Background on Small Business

Net New Jobs 1993-2016There is a close relationship between the economy and small businesses. Small businesses continue to be incubators for innovation and employment growth. According to the U.S. Small Business Administration Office of Advocacy, small businesses make up more than 99.7% of firms with paid employees, account for 62% of net new jobs, produced 46% of the private nonfarm gross national product in 2008 (the most recent year for which the source data are available), and represent about 95.9% of employer firms in high-patenting manufacturing industries. 

small businesses account for 62 percent of net new jobs

As you can see by the statistics, small businesses continue to play a vital role in the economy of the United States.

Find more statistics on the SBA's Office of Advocacy website


What is a Small Business?

To be a small business, vendors must adhere to industry size standards established by the U.S. Small Business Administration (SBA). When small firms register as a government contractor in the System for Award Management, they also self-certify their business as small.

The SBA, for most industries, defines a "small business" either in terms of the average number of employees over the past 12 months, or average annual receipts over the past three years. In addition, SBA defines a U.S. small business as a concern that:

  • Is organized for profit
  • Has a place of business in the US
  • Operates primarily within the U.S. or makes a significant contribution to the U.S. economy  through payment of taxes or use of American products, materials or labor
  • Is independently owned and operated and is not dominant in its field on a national basis

The business may be a sole proprietorship, partnership, corporation, or any other legal form. In determining what constitutes a small business, the definition will vary to reflect industry differences - especially size standards.
Small Business Administration's Size Standards Tool
The SBA's table of size standards corresponds to the North American Industry Classification System (NAICS). All federal agencies must use SBA size standards for small business contracting.  Vendors should select NAICS codes that best match their business activities and then determine if their business meets the size standards for the selected NAICS codes. Vendors can use the SBA's Size Standards Tool to determine if they qualify as a small business.

For federal government procurements, vendors must meet the small business size standard that corresponds to the NAICS code selected by the contracting officer for that contract. The selected contract NAICS code is not required to match up to a vendor's principal activity NAICS code. The vendor qualifies as a small business as long as it meets the size standard for the procurement.

Small Business Size Regulations are in Title 13 of the Code of Federal Regulations, part 121(13 CFR §121)

The SBA Office of Government Contracting makes formal "size determinations" that decide if a business qualifies as an eligible small business for SBA programs.

What is a Small Business Set-Aside?

A "set-aside for small business" reserves an acquisition exclusively for small business participation. For a procurement to be totally set-aside, a contracting officer must have a reasonable expectation that offers will be received by at least two qualified small businesses and awards will be made at reasonable or fair market prices.

For detailed, regulatory information on small business set-asides, go to the Federal Acquisition Regulation (FAR). For small business set-asides not in construction or service contracts, any small business proposing to provide a product it did not manufacture, must furnish the product of a small business manufacturer unless the SBA has granted either a waiver or exception to the non-manufacturer rule.