How does the Small Business Administration define a small business?
Under the SBA, small businesses must be independently owned and operated within the United States. Small businesses must also be within their industry’s size standard. Businesses in some industries can have up to 1,500 employees and $38.5 million in annual sales and still be considered a small business. Others have an employee limit as low as 100 and a sales limit of $750,000.
What is the IRS definition of a small business?
The IRS does not have a single definition of a small business. They do provide small business resources to companies that have under $10 million in assets.
What is the ACA definition of a small business?
According to the Affordable Care Act, any company with under 50 full-time employees is a small business that’s exempt from providing health coverage to their staff.
According to a 2022 analysis by the Brookings Institute, roughly 96% of Black-owned businesses are sole proprietorships (unincorporated businesses owned and operated by one individual) Black business owners know too well what happens when government fails to recognize the composition of their businesses. The first round of Paycheck Protection Program funding in the 2020 CARES Act, for example, restricted COVID-19 relief subsidies to employer firms, which largely shut out Black entrepreneurs over 90% of which are sole proprietorships.
The 3 million Black sole proprietorships make up 11.7% of all such businesses in the country. (Meanwhile, Black-owned employer businesses make up only 2.2% of the total.) The average revenue for Black sole proprietorships in 2021 is $22,223, while the average revenue for non-Black sole proprietorships is $50,050.
Brookings Institute research shows that to equitably represent the Black population share, we need to create 806,218 new Black employer businesses. The corresponding labor market reality is that if 806,218 sole proprietorships became employer businesses, that would create at least as many jobs. According to the Economic Policy Institute, as of September 2021, the U.S. was down 8.4 million jobs from where it was before the COVID-19 pandemic. Adding more than 800,000 new jobs would lower the overall unemployment rate and disproportionately help the Black unemployment rate.
In short, 96% of all Black businesses, the small Black business has been invisible, neglected by both white and black support organizations as too small to invest time and assets.
Shop Black Enterprise® (SBE) is a merchant cooperative association whose mission is to build these Black/Minority small businesses providing AI and financial resources to level the playing field with white owned businesses. In conjunction with its strategic partner the SORC® Radio Network SBE is committed to raise the annual revenue of small Black sole proprietorships to the $250,000 invisible threshold acting as a barrier of entry to gain access to AI resources, banks and government Contracts. Through the Shop Black Enterprise Showcase™ on SORC Radio each merchant in rotation will get 10 minutes to show their products and services to a viewing/listening audience of over 37 million shoppers globally.The goal is to increase generational wealth the strength of underserved communities.
The first steps include raising money to fund Black entrepreneurs and turn sole proprietorships to into employer companies. To achieve this objective the charitable concert, Black Business Matters Live Aid Concert™ scheduled for 2023 is a major source of revenue to support and to grow Black small businesses and entrepreneurs.
The problem of invisibility of 96% of Black small businesses is further compounded by the assessment of risk in existing underwriting processes that often perpetuates bias and inequities. Because firms need capital to expand, biased underwriting is why sole proprietorships often cannot convert to employer firms. Further, because business owners often use home appraisals to get capital for their businesses, discrimination in home appraisals shut Black business owners out of these opportunities.
Even when capital is available, it is often structured in a way that is difficult for sole proprietorships to access. Most loans must be repaid based on a given length of time, but the alternative from Mission Driven Finance triggers repayment based on business-health metrics, such as when businesses reach specific revenue targets.
At a January 17, 2022 event marking Martin Luther King Jr. Day, Treasury Secretary Janet Yellen said, “From Reconstruction, to Jim Crow, to the present day, our economy has never worked fairly for Black Americans—or, really, for any American of color.” Yellen’s remarks were an acknowledgement that U.S. policymakers have established racially tilted rules for the economy, prohibiting intergenerational wealth transfers among Black Americans, among many other harms.
According to the Federal Reserve, in 2019, the median net worth of white families was $188,200—7.8 times that of their Black peers, at $24,100. That wealth gap translates to many other disparities, including in business ownership, which is heavily influenced by individual and family wealth. In 2019, there were a total of 5,771,292 employer firms (businesses with more than one employee), of which only 2.3% (134,567) were Black-owned, even though Black people comprise 14.2% of the country’s population. In 2021, only 4.1% of Black-owned businesses were employer firms, 95.9% were sole proprietorships.
“Black-owned businesses received loans through the Paycheck Protection Program that were approximately 50 percent lower than White-owned businesses with similar characteristics,” one nationwide study found. Likewise, the SBCS shows that only 43% of Black-owned firms received all of the PPP funding they applied for, compared to 61% of Latino- or Hispanic-owned firms, 68% of Asian American-owned firms, and 79% of white-owned firms. The first-come, first-serve nature of the PPP compelled mainstream banks to work with existing customers. This is a problem because Black people are significantly underserved by mainstream banks and the financial services sector in general. Debanking is a serious problem for Black entrepreneurs, Black sole proprietorships and building generational wealth.