual publication, Small Business
Source: U.S. Dept. of Commerce, Bureau of the Census, Survey of Business
Lending in the United States (www.sba.gov/advo/research/
Owners; Office of Advocacy: Women in Business (www.sba.gov/advo/re-
lending.html).
search/rs280.pdf) and Minorities in Business (www.sba.gov/advo/research/
rs298.pdf); Open Blue Solutions, 2007 (www.sba.gov/advo/research/
How do regulations affect small firms?
rs291tot.pdf), and Office of Advocacy: The Small Business Economy, 2009
(Table A.13, www.sba.gov/advo/research/sbe.html).
Very small firms with fewer than 20 employees annually
spend 45 percent more per employee than larger firms to
What research exists on the cost and
comply with federal regulations. These very small firms
availability of health insurance?
spend four and a half times as much per employee to comply
For many years, the cost and availability of health insurance
with environmental regulations and 67 percent more per em-
have been top small business concerns. These concerns are
ployee on tax compliance than their larger counterparts. For
driven by premium increases and administrative costs. Advo-
data broken out by industry, see www.sba.gov/advo/
cacy research shows that: (1) insurers of small health plans
research/rs264tot.pdf.
have higher administrative expenses than those that insure
larger group plans, and (2) employees at small firms are less
Annual Cost of Federal Regulations by Firm Size,
likely to have coverage than the employees of larger entities.
All Business Sectors (Dollars)
A Kaiser Family Foundation study confirmed the connec-
Cost per Employee for Firms with:
tion between the size of a firm and whether it offers health
Type of Regulation
insurance. The Kaiser survey shows that about half of busi-
<20 Employees
500+ Employees
nesses with fewer than 10 workers offer health benefits to
All Federal Regulation
$7,647
$5,282
their employees. The ratio grows to about three-fourths for
Environmental
3,296
710
firms with 10–24 employees, to almost 90 percent for firms
Economic
2,127
2,952
with 25–49 employees, and to 98 percent for firms with 200
Workplace
928
841
employees or more. Two-thirds of workers in firms of all
Tax Compliance
1,304
780
sizes take health insurance coverage when offered.
Source: The Impact of Federal Regulations on Small Firms, an Advocacy-
Overall in 2007, small firm employees were almost twice
funded study by W. Mark Crain, 2005 (www.sba.gov/advo/research/
as likely as large firm employees to be uninsured (24.6 per-
rs264tot.pdf).
cent vs.12.6 percent, respectively).
Source: National Federation of Independent Business; Kaiser Family
Whom do I contact about regulations?
Foundation; Advocacy-funded research by Rose C. Chu and Gordon R.
To submit comments on proposed regulations, send email
Trapnell, 2003 (www.sba.gov/advo/research/rs224tot.pdf); Joel Popkin and
to advocacy@sba.gov or visit Advocacy’s regulatory alerts
Company, 2005 (www.sba.gov/advo/research/rs262tot.pdf); and Econo-
metrica, Inc., 2007 (www.sba.gov/advo/research/rs295tot.pdf); and Office
page at www.sba.gov/advo/laws/law_regalerts.html. To
of Advocacy: The Small Business Economy, 2009 (www.sba.gov/advo/
inquire about unfair regulatory enforcement, contact SBA’s
research/sbe.html).
Office of the National Ombudsman at ombudsman@sba.gov.
How can I get more information?
What is the role of women, minority, and
For more information, visit Advocacy’s website:
veteran entrepreneurs?
www.sba.gov/advo. Specific points of interest include:
Of the 23 million nonfarm businesses in 2002, women owned
• Economic research: www.sba.gov/advo/research.
6.5 million businesses, generating $940.8 billion in revenues,
• Firm size data (U.S., state, and metropolitan static and
employing 7.1 million workers, and paying $173.7 billion
dynamic data): www.sba.gov/advo/research/data.html.
in payroll. Another 2.7 million firms were owned equally by
• Small firm lending studies:
both women and men. Also in 2002, minorities owned 4.1
www.sba.gov/advo/research/lending.html.
million firms that generated $694 billion in revenues and
• Small business profiles by state and territory:
employed 4.8 million people. Hispanic Americans owned 6.6
www.sba.gov/advo/research/profiles.
percent of all U.S. businesses; African Americans, 5 percent;
• The Small Business Advocate newsletter:
Asian Americans, 4.6 percent; American Indians or Alaska
www.sba.gov/advo/newsletter.html.
Natives, 0.8 percent; and Native Hawaiian or other Pacific
For email delivery of Advocacy’s newsletter, press, regulatory
Islanders, 0.1 percent. Veterans made up 14 percent of all
news, and research, sign up at http://web.sba.gov/list. For
owners in 2002, and 7 percent of them were service-disabled.
RSS feeds, visit www.sba.gov/advo/rsslibrary.html.
Direct questions to (202) 205-6533 or advocacy@sba.gov.
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 www.sba.gov/advo.
